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Whether you’re just starting your journey in real estate or a seasoned veteran, you’ll want to continue reading for some valuable tips to help you control your money and not let your money control you!

Planning around commissions

Its feast or famine for a lot of agents starting out.  Or, if you’ve been around for awhile and have a steady pipeline of listings then your income may be more steady.  Either way, you need to plan and budget around your commissions.

One of the best ways we’ve helped agents do this is by following the 80/20 rule.  The rule is simple: take 20% right off the top of your commissions and use the rest for business expenses and to pay yourself.  If you save 20% of your income then you’ll have a decent chunk set aside for taxes and anything unexpected that comes up.  Just remember, taxes can be the #1 expense for the real estate professional so do some planning ahead of time.

Taxes can be the #1 expense for the real estate professional so do some planning ahead of time!

The next step in the process is to follow a 3-month rolling budget.  We know the commissions don’t happen every month when you’re first starting out.  And some months you may be “feasting” while others are a “famine”.  But over the course of 3 months, you should be able to have a good idea of what your income and expenses are.  Setting up a budget can be as simple as using a spreadsheet, or our preferred method is to use easy to use financial software like Xero.

Check out how easy it is to setup and use a budget in Xero:

Budgeting With Xero

 

Following Up and Being Held Accountable

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Got to your favorite coffee shop to plan your budget

Following a budget means nothing if you don’t ever review it!  If you’re going to be successful at controlling your money then you have to review and look at your actual and budgeted income and expenses.  We’ve seen professionals be the most successful at this when they have an outside person holding them accountable to their plan.  Or, if you don’t want someone else helping, you should calendar a time and place (preferable somewhere different from where you normally work!) and stick to your budget review appointment.  Remember, if you don’t treat it like a normal business meeting, it probably won’t happen!  We like to mix food and drink in this meeting–that seems to always make something that can be grueling a bit more exciting.

 

There’s no time like the present

Decide to take control now by following these simple steps:

  1. Gather your bank statements for the past 3 months so you can see how much you made and spent
  2. Tally up all your income, and then expenses into categories or “buckets” so you know where your money was spent
  3. Setup a spreadsheet or budget in finance software.  Set realistic goals in your budget so that you can acheive your budget goals.
  4. Record your business income and expenses from setting up your budget and see how you did for the past 3 months.
  5. Record your income and expenses often and review every 3 months.  Setup a calendar event and stick to your meeting.
  6. Adjust your budget as necessary for changing costs like advertising, staging, open houses, etc.

If you follow those steps then you’re well on your way to being in control of your finances.

 

We’ve worked with many real estate professionals so we know what works, and what doesn’t.  Feel free to reach out, we’re happy to answer simple questions and be a resource for you.  Here’s to your financial freedom and listing lots of properties!

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It’s that time again and the holidays are fast approaching.  It’s a time of excitement, family, get togethers, and…finances!  For most, year-end is the time when we start thinking about taxes and our financial situation for the year.  December 31st is too late, but if you’re reading this now, you have a good chance to get things in order to make tax time and other year-end tasks less stressful.  Keep reading to see how to get ready!

Catch Up Your Bookkeeping

If you have some a back log of bookkeeping to do, now is the time to get caught up and ready for January.  Bookkeeping can be as simple as a spreadsheet if you’re a sole proprietor, or if you have LLC or Corporation, then you really should use software like Xero.  Don’t spend hours and hours on this.  Technology is come along away in the past 5 years so chances are “there’s an app for that”!

Having your books caught up will tell you how much income and expenses you have for the year.  Once you know that, then you’ll have a good idea of what your tax bill is going to look like.

Taxes

If you’re self-employed chanced are that you should be paying estimated tax payments–which are basically tax prepayments.  Reviewing how much you’ve paid in, and making any necessary catch up payments will help ensure you don’t have a large tax bill and will help you avoid any pre-payment penalties.

Additionally, you should review your net income to ensure you aren’t getting caught with a large unexpected tax bill.  Reviewing this will help you know what to expect when it’s time to file taxes.  And if you have extra cash, you can even pay some or all of your tax liability before you file your return.

