Schedule C and Business Bookkeeping

Most independent contractors and small businesses must complete a Schedule C as part of their 1040 Income Tax Return. Here is a breakdown of the form to help identify what to record when bookkeeping and what information is required at the year end for the completion of tax filings.

Schedule C Income

For 1099 contractors income should be split into income declared on 1099 forms and income not declared on those forms. It is YOUR responsibility to report ALL of your income for services provided regardless of the 1099 forms you receive.

Under investigation procedures the IRS will be interested in amounts entering your bank account rather than solely focusing on 1099s. That in mind, be sure that you can account for all income you receive, if there’s income that’s not sales related, e.g. birthday gift from parent, make sure you can substantiate that at a later date.

Schedule C Expenses

Advertising – advertising and promotional costs like print or media ads, sponsorship, business cards, mailers, brochures, signs, pens and give-away items with the business name, samples or freebies to promote business.

Insurance – You can deduct the cost of any insurance you carry strictly to protect the business (such as general liability business insurance). If you have a home office and pay renters’ insurance or homeowners’ insurance, don’t deduct it here – instead, deduct that as part of your home office deduction.

Interest Paid – Whilst you can not deduct the total repayments on loans and mortgages used to finance your business and its property, you can deduct the interest portion of that finance.

Office Expenses – Not to be confused with office supplies, office expenses includes public bathroom toiletries, snow removal, cleaning service, and coffee services/hospitality.

Supplies – General consumables, small tools and office supplies such as ink/toner, paper, pens, staplers and staples, paper clips etc.

Dues and Subscriptions – This is an “other business expense”, professional dues etc should be collated under the heading Due and Subscriptions and entered on a line in the area for other business expenses. The same rule goes for any expenses you cannot justify entering under an already listed heading on the Schedule C or that you want to show separately, give it a heading you feel appropriate and list the total under other business expenses.

Taxes and License – Business Licenses, permits and employer related taxes go under this heading. State and local taxes do not feature on the Schedule C under this heading and are instead listed on the Schedule A.

Vehicle expenses, depreciation and mileage

Car and truck expenses – Include expenses such as gas, insurance, parking, tolls, repairs and services, lease fees, essentially any expense directly relevant to the maintenance of the vehicle/s you are using for business.

Depreciation – You should keep records of the vehicle/s make model, date placed in service and purchase and sale prices. You will need this information in order to calculate the depreciation you are able to take as an expenses each year.

Mileage – Total mileage will need to be recorded and a breakdown between business mileage and personal mileage should be noted. This will be used to either apportion your actual costs or used if you wish to take the standard mileage rate allowance instead of using the actual costs method.

Wages, contract labor and fees

Wages – You can deduct all the money you paid to employees as wages by using line 26. However, you can’t deduct money you paid to yourself. You should also subtract any amounts you received as tax credits for being an employer. Make sure that anyone whose wages are included on this line receives a W-2 from you.

Employee Benefits – Since you are self-employed, you can deduct your own accident, health, or life insurance premiums on line 29 of your 1040. You can also deduct premiums you paid for employees on line 14 of your Schedule C. This includes things such as health insurance, life insurance, or childcare assistance programs. Contributions you made on your employees’ behalf to pension or retirement plans can be deducted on line 19.

Contract Labor – This line is for payments made to 1099, non 1099 contractors and businesses (not for employees). Do not included anything already categorized as Legal and Professional Services, Commissions and Fees or included in Cost of Labor under Cost of Goods Sold.

Commissions and Fees – For anything that doesn’t quite fit under Contract labor but paid to contractors or businesses e.g. merchant fees.

Legal/Professional Services – Accounting fees, legal fees, consultancy etc

Property Costs, Maintenance, Utilities and Use of Home as Office

Rent and Lease – Both your business property rent and equipment leasing should be recorded and claimed under this heading

Repairs and maintenance – Includes property and equipment maintenance costs, service agreements etc.

Utilities – All business property related utility bills such as gas, electric, water and phone bills fall under this category. If claiming use of home as office enter those utilities on that separate calculation.

Use of home as office – If you use you an area in your home as an office or meeting place you may deduct the costs associated either by a standard allowance per sq foot or by the actual cost method apportioned by the sq footage of the office area. The actual cost method requires recording of all the associated expenses for your home such as, mortgage interest and property taxes or rent, insurances, gas, electric etc.

Travel, Meals and Entertainment

Travel – All travel costs directly related to business such as taxis, trains, buses, airfare, and hotels should be recorded and to be on the safe side with the IRS we recommend keeping a diary of your activities to support these figures. E.G. Flew to Florida for a meeting with Customer X on XXXX.

Meals and Entertainment – Record all meal costs for business meeting, although only 50% can be claimed federally, your state may allow a 100% deduction.

Assets and Section 179 Expense Deduction

Assets are generally higher value tangible purchases used over more than one year, such as a laptop. The section 179 expense deduction allows most of these type of assets to be written off in one year. For assets which are not allowed to take this deduction such as a car, depreciation is taken over the course of multiple years. Always make a note of these bigger purchases for your accountant to review so the assets are dealt with appropriately.

Cost of Goods Sold – (Primarily used for product related sales)

This expense category has multiple lines for calculating what directly went into a product or service sold. There are several lines to breakdown your direct expenses such as, purchases (items bought to sell on), cost of labor (wages are usually only allowed here for a manufacturing type business), direct materials and supplies, other.

