Category Archives: Taxes

Do You Owe This Misunderstood Tax? (Hint: The Answer is Probably Yes)

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This guest post is brought to you by Outright.com, the alternative to Mint for business and simplest way to manage your small business finances online. Sign up today for a less taxing quarterly estimated tax time!

You’ve jumped through what seems like countless hoops to get your business going. You’ve filled out every form and talked to all the right people. You did all the research and learned from others’ past mistakes. Now it’s just a matter of getting it all done.

Of course this is easier said than done. There are a million things you have to do as a business owner you never dreamed about as a salary or wage worker. Aside from your usual business matters you must now attend to you have to worry about dealing with taxes.

Not just your usual taxes, either. Quarterly estimated taxes, or QETs, are about to become a huge part of your life. If you don’t know what they are or how they work, though, you could be in for a world of hurt. Let’s take a look and get you familiar with them.

What are Quarterly Estimated Taxes?

Back in your days of working for “the man” you probably didn’t have an intimate relationship with the tax man. Sure, there was the yearly scramble in April and you noticed that some money was taken out of your paycheck, but that was about it. You didn’t have to calculate anything every pay period or constantly send money in yourself.

Now, though, things are different. Taxes were taken out of your check because the U.S. is a “pay as you go” tax system. Now, though, you’re the one responsible for paying your taxes as you go. Fortunately, you don’t have to send in tax payments every time you receive payment on an invoice, but you do have to pay these “quarterly estimated taxes.”

In a nutshell, you need to figure out how much in income taxes you will owe at the end of the year and send in four quarterly payments totaling that amount. These payments are sent in for Quarters 1-4 in April, June, September and January.

Of course, you won’t know after Q1 just exactly how much income you’re going to make. After all, you could have an unforeseeably prosperous Q4 and end up owing more in taxes than you expected come next April. Fortunately, the IRS understands this, which is why these payments are “estimated.” A good rule of thumb is to pay as much in estimated taxes as you paid last year. You can find this number on your 1040 form. So if you owed the IRS $4,000 last year, make each quarterly estimated tax payment $1,000. Paying as much as you owed in the previous year will also mean you’re off the hook for fines and penalties.

Why Quarterly Estimated Taxes are Your Friend

Believe it or not, QETs can actually help your business. It can be a little annoying at first to constantly be worrying about these payments, but there are several payoffs that can improve your company in the long run.

The first reason is organization. One of the first things you should do before starting the process of figuring out your first payment is getting your paperwork in order. We recommend grabbing an account at Outright, which can automatically track all your invoices and payments and everything else financial. This way you don’t have to constantly keep up with physical paperwork.

This organization can benefit your business in a huge way. So much of your time will be eaten up by tasks like QETs that a proper system can make a huge difference in your production schedule.

On top of that, handling QET payments can give you a lot of experience when it comes to April taxes. The more you do them and the more you keep up with them the better you get. When yearly taxes come around it will seem like nothing to you! Not to mention you aren’t facing a steep tax bill all at once.

As far as payments to the IRS go, we recommend using the EFTPS. It’s an electronic payment method the government set up and is super fast and easy. Unless you’re lucky enough to live in a state without income tax, you’ll likely owe quarterly estimated taxes to your state government, too. Check out your state’s taxing authority for more information on those.

If you have more questions about quarterly estimated taxes, check out Outright’s Online Sellers Tax Guide or ask our financial experts a question at the Outright Community!

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Why a Professional Accountant is Important for a Start-Up

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Starting a business is a step by step process – starting with an idea, a business name, and creating a business plan. A business plan includes the purpose of your business and how you will go about marketing or advertising the same. It also includes the expenses, liabilities, assists, budgets, and how your business plans to make a profit and grow. Growth alone is a complicated subject where you have short-term and long-term growth plans based on how well your business is doing. Once you’ve done this, it’s time to address legalities such as licenses, insurance, recruiting employees, etc.

One of the most important decisions that will take you in the right path is to find the right professional accountant. Most business owners use a professional accountant to handle their financial concerns while they focus on maintaining the business. Without maintaining your finances, you will never know how well or how bad your business is doing.