 

Retirement Accounts

Saving for retirement has almost become a cliché term.  But did you know most business owners aren’t taking advantage of having their company pay themselves for retirement?  It’s one of the great tax planning tools that a business owner can use!  The company (which you own) pays into a retirement account for you.  So it’s like getting a double benefit!  Every business owner should be doing this.

There are many different options for retirement accounts.  Whether it’s a 401K, SEP, or SIMPLE IRA, find the one that works for you and get it started.

Re-evaluate Your Pricing & Costs

End of year is a great time to look at your pricing and costs.  It’s also a great time to review your Gross Profit % and make sure you’re charging enough for your products/services, or adjust your Cost of Goods Sold (COGS).  Keep in mind that generally speaking, your COGS should be no more than 30% of your revenue.  If it is, you could be bleeding cash and you may soon run out.  If you run out of cash, guess what?  The jig is up and you may be out of business.  In order to do this you’ll need to of course have your bookkeeping caught up so do that first, and then review these numbers.

 

…your COGS should be no more than 30% of your revenue

Review Your Systems and Processes

Finally, review your internal systems and processes.  Or, maybe this is the time where you commit to write them down.  Mapping out your systems and processes does a few things for you:

  1. You can discover inefficiencies that you may have never seen.  Writing something down  has the amazing effect of providing objectivity!  You can use paper or online tools like Google Docs or Evernote to do this.  That way, if you ever have staff taking over certain jobs, they’ll know what to do.
  2. It also prepares you to be able to hire staff and delegate tasks or jobs.  Doing this allows you to take on more of a managerial/strategy role and be less of a technician.  As business owners, we should all be moving away from the technical side of the business so we can work on the vision and growing the company.

 

As business owners we should all be moving away from the technical side of the business so we can work on the vision and growing the company

 

This isn’t meant to be an exhaustive list by any means, but it should get you started.  If you need help, just ask!  We’ve helped countless businesses do these things and we can offer down-to-earth advice that will make doing this, easy!

 

 

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audit-proof-your-business-with-evernote

 

Going through an IRS Audit can be a big deal if you’re not prepared.  But with today’s technology, we’re going to show you an easy way to make sure you have all the documentation you need to prove your business expenses.  I’m not saying that all audits are the same, but most of the ones we’ve helped clients through ask for substantiation, or proof, of certain expenses that you’re claiming on your tax return.  If you can’t provide adequate records and prove the business purpose, then the IRS could disallow those expenses—and you don’t want that!

 

Use Technology

We spend lots of time vetting out new technologies to find the ones that work well, and the ones that don’t.  Part of this process is actually using the apps, and analyzing a few things: 1. How easy is it to use and 2. Does it work well with a general small business work process?  Our favorite app for retaining information is Evernote.  If you’ve never heard of Evernote (that would be surprising), we recommend checking them out on the web.  We’re going to show how to use Evernote to audit-proof your business.

 

Introduction to Evernote

Evernote is a like a central hub for all data you want to put into it.  For me, I use it like an external hard drive for my brain!  The power of Evernote lies within it being accessible on every device you own, easy to get information into it, and easy to find the information later when you need it.  For the purpose of this post, we’re going to cover:

  • Using your mobile device to scan receipts
  • Organizing into Notebooks
  • Using tags
  • Using other services to connect to Evernote

 

Overview

To audit proof your business you need to track key elements about your expenses.

  • Date you purchased
  • Amount
  • Who you purchased from
  • Business purpose

Most of the time a receipt covers all that quite nicely.  The only thing you should add is Business Purpose (which we’re going to show you).  You should also keep bank/credit statements, and even cleared checks.

 

Using Evernote to Achieve Audit Protection Bliss

At the very basic level, Evernote is structured as Notebooks and Notes that live within those Notebooks.  You can also use Tags to help you organize and search easier.

Keep Receipts

Step 1: Create a Notebook called Receipts

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Step 2: Use the mobile app to snap scans of your receipts as you make purchases

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Notice that the Notebooks is “Receipts” and we’re using a tag called “office supplies” so that we can easily search for office supplies.  Also, you’ll notice we put the business purpose as the name of the note.  You can do this on your computer, or on your mobile device.