There are beginning and ending inventory boxes to help deduce only direct costs for products and services sold in that year. This is done so that you cannot deduct costs in the current year for products or services sold in following years. Therefore it is important to keep accurate inventory figures at the end of each financial year.

This Schedule C blog has been sponsored by Liberate Artists to help their much loved sub-contractors gain an insight into what they can claim as a business owner.

Ready to write a Business Plan?

Business Plans are important as they force the owner/s to think about every aspect of the potential organization in specific terms. They are crucial when raising funding and a good method of providing a detailed explanation, as to how it is thought the business will operate, over a set time frame.

That stated Business Plans have little reliability without already having an appropriate amount of historical records on which they can be based. In most cases, Business Plans bear no resemblance to actual figures or activity on comparison. To improve the accuracy of such a plan, an owner should first test the business concept and establish the Business Model.

Concept groundwork

The first step is to test the business concept and whether or not there is a market for the idea. This may involve prototypes for products or trial runs for services. Research, start small, gather feedback from potential customers, make adjustments and repeat until you have established your customer base and your product or service fulfills their needs. The time spent at this stage will protect your brand and help create a successful Business Model.

The Business Model

This will be the core of the organization’s operations and should be built around the new understanding of the customer base. The image below shows the areas that require consideration when creating a Business Model.

 

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The creation process helps a business think hard about each area and how they interrelate. The model will of course evolve over time but the model’s ability to provide clarity makes it essential when establishing and developing a business.  It’s a necessary stage to complete before attempting to write a business plan because it gives a plan basis.

Have you established your Business Model?

Newbury + English Accountants are here to guide you!

It’s always a good idea to involve professional third parties when creating a Business Model or Plan of this nature. An external opinion gives and alternative perspective and our experienced consultants will help ensure you make informed decisions throughout the process.

Co-Working Spaces, the future….

Co-Working Spaces, the future…

Co-Working Spaces are on the increase throughout cities all over the globe.

It’s not difficult to see why the platform is so popular. A swanky high tech office in the heart of the bustling city with low overheads and to top it off, the ability to network and collaborate on projects with people and businesses of the same discipline.

ImpactHubCoworking-15-of-43

But there’s more to come

There is a multitude of possibilities as to the future direction these types of organizations may chose to take. The one thing they hold in common is the potential to diversify their location’s services, far beyond renting a space in a building.

Competition between these spaces is resulting in more of these establishments catering towards a specific niche in the market and branding around that sector. Entrepreneurs collaborating by industry in this way, could well facilitate the beginnings of real institutions in their respective field. Associate your business by joining their space and you have instant industry specific prestige.

As the job market becomes evermore fierce and freelances continue to increase in numbers, these hubs may soon become the natural progression post schooling. They provide members with the tools and surrounding expertise to enable a self created apprenticeship of types, bringing ideas to life with the support of others. The platform has the potential to rival the higher education model, matching knowledgeable people together and inspiring enterprise. Much like referencing a University to allow yourself an air of gravitas, these Co-Working spaces could in the near future, be held in the same regard.

The possibility of global domination is strengthened when you consider the concept of linking hubs together from city to city, enabling fluid communication and worldwide involvement. Impact Hub is an organization attempting to do just that and in a very short space of time, they have exploded to reach major cities across the world.

Impact Hub

Get in on the action

Search online for “Co-Working Spaces”, check the media, and with friends and colleagues to see which locations are causing a buzz in your area and where possible in your sector. Most of these spaces have trial days or day tours, so go and check them out and compare your experiences.

Before signing up, you need to think hard about what you want from a center. This could be anything from a part time office in the financial district to meet clients, to an artist orientated space simply used for networking with peers. With packages to suit most budgets, you may even decided to sign up with several different organizations to maximize networking potential.

Whatever you decide, you need to keep your finger on the pulse. This industry is in it’s infancy and as it grows, more opportunities will arise which you will want your business to take advantage of.

Watch this space!!!

Bitstrips in business?

Does Bitstrips have a place in small business?

These popular cartoon avatars are generally used by individuals for posting scenes of their life events. A comical and unique way of portraying what would normally be a dull few lines of text on a Facebook page.

How it worksGravatar1

The user first creates their own avatar and joins the online community of friends’ characters via Facebook. Multiple characters can be created and interact in a digital world of colorful scenes which can be tailored to reflect the moment being illustrated.  Pretty much all character extremities and features can be manipulated allowing for an opportunity to convey emotions, thoughts and feeling. Bitstrips also allows the user to go further than a solitary image by giving options to create full comic strips to tell a story.

Just a few uses for your business

Mug shots, everybody hates having them taken and no one likes their own photo. Why not bring a little fun to your company website’s “meet the team section” and empower staff to design their own avatar as representation.

BitstripsTeam

Official websites and the business Facebook pages can also benefit from these graphics when it comes keeping customers and clients up to date on recent activities.

With a bit of cropping these graphics can quickly be used not just onscreen but on printed content. Business cards, leaflets, presentations and posters can bring you and team members to life outside of the world wide web.

My humble opinion

The adage “A picture is worth a thousand words” refers to the notion that a complex idea can be conveyed with just a single still image. It also aptly characterizes one of the main goals of visualization, namely making it possible to absorb large amounts of data quickly.

I don’t know of any other free and speedy method to create such graphics, so for anyone who doesn’t happen to possess an art or graphic design degree, this could be a valuable tool for your business.

Please let us know your thoughts, ideas for other uses, examples of your Bitstrips adaptations