Here are some additional reasons why working with a professional accountant is crucial if you are starting a business of your own.

Recognizing the money trial.

All business owners want to know what their money is being spent on, and an accountant keeps a detailed ledger of the money flow within the company. Many small business or start-up business owners may think they do not need an accountant as they can take care of the cash flow themselves. However, this wouldn’t work until and unless you are a professional accountant yourself. An accountant will have experience in money saving, tax issues, maintaining a healthy profit, and how to invest the same, but a layman might not.

Identifying the unfamiliar.

There are different kinds of accountants. All accountants are not Certified Public Accountants. The difference is that CPAs have taken and passed additional tests and courses to become certified. A CPA can provide expert advice on financial matters for your business; regular accountants cannot do this. A CPA thoroughly understands complexity of taxes and will show you where you can save on tax payment, making sure everything is legal. They can develop a financial plan for your start-up business, which will help you in the long run.

Dealing with the complex.

Accounting issues are very complicated, detailed and time-consuming, therefore, it’s best to let a professional handle it. Accountants are trained to maintain several financial records that will aid you when you need to file taxes, invest and check the inflow and outflow of cash, this is also known as book keeping.

Helping you save money:

Some accounting services provide a nominal fee which is beneficial for any start-up since the business may not be stable enough to pay an hourly or service-based fee to an accounting service.

The services include but not limited to, helping you decide on what type of business entity would be the right option for your company – for example limited liability or incorporated. They will also help you prepare a business plan focusing on budgets and other financial considerations. Tuchbands is a company that will provide the best financial proposal for your business, and design a recording system that you can access based on statutory requirements. They also offer consultations to help you make the best decisions for your start-up business.

Author Bio:

Tess Young has written several career-oriented articles for various websites for more than seven years. She has worked as an Administrative Assistant for more than fifteen years. Her recommendation for Fixed Fee Accounting service is Tuch Bands.

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Do Your Taxes Have Bad Breath?

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Today, our guest poster Justin Krane offers up a step by step plan on how to stay on top of your taxes and how to avoid putting them off till the last minute. Additionally, you can join Justin and our CEO Deborah for an amazing financial webinar on May 29th at 1PM PST/4PM EST. In this webinar, Justin will teach you how to create high quality goals and the financial strategies to put in place to work towards achieving them. You in? We are! Register by clicking here.

You are trying to back away from them but their stank is just ridic? They have no idea how bad their breath is! Especially when they eat the onion bagel with lox cream cheese! You’ll do anything to avoid their halitosis.

Got me thinking. Do your taxes have bad breath? Your taxes only end up stinking if you put them off till the last minute. It stinks to have no idea how much money you owe the IRS. Give your taxes a breath mint! No more scrambling the last few days before taxes are due. No more tax surprises. No more bad breath.

How you plan your taxes is most likely how you plan your financial life. It’s time to be proactive, not reactive! I want your financial life to be easier for you.

Here’s my step by step plan on how to stay on top of your taxes.

1. Keep your books/financial records current. Hire a bookkeeper. You didn’t get into business to enter all of your receipts/bills into Quickbooks by yourself. This should not be your day job. No more 10pm data entry after your kids go to bed. Why not watch Homeland instead?

2. You need to speak with your accountant every quarter (better than getting a root canal, right?). Give them your quarterly profit/loss statement. Review it with them. Ask your CPA to tell you what you owe in taxes for that quarter. Then when you get the amount owed, pay the taxes then. Don’t wait till the end of the year. You will forget. You might spend your tax money somewhere else and then it’s game over. If you do this every quarter, you will most likely have paid in enough in taxes and you wont get hit with a huge bill.

3. Ask your CPA how you are going to pay your taxes. Will it be through withholding from a salary, or just based on paying estimated taxes?

4. Make sure you have the correct entity for your business. Should you be a sole proprietor, LLC, or an S Corp? Ask your CPA if you need to take a salary to pay your taxes. Most of the time, S Corps and C Corps have to pay salaries to you.