Step 3: Do the same process for every receipt you get.  Evernote will become your repository for all your receipts.  You can easily search for your receipts by tag if you want to see all of your Office Supply receipts.

Keep Bank Statements

After using Evernote you’re going to find more useful ways to use it in your everyday life.  One key feature is being able to keep and store attachments in notes.  Now, downloading your bank statements and putting them in Evernote is not that hard, but it’s also not that convenient.  Remember we said that one of the key features to apps we use is convenience?

The solution to this is to use an Evernote Marketplace app called File This.  File This is simply an app that will automatically retrieve your bank, credit card, utility statements, and put them where you tell it.  While it will export directly to popular cloud-based file sharing apps like Google Drive & Dropbox, you can also connect it to Evernote.

Once you have it File This connected to Evernote, your bank statements will automatically appear in the designated Notebook within Evernote.  File This is pretty robust and even has a free version for you to get started on.

 

Start Scanning!

Scanning your receipts and storing bank statements within Evernote will start you down the path of preparedness if the IRS decides to “knock on your door”.  Of course, in order for this system to work you have to be committed and adopt it as a workflow/system you use in your day to day life.  We use this system, we have clients using this system, and we can tell you that with a bit of discipline, it works!

Want to learn more about Evernote?  I’m an Evernote Certified Consultant so drop us a line and we’ll help you figure which version is best for you, and discuss how you can use it in your business.

Here are some useful links where you can sign up for free trials:

Evernote Basic

Evernote Plus

Evernote Premium

Evernote Business

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App PowerPack Post

Unless you’ve been under a rock the past 5 years, I’m sure you’ve noticed the era of cloud-based apps has far outpaced its desktop counterparts.  We like cloud-based apps a lot—for good reasons that are too many to go into here.  You can check out this BLOG POST  to see a previous post about cloud-based apps. We like them so much that we’ve completely transitioned our business to using cloud apps for us and our clients.  We spend lots of time vetting out the ever growing list of cloud-based apps, and have come to rely on 3 core apps.  These apps are our top pick to make our “PowerPack” of apps that we set up with each client.

  xeroXero – Accounting

Xero touts itself as “beautiful accounting software”, and we agree.  From the first time you log in, you can tell right away that Xero has taken design pretty serious.  But that doesn’t mean that it lacks in power and functionality.  Features include: invoicing, quotes, purchase orders, A/P (bills), document management, real-time cash flow tools, contact management, powerful reporting, and much more.  Perhaps one of it’s best features is the eco-system of software add-on’s that integrate with Xero.

hubdoc_logo_full  Hubdoc – Receipt and Statement Management

Trust us, we know how daunting it is to manage all the paper for running a business!  Hubdoc solves this issue with automation and storage.  The idea behind the system is:

  1. To be a repository for your bank and utility statements by connecting to your online accounts and pulling the statements automatically
  2. To serve as an easy way to get the information from receipts, into your accounting system.  Simply snap a pic of any receipt using the mobile app on your device, and Hubdoc will read the date, amount, and vendor.

 

By integrating with Xero, Bill.com, and Google Drive, you can have a completely paperless system that allows you to automatically keep bank, utility statements, and store digital copies of your receipts.

 

 

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Expensify – Expense Reports and Mileage Tracking

Expensify has revolutionized the way you track and submit expenses for reimbursement.  From single to a team of several employees, expense reports for mileage, personal expenses, and travel can easily be imported into Xero and even reimbursed via ACH straight from within the app.  For most of our single-owner businesses, it works perfectly for keeping track of money you spend on personal accounts.  Enabling GPS on their mobile app makes it a breeze to track your auto mileage as well.

 

 

Want to know more about these “Power Hitter” apps?  Leave a comment or reach out to see how they can benefit your business and even get them for free as part of one of our monthly service plans.

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receipts
If you’ve been in business for any amount of time, you’ve probably heard something about keeping your receipts.  And we’ve heard some good myths about when and when you don’t have to keep them.  We’re here to set the record straight and tell you exactly when you need to keep receipts.

