Issue link: https://www.massageandbodyworkdigital.com/i/1256819
Watch "Allowable Deductions" ESTIMATED TAXES Often, the first tax preparation of your business comes with surprising chaos. There's the confusion of having to organize a year's worth of transactions into categories coupled with the shock of owing the IRS money instead of getting a refund. To prevent the "I owe HOW MUCH?!?" shock each year (and also to avoid penalties), you should pay estimated tax payments to both your state and the IRS. Four times each year, you will pay a portion of what you expect to owe for that year's taxes. Estimated tax payments are due on April 15, June 15, September 15, and January 15. (Please note: Some of these due dates have been temporarily changed in 2020 due to the COVID-19 crisis.) In earlier columns, we encouraged you to have a separate savings account to hold your tax money and to set aside a certain amount (or percentage) to cover your estimated taxes and final tax bill each year. It can be hard to save that money for a bill that feels so far away. But that feeling of relief when you have cash in the bank to pay the bill? Priceless. WHAT HAPPENS IF YOU CAN'T PAY? If you underpay your estimated tax payments (or you don't pay them at all), you could find yourself owing a big bunch of money on April 15. It happens, especially to new business owners—but it even happens to experienced ones. If you can't gather the money by the due date, you still have options. The IRS has a process to pay within 120 days (with some low interest and penalties), as well as a longer-term installment agreement that allows for monthly payments over several months to years. You can make these arrangements right at the IRS.gov website, and if you need help, call them! They're very friendly and helpful. GETTING HELP Not everyone will love the nitty-gritty of bookkeeping and tax preparation. Good news: there's help for that! You can hire a bookkeeper to handle the regular chores of tracking income and expenses. Tax preparers and accountants are available to handle your annual tax returns and calculate your estimated tax payments. There are also plenty of resources to help you get tax savvy so you can make better decisions. Our personal favorite is Can I Deduct That? 100 Things You Can (and Maybe Can't) Take as Business Deductions by Margo Bowman and Kelly Bowers. The IRS also has all kinds of guides and resources created especially for very small businesses at www.irs.gov/businesses/small-businesses- self-employed. Understanding taxes will make you a more powerful and conscientious business owner and will ultimately keep more money in your pocket! Allissa Haines and Michael Reynolds can be found at www.massagebusinessblueprint.com, a member-based community designed to help you attract more clients, make more money, and improve your quality of life. N e w ! A B M P P o c k e t P a t h o l o g y a t w w w. a b m p . c o m / a b m p - p o c k e t - p a t h o l o g y - a p p . 17 What is an allowable deduction, and what is not? There are a bunch of hard and fast rules, but there is also a great deal of gray area. There are many obvious and clear allowable deductions for a massage business. Equipment and furniture for your office, rent, massage oil and linens, and general supplies (like paper clips and pens) are allowable deductions. Utilities, continuing education fees, and the fee you pay your tax preparer are all clear allowable deductions. There is plenty of gray area too. The IRS states that an expense must be both "ordinary" and "necessary" to be considered an allowable deduction. Is it ordinary and necessary to stock up on nail files at a massage office? Most tax preparers would say that is an allowable deduction, considered an office supply. But is a weekly manicure an allowable deduction? Ask three tax preparers that question and you'll get a firm "Yes!" a confident "Never!" and a "Maybe, depending on the situation." (Check out our companion video at www.abmp.com/money for a closer look at the gray area of allowable deductions.) Who makes the final decision? Well, ultimately, you and your tax preparer decide what to include on your Schedule C. If you are ever audited, the IRS auditor will decide whether they were truly allowable deductions. Should that auditor disagree, you could end up paying taxes and penalties. It can be hard to save money for a bill that feels so far away. But that feeling of relief when you have cash in the bank to pay the bill? Priceless.