5. If you have sizeable realized gains in your investment portfolio, tell your CPA. A realized gain is when you buy something (stocks/mutual funds, etc) and sell it for a profit, in a taxable account.

Why do all of this tax planning stuff? Because now we can have a clearer idea how much money we have left. Our money is dying to talk with us! It’s so much easier to have a conversation with it when we know what we have – once we pay taxes. It’s time for us to get peace of mind, happiness, and more financial control. We just have to make the decision that doing tax planning isn’t that bad after all.

Justin Krane, is a Certified Financial PlannerTM professional and the President of Krane Financial Solutions.  His savvy, holistic approach to financial planning allows clients to unite their money with their lives and businesses with sound financial decisions. Using a unique system developed from his studies of financial psychology, Justin partners with entrepreneurs to create a bigger vision for their business with education and financial modeling. Follow Justin on Twitter @justinkrane.

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401ks for Entrepreneurs: What You Need to Know

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Starting your own business as an entrepreneur puts you at significant financial and personal risks. However, there is one risk – not saving for retirement – that you don’t have to subject yourself to. Whether you run your business alone or have a few employees at your back, there is a 401k plan available that can help you ensure that your golden years are stress-free.

Sole Proprietors

Just because your business is a one-person operation doesn’t mean you (and your spouse) have to miss out on the benefits of saving for retirement with a 401k account. You can set up an individual 401k (also known as a one-participant or solo- 401k) plan through your bank or another financial institution in order to contribute pre-tax funds into a savings, mutual fund, or money market account of your choosing.

As both employer and employee, you can make two kinds of contributions to your 401k account.

  • As employee, you can defer up to 100% of your earned income into your account, up to $17,500 per year (or $23,000 if you are over age 50).
  • As employer, you can contribute a further 25% of your earned income into the account. The total contributed amount cannot exceed $51,000 per year.
  • These contribution limits are current as of the 2013 tax year. The limits are now indexed to inflation and will increase in $500 over time.

As with most other retirement plans, there are withdrawal limits. You may be subject to taxes up to or exceeding 10% of the withdrawal amount for withdrawals made before age 59 ½. However, when setting up your individual plan, you can tailor these limits to allow you early access to your funds through loans or hardship distributions.

Business Owners with Employees

Offering a retirement plan as part of your employee compensation plan can help you attract talented and qualified employees to work for you. In many cases, you can offset offering a lower salary by including good benefits, including a 401k plan. You can deduct the cost of the plan from your business’s taxes each year, and your employees can put aside tax-free money in preparation for retirement.

  • A traditional 401k plan enable employers to make contributions on behalf of employees, match employee contributions or both. Employees can make their own contributions through pre-tax payroll deductions.  Employers are subject to annual nondiscrimination testing that ensures benefits are proportional among all employees. Employer contributions are subject to a vesting schedule (the length of time that must pass before employees attain full ownership of employer contributions).
  • A safe harbor 401k plan is similar to a traditional 401k. The differences include: employer contributions are fully vested when made; it is subject to far fewer complex tax rules, making it less of a burden on employers; and it is exempt from nondiscrimination testing.
  • An automatic enrollment 401k plan allows employers to deduct a certain amount from employee wages and contribute it to a retirement plan on the employee’s behalf. The employee must choose to opt out or contribute a different amount than that chosen by the employer.
  • The SIMPLE 401k plan was created specifically to make setting up employee retirement accounts easier for small businesses (those with fewer than 100 employees who receive at least $5,000 in compensation each year). It is not subject to nondiscrimination testing, and is a more cost-efficient way to offer retirement benefits to your employees.

While you can certainly set up your 401k accounts on your own, it’s best to ask the advice of your lawyer or business banker before making a final decision. An expert can help you make sure that the 401k you choose is right for your business’s financial plan, right for you and your employees, and easy to administer.

Author’s Bio: Megan Webb-Morgan writes for B2B lead gen resource, ResourceNation.com. Follow them on Facebook and Twitter.

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Last Minute Tax Organization Tips!