First, let me explain that there are different suggested records for different types of transactions.  For example, what you keep to prove the purchase of inventory is different than gas for your car.  We’re going to explore two categories today: General, and Travel/Entertainment expenses. But there are many more that we’re not discussing today.

General Expenses

What are they?

General expenses are things like paper, utilities, cell phone, etc.  Those types of expenses must be be proved with a bank/credit card statement, receipt, or invoice that shows the date, amount, and busienss purpose.

How long should I keep records for?

Generally speaking, you’ll want to keep records for at least 3 years from when you claimed them on your tax return.  The good news is that you can keep them in paper form, or electronically.  We’re a big fan of using the mobile app for Xero to take a snapshot of the receipt, and recording the transaction right on the spot when it happens.  You can also use other systems like Evernote, Google Drive, Dropbox and Box to store your records.  If you choose to keep paper, then have a good file system organized by year and type of expense, at the very least.

 

Travel & Entertainment Expenses

What are they?

41131785-business-team-on-the-way-to-meetingsJust as it sounds, expenses you incur to travel, take clients out to lunch.  It also covers lodging, rental cars, transportation, and a host of other things.  See IRS Publication 463 that is referenced below for more things that qualify as travel and entertainment expenses.

 

 

How should I keep records and for how long?

The trick here is to have “adequate” records.  There are 4 main points that you must prove in order to have a deemed adequate expense in this category:

  1. Amount
  2. Time (for travel)
  3. Place or Description
  4. Business Purpose

What that basically means is that you must have a receipt, log book, or some kind of record that proves those 4 main points for each expenses you deduct.  Estimates don’t count.  The long and short of this is: that you keep all receipts/invoices for each expense in this category.  There are only a few exceptions, one of them being that if your expense in under $75 (except lodging), you can simply provide bank statements to prove you expense.  Of course there are more exceptions, but we don’t have time to go into them in this post.

And like above, you should keep these records for 3 years after you file the tax return for the year you’re taking the deduction in.

 

The IRS has some pretty elaborate articles and publications on this topic.  We referenced IRS Publication 463.  Feel free to check it out if you need to dive in a bit deeper.  Or, leave a comment and reach out to us and we can help you navigate the murky waters of business deductions.

 

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Having the ability to process your accounting, payroll, CRM, etc., on any computer (PC or Mac) is all within reach now for any business starting out.  And since we’ve helped many businesses setup cloud-based processes, naturally we’ve done a lot of trial and error on what applications work.  These are many out there, but we’ve narrowed it down to our top 5 favorites for most small businesses.

1.  Google Mail (Gmail):  Since email is the center of most business, we figured that it should be #1!  Google mail, aka “Gmail”, has been the go-to mail app for a lot people.  And rightfully so.  It’s spam filters are superb, and you can customize it how you like to read/process emails.  Google even offers a business class version called Google Apps.  And while this version is not free, it offers no advertising and increased storage amounts.  The learning curve is very short.  Some of our favorite features:

  • Gmail is FREE (Google Apps is $60 per user per year)
  • Excellent spam filters
  • Good mobile app
  • Free access to Calendar
  • Free access to Google Drive (cloud file storage)
  • Free access to Docs, Sheets, and Slides (Google’s equivalent to Microsoft’s Word, Excel, and PowerPoint)

 

2.  Google Calendar:  A sister app to Gmail (above), let’s you keep track of your schedule using a number of tools.  Integration between Gmail and Calendar is tight, and has a host of solutions to run many types of businesses.  Some of our favorite features:

  • Meetings are easy to setup and invite attendees
  • Visibility into who has accepted/not accepted meetings
  • Can schedule recurring calendar events (i.e. once per month, week, every 2 weeks, etc.)
  • Can create calendar events directly from an email in Gmail
  • Can create and share different calendars for different purposes (i.e. calendar for each team member, company wide vacation calendar, personal calendars, etc.)

