Issue link: https://www.massageandbodyworkdigital.com/i/259468
I t p a y s t o b e A B M P C e r t i f i e d : w w w. a b m p . c o m / g o / c e r t i f i e d c e n t r a l 29 visit abmp.com finances, we asked for questions via our social media outlets. The majority of inquiries were about business expenses and tax deductions. For example, Donielle S. asks, "What are appropriate or legal tax deductions for massage therapists?" The IRS answers the question "What Can I Deduct?" at www.irs.gov: "To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary." This means a valid business expense is anything you spend money on to run your practice. Legitimate expenses vary from profession to profession. For example, a musician wouldn't have a laundry expense like we do. So, throughout the year, keep track of anything you pay for because you own a business. Think about it this way—if you didn't have a practice, would you have incurred that expense in your personal life? If not, it's a business expense. If you use something for both personal and business—like your cell phone—estimate how much of the item you use for business and claim that percentage of the cost as a business expense. LS: Where small business owners get into trouble is when they get a little generous with what they claim as business expenses. You'll occasionally see ads for continuing education on a cruise ship, claiming, "A vacation that doubles as a business expense!" Things that seem too good to be true sometimes end up being just that. Season tickets for the opera? Not a business expense. An example of something that is a little more complicated would be auto expenses. The IRS allows you to deduct these, based on either actual car expenses or a standard mileage rate. But you can't buy a car and deduct the cost of purchasing it, unless you want to be a bit more aggressive and take steps to make the car an asset of your company. Even in that case, you'll still need to keep track of your expenses and/or personal use. KC: Right. I always think about it like this: if you're audited and you're sitting across the desk from the IRS agent, will you be nervous about defending what you've claimed? If the answer is yes, don't claim it. It's as simple as that. And keep in mind that you're ultimately responsible for anything that's on your tax return, even if you hire an accountant, so always read before you sign. So now that we've wrapped our heads around what a valid business expense is, let's talk about how we keep track of those expenses throughout the year. What happens between getting the receipt and filing your taxes? Katie V. asks, "How should massage therapists do their bookkeeping?" I've always kept it simple and created Excel spreadsheets to track my income and my expenses. On my income spreadsheet, I record the date, form of payment, client name, length of session, and amount paid. For expense tracking I record the date, how I paid, who I paid, what I spent money on, and the amount I spent. I organize the expenses into different categories—like supplies, equipment, phone, marketing, office rent, state licensing, etc.—that reflect the types of expenses I incur throughout the year. LS: Kristin, your method is probably the one most commonly used by practitioners. The key to keeping track of your finances isn't as much about the tools you use, but rather the approach you bring to it. The critical word to think about is organization. No matter what method you rely on—low-tech or high- tech—being organized will keep you on track. In our discussion about technology resources over the last few issues, we identified a few apps that can help with financial management. Whether you use Excel, iBank, Mint, QuickBooks, Quicken, or a notebook, staying diligent is the key. You can have the best software around, but if you don't log your expenses and revenues, you're nowhere. One suggestion for staying diligent is to schedule your time (which brings up time management—oh wait, that sounds like another article). Do you have specific available treatment times each week? Do you have an hour set aside for financial management each week? If the answer is no, you should think about changing that. Your bills won't wait; that means balancing your checkbook shouldn't either. Pick an hour one day a week