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With only 11 days left until April 15th arrives, small business owners and entrepreneurs everywhere are scrambling to get their federal and state taxes filed and sent along to the IRS with California doing the most scrambling of all. CohnReznick recently reported in one of their company newsletters that for LLCs and Corporations in California that fail to file their tax returns on time, they may wind up paying a $2,000 penalty as issued by the California Franchise Tax Board.

Don’t endanger your overall tax position – take our CEO Deborah’s tips into consideration when it comes to getting your taxes prepped and sent on their way. Best of all, these tips can be applied to the years to come beyond the 2013 tax year and once they’re in place will make filing taxes in the future much easier and more organized.

1) Make sure you have your documents prepared.

It’s never a good idea to walk into your tax preparer’s office with piles of paperwork scattered all over the place or worse, with nothing ready at all. Prep your documents several months in advance so they’re ready for April 15th.

2) Stay organized over the course of the year rather than waiting until last minute.

Tax season is the last place you want to fashionably late to – by keeping all of your documents and paperwork organized with a bookkeeper or safe within a cloud storage system, you can ensure that you won’t be going on a frenzied hunt for receipts.

3) Respond quickly to a notice and demand to file.

You only have 60 days which can go by pretty quick! Set up a reminder service (like MyCorp’s IncGuard) to keep you on track – this system sends monthly reminders about annual reports, quarterly tax returns, year-end notices, and much more!

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The 2 Tax Deductions that Business Owners Often Leave on the Table

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This guest post is brought to you by Outright.com, an alternative to Mint for business. Sign up today and make tax time less taxing!

Tax time is rough for everyone, but it can be particularly brutal for business owners. Everyone needs a little help from time to time, but business owners need to find every break they can to help them stay in business and grow their company.

However, these breaks aren’t just handed to you, and you have to know what they are ahead of time to take full advantage. According to an Outright study completed last year, business owners leave two major tax deductions on the table every year… and taking these deductions could save them tons of money!

Don’t let this happen to you! Here are two of the most common tax deductions you should absolutely take (if you qualify) to ease your tax burden.

The Home Office Deduction

The home office deduction allows a small business owner to deduct a portion of rent/mortgage, utilities, cable, etc. that they spend on their home office space. However there is one caveat: if you want to claim expenses associated with your home office you have to have a dedicated space in your home for work. The space must be exclusively used for business purposes or you cannot take the deduction.

So for example, if you use your guest room for working and storing your work related files, and that’s the only reason you use it, you can claim the guest room as a home office. If that room doubles as the kid’s playroom, then it’s no longer exclusively a home office and you can’t take the deduction.

A number of rumors swirl around this deduction. Check out Outright’s home office deduction guide for more.

Mileage

Trips are part of any small business, no matter how big or small. What you may not realize is all these trips can be tallied up to take one big tax deduction. While one trip to the post office to mail an order may not be a huge deal, fifty trips over the course of a year certainly is!

You also may not realize just how many trips for your business you make over a year. A business trip, in your case, isn’t just a cross-country trip to a conference; it can also be a trip across town to meet with a client. Even the smallest jaunt to the store for office supplies counts.

There are two main ways to take the mileage deduction: “Standard Mileage” and “Actual Expense.” Click here for more detailed info on the mileage deduction.

With self-employment taxes, finding your own insurance solutions, and perhaps taking care of employees, too, small business owners need every tax deduction they can get.  Don’t hand over these two significant deductions to Uncle Sam when you don’t have to!

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How to Determine Your Home Office Qualifies for a Tax Deduction

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This article was written by Beth Duff of MerchantExpress.com.

Small business owners who use part of their home to run their business are entitled to deduct certain expenses on their tax returns. However, certain rules still apply when it comes to this home office deduction.

According to the IRS, there are two basic requirements that determine if your home qualifies for the deduction:

The regular and exclusive use requirement means you must regularly use part of your home exclusively for conducting business. If you run your business out of an extra bedroom or dedicated office space in your house, you can take the home office deduction for that space. If you work from your dining room table during the day and use the room for its intended purpose the rest of the time, you do not meet the regular and exclusive use rule and are not eligible for the deduction.