 

3. Xero Accounting Software: Designed to give the small business what they need within a few clicks, is our top choice.  With solid functions like invoicing, bills, quotes, and real-time bank feeds, you can manage your business from your computer, iPad, or any iOS or Android device.  One of the things we love about Xero is it’s add on ecosystem.  Want to see if your client paid you, from your CRM?  You can do it with their add on’s.  You can build out really smooth business processes this way.  We really like:

  • Online invoicing
  • Connect to payment services like PayPal and Stripe
  • Customer/Vendor Management
  • Bank transactions directly imported from bank
  • ascetically pleasing and just looks good
  • Reports exportable to PDF, Excel, and Google Sheets
  • Easy to collaborate with your accountant or other people

 

4.  Gusto (formerly ZenPayroll):  Designed for just one person, or scales up to several employees, this payroll has direct integration to Xero and QuickBooks Online.  With it’s great feature list, and straightforward pricing, it’s hard to beat.  Here’s a few of it’s valuable features:

  • Direct Deposit
  • Employee self on-boarding
  • Simple and easy to use interface
  • Full service payroll – they process all the payments and file all the returns for you
  • Can pay contractors along side employees
  • Integration with Worker’s Comp Insurance and soon, Health Benefits
  • Integration with Xero

 

5. Evernote: We’ve come to use Evernote every day here at the firm.  Mainly because we can access it from any device we’re on.  No matter where we are, we can get to our notes!  Evernote is great for just jotting down a simple note, or connecting to other services like Uber Conference to keep track of phone calls, meetings, you name it.  You can build out folder and tag structure, or just starting taking notes that are searchable.  Some of the best features are:

  • On any device (windows, mac, android, iOS)
  • Can create any type of note (meeting, to-do list, etc.)
  • Can set due dates for notes (great for to-do lists)
  • Can add attachments like PDF’s
  • Can email a note directly into Evernote
  • Can share and chat about notes, directly from within Evernote

 

Believe me, we could go on and on about other apps and the great things they can do.  But for any one looking to start, or run their existing business more efficiently, these apps are more than adequate to get you started.  We love talking to folks to help them make their business run smoother and get you back to doing what you love.  So feel free to leave us a comment, or give us a ring if you if we can help.

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Here at iAccounting Solutions, Xero is our first choice in helping small businesses keep better track of of their finances.  That’s why when Xero announced the Business Performance Dashboard, we were pretty excited.

What Is It?

In short, the Performance Dashboard is a simple way to check the health of your business.  By using simple formulas, you can measure Key Performance Indicators, aka KPI’s, to know how your business is fairing.  However, instead of running complex spreadsheets or doing it by hand, in true Xero fashion, they have built them in so you can find and use them easily.

Xero   performance db

 

 

 

 

 

 

What Do They Mean?

That’s really the important question isn’t it?  In the world of Financial Analysis, there are thousands of ratios.  But here are the top 4 that we think are most useful to small businesses.

1. Current Ratio

This ratio (also sometimes called the “Quick Ratio) measures your ability to pay your liabilities.  A healthy range is 1.5 to 3.  Any score below 1.5 means that you may have a problem paying your debts.  And anything above a 3, means that you may not be using your assets wisely.

Xero   Business Performance   Demo Company  US

 

 

 

 

 

 

 

 

 

2. Gross Profit % (or Gross Profit Margin)

This is where the numbers get fun!  This percentage tells you the amount left over, after you’ve paid for all your costs that are associated in making that revenue, or Cost of Sales.  Healthy Gross Profit % generally changes from industry to industry.  If you don’t know what your standard should look like, reach out to us, we can help you with that.  Comparing it to industry standards can help you determine if you’re paying too much in costs, charging enough for services/products, and a whole range of indicators that show how the health of your business.

Xero   BD Gross

 

 

 

 

 

 

 

 

 

3. Net Profit % (or Net Profit Margin)

Perhaps one of the most popular metrics–this tells you how efficient your business is when comparing your expenses, to your net sales.  Although, this number varies from industry to industry, 10% or better is considered to be good.  You can gauge your overall business success with this %.

Xero BD Net

 

 

 

 

 

 

 

 

 

4. Accounts Receivable Days

This measures how fast you collect on your invoices.  Knowing this allows you to plan around your cash flow very effectively.  Knowing this can even prevent cash flow disasters from happening to your business.