The principal place of your business requirement means you must show that you use your home as your principal place of business, including as a place to meet with customers, clients or patients in the normal course of your business. Even if you conduct business at a location outside of your home (meeting with clients, performing services, etc.), but also use your home substantially and regularly to conduct business, you can deduct your expenses for the part of your home used exclusively and regularly for business.

It’s important to note that you can also deduct expenses for a separate free-standing structure at your home if it is used exclusively and regularly for your business. This includes a studio, barn or garage used for business purposes. This structure does not have to be your principal place of business or the only place where you do business.

One additional note: If you are an employee who works from home, you may qualify for the home office deduction if you meet the requirements outlined above and those below:

  • Your business use must be for the convenience of your employer
  • You must not rent any part of your home to your employer and use the rented portion to perform services as an employee for that employer.

The IRS stipulates that if the use of your the home office is merely appropriate and helpful, you cannot take the deduction. IRS Publication 587 outlines the business use of your home, including use by daycare providers.

The home office deduction is based on the percentage of your home devoted to business use.  It is calculated using the total square footage of your home and the total square footage of the space you use for your business. Use IRS Form 8829 to complete your calculations.

Only certain expenses apply to the home office deduction. They include rent, deductible mortgage interest, real estate taxes, utilities, insurance, repairs and maintenance to your office space and depreciation of your home.  Use Schedule C Form 1040 to report income and expenses and the deductible amount for the business use of your home.

Your deductions for certain expenses will be limited if your business’s gross income is less than your total business expenses.

As always, if you have questions or need additional guidance on the home office deduction, talk with your tax professional.

Beth Longware Duff is a professional editor and award-winning writer whose work on a wide variety of topics has been published in print and electronic media. She currently writes on a wide range of topics dealing with electronic payment processing for Merchant Express.

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Guest Post: How to Do Your Taxes if You’re a Freelancer

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This article was originally printed on LearnVest.com.

You’re free! Free to sleep in until 11 a.m., free to work while your adorable toddler plays at your feet, free to … keep really good records of all your expenses for your taxes.

We know. Not so fun. The reality is, being self-employed can be awesome for 11 months out of the year, and then come crashing down on your head in the form of lost receipts and unpaid estimated taxes in April. We want to save you from that sinking feeling. Read on for what every freelancer needs to know for your taxes.

Get Organized

First, keep good records. Go paperless, get organized and keep track of two things:

1. Your business income. This is your responsibility, and it is a big one. The IRS is especially sensitive about freelancers fudging their income. Yes, you will receive 1099 Forms from clients with what you earned, but only for jobs worth more than $600. So make sure you have a good recording system, like a “Freelance Income” folder in the Money Center.

2. Your business expenses. You don’t want to miss out on deductions related to business expenses, so carefully record what you spent, the date, who you paid it to and the purpose for expenses such as:

  • Business cards, online ads and other tools used to promote yourself and your business
  • Business insurance
  • Interest paid on your business credit card or business loans
  • Lawyer fees and other professional services
  • Rent or dues on a workspace
  • Repairs for your computer, camera and other business-related equipment
  • Routine office supplies like pens, paper, staples, etc.
  • Travel costs like plane and train tickets
  • Business meals with clients and other entertainment reasonable for your business

Find the Right Tax Preparer

We’ll be straight with you. Taxes for freelancers are complicated, so we recommend you invest in a tax preparer. Look at it this way: You could pay about $300 to get your taxes done, and an accountant could easily save you $300 in fees, deductions you hadn’t heard of and more.

If you decide to pay for a tax preparer, make sure they are familiar with all the ins and outs of self-employment taxes. It’s best to find one that specializes in self-employed individuals and is available throughout the year if you have any questions. Find out what other questions to ask your tax preparer.

Pay Quarterly Estimated Taxes

When you work full-time, you have your estimated taxes automatically withheld from each paycheck. But when you are a freelancer, you may be responsible for paying your estimated taxes every quarter, by the 15th of every April, June, September and January, for the previous tax year.

This is actually better for you, because it’s easier to pay your taxes in small chunks instead of in one big wallop in April. If you don’t file and pay quarterly, the IRS will charge you fines and penalties.

File your estimated taxes by using IRS form 1040-ES, and plan on paying 15.3% of your income every quarter. We suggest setting up a separate savings account where you can park the money until you pay. To make the process of paying smoother and faster, sign up with the Electronic Federal Tax Payment System.

Use These Forms

Fill It Out as a Freelancer: W-9

If you’re self-employed, clients or companies that hire you as a contractor might ask you to fill this out when you take the job. It asks for your name, address, Social Security Number and maybe your tax identification number if you are part of a company that’s been contracted.

Get This From Your Clients: 1099

If you’re self-employed, clients or companies that hire you as a contractor and/or freelancer might send this to you before the tax filing deadline. It’s a summary of money they’ve paid you, which is the amount that you need to pay taxes on. You will only receive this form if the client paid you more than $600. If you were paid less, you won’t get a form, but you must still report that income (see below).

Fill Out Your Taxes On: 1040

Because you are reporting self-employment income, you will be using the original 1040 form, instead of the 1040A or 1040-EZ form. Learn more about the different types of 1040s.

For Filing Simple Freelance Taxes: Schedule C-EZ

If you’re a freelance graphic designer or writer, you have a pretty simple business and can use a simplified form instead of the Schedule C, below.

Use this form if:

  • Your business expenses are less than $5,000
  • You have no employees
  • You have no inventory (sorry Etsy sellers, you need the more complicated form, Schedule C)
  • You are not using depreciation or deducting the cost of your home

File Business Taxes: Schedule C

Schedule C addresses taxes specific to your business.

Estimate Your Taxes: Schedule SE

This is the form you’ll use to estimate your taxes for the year; file this with the IRS.

If You Had Capital Gains and Losses: Schedule D and Form 8949

These forms are used to report capital gains and losses. This is when you sold investments for more or less than what you paid for it. Because the rules governing these forms are very detailed and specific, make sure to read the IRS instructions if you think any of these circumstances might apply to you. Find instructions on the IRS website.

Use these forms if:

  • You had a gain or loss from a partnership, S corporation, estate or trust
  • You sold assets from your business
  • You made a gain or loss on other assets, like futures contracts, etc.

Look for These Deductions

Business expenses

The self-employed can deduct business expenses that qualify, such as those mentioned at the beginning of this post. Overall, these expenses should be:

1. A generally accepted part of doing business in your industry. For example, a laptop if you are a writer, or business meals with clients if that is how clients are generally treated in your line of work.

2. Helpful and appropriate for your business. They don’t have to be indispensable, but should help you perform better in your business.

You can learn more about what makes an appropriate deduction for your business on the IRS website.

Health Insurance

If you pay for your own health insurance, you can deduct the full cost on your 1040 as a personal expense. If you made a profit, you deduct it as an above-the-line deduction on line 29 of your 1040. If you did not make a profit on your business, it will be a below-the-line deduction, as a medical expense. Then you must itemize in order to claim it.

Home Office

As a freelancer, you may do the majority of your work out of your home. That means you might be able to deduct the cost of your home office. (But watch out, this is a common audit trigger–see below.) You’ll use Form 8829 to calculate and claim this deduction. Just be aware you cannot claim an office deduction that is more than your net profit for the year. If your home office is worth more than your net profit, then you can carry the extra over to the next year.

Business Assets

These are different from business expenses, as they will be used over several years. Did you buy Photoshop, a computer or office furniture? These are all business assets. You’ll have to decide whether you would like to deduct the full cost in the year you bought them, or spread the cost out over the lifetime of the asset, which is called depreciation. A tax preparer can help you with all the hairy details, but here’s the short version of how to decide: Spread the cost out if you think you will be making more income in the future, or deduct them now if you had high income this year.

Watch Out for These Audit Triggers

As a freelancer or business owner, there are certain things you may do on your return that will trigger an audit. Here are the most common ones to watch out for:

Reporting the Wrong Taxable Income

You can’t lie about your taxable income, because both you and the IRS received your W-2 and 1099 Forms, for both full-time employees and self-employed individuals.

Perfectly OK: Making a small math error. The IRS will correct that. 