 

Xero BD AR

 

 

 

 

 

 

 

 

 

In the end, these ratios and percentages are only as good as the information you put into your accounting system.  Good reporting is the backbone of any business that wants to grow and succeed.

 

What Does This Mean For My Business?

Want to have a more in depth conversation about these topics and what they mean?  Just fill out our “Contact Us” page and we’ll get in touch.  Or, give us a ring.  We can explain of these topics common language so you can understand them.

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We love our clients at iAccounting Solutions!  This is why decided to pick random clients (who want to participate) and “shine a light” on them.

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Read about more about this downtown LA Cafe and their take on your cup of coffee!

 

 

img6_newMy name is Bobak Roshan and I’m the founder of Demitasse Coffee. We have two coffee bars in Los Angeles and a micro-roastery. We’ve been brewing specialty coffee since 2011.

Why did you start your business?

I was obsessed with coffee my whole life and got more and more into it as I became less and less into the law (I was a lawyer before I jumped into coffee). I decided to get serious about it and left my firm and moved in with my parents while I got the shop off the ground.

 

 

downtown 1

What market/niche do you specialize in?

We market ourselves to people who enjoy quality and a touch of artisanship in their food and drink. We’re quality-obsessed and try to create an experience that will get people thinking of their coffee as more than just a pick-me-up. On the roasting side, we roast lighter than most in order to preserve the natural sweetness inherent in quality coffee.

 

 

 

What do you like most about working in your industry?7024280645_677f36a404_o

Meeting people and crafting fun drinks to get them to think about flavors and coffee in a different way. We try to push the boundaries beyond just “a vanilla latte.” We put a lot of time and effort into each drink we make and I’d like to think it shows! It’s always fun to see people’s reaction when they have a cup of coffee and then exclaim, “whoa. I don’t need to add milk to this!”

 

What is the best way for someone to contact you?

www.cafedemitasse.com / info@cafedemitasse.com

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Welcome back to our “Making the Switch from QuickBooks to Xero” series.  In this post, we’ll talk about what Step 2.  In case you missed it, click on Step 1 to start from the beginning.  So now that you’ve cleaned up your lists, now it’s time to look at a few financial reports and make sure your numbers look reasonable.

Step 2: Review your Balance Sheet and Profit and Loss statements for completeness

Run a Balance Sheet and Profit and Loss statements.  What you’re going to do here is use your trained eye to spot any inconsistencies.  YOU, will be able to do this much easier than any accountant as you know your business better than anyone else.  And, YOU also know what your expenses look like from month to month, so it will be easier for you to answer any future questions by your accountant.

Scan the Balance Sheet.  If there any negative numbers besides the bank balance, you may want to drill down (double click on the number) and see if there are any blatant mistakes.  Having a negative asset or liability is generally not normal and can be indicative of mistakes.  If you spot it and can fix it, go ahead and do so now.  If you see it, but don’t know how to fix it, start a list for your accountant.  If you don’t know why it is negative, just leave it and tell your accountant about it.

Next, Scan the Profit and Loss statement and do the same thing.  There should be no negative numbers on this.  If there are, repeat the steps above in reference to the balance sheet.  Also, look at the expenses accounts and make sure they look “reasonable”.   For example, if there is $20,000 in the Meals and Entertainment account, take a look and make sure something didn’t get expensed incorrectly.  Doing this will help you review what’s there, and answer any questions the accountant has when it’s tax time.

Step 2 is complete.  Stay tuned for Step 3 and more to come about switching from QuickBooks to Xero.  Have questions?  Don’t hesitate to reach out and give us a ring or shoot us an email.

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Tim, who owns his own business, decided he wanted to take a two-week trip around the US. So he did–and was able to legally deduct every dime that he spent on his “vacation”. Here’s how he did it.

1. Make all your business appointments before you leave for your trip.
Most people believe that they can go on vacation and simply hand out their business cards in order to make the trip deductible.

Wrong.

You must have at least one business appointment before you leave in order to establish the “prior set business purpose” required by the IRS. Keeping this in mind, before he left for his trip, Tim set up appointments with business colleagues in the various cities that he planned to visit.