Not OK: Estimating or fudging how much you’ve made.

The Proof You Need: Compare the 1099 or W-2 you receive from the company against your own records. If you think it is wrong, inform the company and ask that they file a corrected 1099 or W-2 with the IRS.

A Steak Dinner With the Clients

Rules for claiming this are strict, so it’s a smart idea to read up on them before trying to make the government pay for your nights out on the town.

Perfectly OK: Deducting 50% of the cost of a reasonably priced meal where you entertained potential clients for your business. 

Not OK: Deducting the cost of a lavish steak dinner with rare champagne as entertainment, and then trying to deduct it again as a travel expense. To see more instances, read this publication from the IRS. 

The Proof You Need: Keep all receipts, and record the dates and times, description of the expense, the business purpose and business relationship. More details are here.

Using Your Car for Business

Sure, a lot of people use their cars for some part of their business. But if you’re also using it to shuttle kids to lacrosse practice, it just doesn’t qualify.

Perfectly OK: The car is used solely for delivering wedding cakes to your clients.

Not OK: Sometimes you drop off deposits at the bank on your way to getting your nails done.

The Proof You Need: Keep a record of your mileage, and keep calendar entries specifying your starting and ending addresses. Detail the purpose on your calendar every time you use the car for business.

Your Home Office

A lot of people think they can stretch the definition of a home office, which is why claiming it could trigger an audit.

Perfectly OK: A study where you keep your computer, phone, bookshelves and other supplies for work, and where you do the majority of your work and that is not used for any other purpose, especially personal use.

Not OK: A desk with a computer in the corner of your living room or guest bedroom where you work for a few hours a week.

The Proof You Need: If you want to take this deduction, make sure to read IRS Publication 587. It is very detailed, and even includes a semi-fun (well, sort of) flow chart to make sure you’re on the up-and-up.

A Business That Loses Money

It’s not ideal that your business loses money. (That kind of misses the point, right?) If the IRS sees someone who has a full-time business, and in more than three years out of the last five loses money, it will make them look closer.

Perfectly OK: Things didn’t go well with your business this year or last year, and you took a loss.

Not OK: You have an expensive, full-time hobby like owning a vineyard or fixing up antique bicycles and you’re not even trying to make a profit.

The Proof You Need: You should have all the proper documentation as if it were a business, and prove that it made a profit for three out of five years.

Need help managing your money? LearnVest’s free Money Center will help you create a budget, and our premium financial plans—managed by LearnVest Certified Financial Planners—can help you chart a course for the future you want.

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3 Ways Social Media Can Help during Tax Season

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In the midst of tax season, it’s easy for some aspects of your small business to take a back seat. Since it’s important not to lose focus, sometimes the best solution is to utilize the convenience of social media.

Here are three simple ways social media can help during tax season:

1) Schedule Content in Advance

Although most experts indicate that real-time posts are the most effective means of engagement via social media, there is no harm in scheduling content from time to time to stay connected to your customers.

Free tools such as TweetDeck will allow you to write posts for future publishing and enter the precise moment when you want them to go live.

If you already subscribe to any paid tools for social media, most of them also include this functionality, so be sure to investigate that possibility as well.

2) Keep an Eye on Key Updates

As a business owner, you naturally want to stay abreast of any tax tips tailored specifically to your purposes. A great place to see a comprehensive list of new tax-related stories is on the popular tech and news site, Mashable. This group, known for their social media savvy stories, has a category dedicated to tax articles.

3) Ask the Experts

There are a bevy of thought leaders who regularly contribute via social media platforms and may be able to offer you personalized advice. For example, there are open LinkedIn groups that offer answers to common business tax questions, and hashtags such as #taxtips that offer free help on Twitter.

Just remember to breathe and digest all of the information one day at a time. During tax season—and beyond—social media allows for faster responses, more outlets for help and increased online activity for the business in your absence.

Tassoula E. Kokkoris is the social media manager at Guidant Financial. She is published in The World According to Twitter, and has contributed to several publications including the Digital Solutions Blog and Startupchamp.com. She tweets for Guidant via this handle: @guidant.

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