Let’s say Tim is a manufacturer of green office products looking to expand his business and distribute more product. One possible way to establish business contacts–if he doesn’t already have them–is to place advertisements looking for distributors in newspapers in each location he plans to visit. He could then interview those who respond when he gets to the business destination.

Example: Tim wants to vacation in Hawaii. If he places several advertisements for distributors, or contacts some of his downline distributors to perform a presentation, then the IRS would accept his trip for business.

Tip: It would be vital for Tim to document this business purpose by keeping a copy of the advertisement and all correspondence along with noting what appointments he will have in his diary.

2. Make Sure your Trip is All “Business Travel.”
In order to deduct all of your on-the-road business expenses, you must be traveling on business. The IRS states that travel expenses are 100% deductible as long as your trip is business related and you are traveling away from your regular place of business longer than an ordinary day’s work and you need to sleep or rest to meet the demands of your work while away from home.

Example: Tim wanted to go to a regional meeting in Boston, which is only a one-hour drive from his home. If he were to sleep in the hotel where the meeting will be held (in order to avoid possible automobile and traffic problems), his overnight stay qualifies as business travel in the eyes of the IRS.

Tip: Remember: You don’t need to live far away to be on business travel. If you have a good reason for sleeping at your destination, you could live a couple of miles away and still be on travel status.

3. Make sure that you deduct all of your on-the-road -expenses for each day you’re away.
For every day you are on business travel, you can deduct 100% of lodging, tips, car rentals, and 50% of your food. Tim spends three days meeting with potential distributors. If he spends $50 a day for food, he can deduct 50% of this amount, or $25.

Tip: The IRS doesn’t require receipts for travel expense under $75 per expense–except for lodging.

Example: If Tim pays $6 for drinks on the plane, $6.95 for breakfast, $12.00 for lunch, $50 for dinner, he does not need receipts for anything since each item was under $75.

Tip: He would, however, need to document these items in your diary. A good tax diary is essential in order to audit-proof your records. Adequate documentation includes amount, date, place of meeting, and business reason for the expense.

Example: If, however, Tim stays in the Bates Motel and spends $22 on lodging, will he need a receipt? The answer is yes. You need receipts for all paid lodging.

Tip: Not only are your on-the-road expenses deductible from your trip, but also all laundry, shoe shines, manicures, and dry-cleaning costs for clothes worn on the trip. Thus, your first dry cleaning bill that you incur when you get home will be fully deductible. Make sure that you keep the dry cleaning receipt and have your clothing dry cleaned within a day or two of getting home.

4. Sandwich weekends between business days.
If you have a business day on Friday and another one on Monday, you can deduct all on-the-road expenses during the weekend.

Example: Tim makes business appointments in Florida on Friday and one on the following Monday. Even though he has no business on Saturday and Sunday, he may deduct on-the-road business expenses incurred during the weekend.

5. Make the majority of your trip days count as business days.
The IRS says that you can deduct transportation expenses if business is the primary purpose of the trip. A majority of days in the trip must be for business activities; otherwise, you cannot make any transportation deductions.

Example: Tim spends six days in San Diego. He leaves early on Thursday morning. He had a seminar on Friday and meets with distributors on Monday and flies home on Tuesday, taking the last flight of the day home after playing a complete round of golf. How many days are considered business days?

All of them. Thursday is a business day, since it includes traveling – even if the rest of the day is spent at the beach. Friday is a business day because he had a seminar. Monday is a business day because he met with prospects and distributors in pre-arranged appointments. Saturday and Sunday are sandwiched between business days, so they count, and Tuesday is a travel day.

Since Tim accrued six business days, he could spend another five days having fun and still deduct all his transportation to San Diego. The reason is that the majority of the days were business days (six out of eleven). However, he can only deduct six days worth of lodging, dry cleaning, shoe shines, and tips. The important point is that Tim would be spending money on lodging, airfare, and food, but now most of his expenses will become deductible.

Consult us before you plan your next trip. We’ll show you the right way to legally deduct your vacation when you combine it with business. Bon Voyage!

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