If you own or lease the car:
If a personal vehicle is used for business, you can deduct the actual expenses of business use, including gas, maintenance, and depreciation if you own the car or lease payments if you lease it, or use the standard mileage rate set by the IRS ($.55 per mile in 2009).

If you are an employee of your corporation, set up an “accountable plan” to provide reimbursement to you for business use of the car; such reimbursement is tax free if done properly. Without such a plan, any deduction for car use is an unreimbursed employee business expense, which is a miscellaneous itemized deduction that can be claimed only to the extent that it is more than 2% of your adjusted gross income (AGI).

If you are a partner or LLC member, vehicle-related write-offs are claimed on Schedule E; they are not subject to the 2% limit applicable to shareholder-employees.

If you are a self-employed person, vehicle-related write-offs are claimed on Schedule C.

Idea: Keep good records of business use. Note the starting and ending odometer reading, the date, the destination and the purpose of each business trip. Keep a digital device, logbook, or other recordkeeper handy to make it easy to jot down this information.

Continue Reading

Bartering is a tried and true (and ancient) business practice. It is still commonly used in many countries in every day business interactions. For whatever reason, it is not as common in the U.S. but this doesn’t mean it should be forgotten altogether!

If your small business is still afloat but you find yourself short on cash, give bartering and honest look. There are many barter exchanges which you can join and here’s how it works:

Step 1: Research the barter exchanges. Like I said there are a lot out there so do some research and pick the one you think will best suit you based on other members and how much you want to pay to join. You can find lists of these exchanges at nate.org , irta.com or itex.com .

Step 2: Join your chosen exchange. There are a wide variety of membership fees out there. Some have a one time fee of $800 for new members while others charge a much lower monthly fee in the $10 to $30 range. In addition to the fees, there can also commissions involved which, if you are a low-margin business, would make bartering a money losing venture. Run the numbers and find out.

Step 3: Barter away! You will receive "barter cash" for your and work you do/goods you offer which will be good only within the exchange you join.

Keep in mind these important factors (compiled by BusinessWeek.com ) when getting involved in a barter exchange:

Joining an exchange does entail costs, including fees and commissions. If you run a very low-margin business, those commissions may make bartering a money-losing proposition. Every business will want to limit its barter business to 5% to 15% of total revenue so that cash flow remains at healthy levels, says Ron Whitney, executive director of the International Reciprocal Trade Assn. (IRTA), a Rochester (N.Y.) nonprofit that promotes barter. And if you are bartering one-on-one, be careful. Misunderstandings can arise if you don’t have a formal contract. Then there is the IRS: Barter deals have to be treated like regular cash sales in federal and state filings. If a business owner uses barter services for personal reasons, the cost of the item is considered compensation on your income.

If anyone has tried this, I’d love to hear how well you think it works?

If you are like many companies, you’re already looking for ways to trim off a little fat. That could come in the form of not ordering as much inventory, looking for employees to lay off or any other cost-cutting measures.

As a matter of fact, many small business owners are already in a panic, with doomsday visions in their heads.

It’s time to stop and take a deep breath.

Fact Check

Look at the facts. Yes, we are in an economic downturn. Because of this, sales are down across most industries as people prepare for a recession.

In many respects, this could be making matters worse. By hoarding finances out of fear of a depression, we may well be speeding up its arrival. An economic downturn, whether or not it turns into a recession, can’t be predicted.

There is no way to know when it will end and everything will bounce back to normal. However, the one thing history does tell us is that it WILL bounce back. That means you can put those doomsday visions out of your head. The end has not come – rather, this is just a bump in the road.

An intelligent businessperson will prepare for the economic downturn and possible recession – but won’t panic.

Manage Debt

Part one of making it through an economic downturn is to manage your debt. Many companies live off a plan of leveraging their debt, counting on being able to roll current loans into new ones when they come to term.

This may not be an option the next time around. Instead, you need to build up your cash reserves so you have a comfortable nest egg in place the sit on during the economic ride.

Broaden Your Customer Base

While the U.S. Dollar may be having a tough time and the U.S. economy may be reeling, that does not mean the rest of the world is having the same problems. While U.S. buyers may be a little more reluctant right now, there are plenty of other countries around the globe ready and willing to find new suppliers.

Try to broaden your base of customers, and add new international clients into the mix.

Investing

If you have managed your debt well and built up a cash fund for your company, this may be a great time to invest in new items for your business. While everyone else is clamming up and afraid to buy, you can use this time (and your extra cash!) to expand your offerings, pick up new customers who want those items – and possibly take the lead in the race against your competition.

Changes in the economic tide are nothing new. Financial markets go up and down as they have for generations. The key to weathering the down times is to keep your wits about you and plan well while taking advantage of any new opportunities.

Rachael

A: I would have to say, I get more variations on this question than any other: “Where the heck can I get some of this free government startup money?”

I’m not exactly sure where this urban myth comes from, this idea that there are government agencies out there just waiting to give out free money to start a business.

I suspect that the main culprit is Matthew Lesko. You know, the wacky guy on those infomercials with the question mark suit who is always talking about free government grants and programs.

Do they really exist? Are there free federal grant dollars available to fund a business startup? Let’s find out.

Lesko received his MBA from American University and his company, Information USA, has published many books on the subject of “free” government programs over the past few decades. His books generally point out programs that people may or may not know about which offer some sort of assistance – everything from Medicare and Medicaid to SBA loans, energy assistance, and farm subsidies.

But actual free money turns out to be a pretty rare thing.

Indeed, the York State Consumer Protection Board issued a report in 2004 stating that some of Lesko’s claims of free money are exaggerated (in relation to his book, Free Money to Pay Your Bills.)

This is not to say that grants are not available on the federal level. They are. Indeed, the federal budget is chock-full of programs that grant funds for such things as:

* Scientific research
* Educational endeavors
* Defense services and products, etc.

Moreover, there are plenty of programs that help minority, veteran, women, and disabled business owners, but again, none that I could find offer actual free start-up capital for individuals. Most of this assistance is technical and advisory in nature.

When the federal government does offer grant money to promote small business, it almost exclusively goes to state and local governments. According to the smart folks over at About.com, “By far, most government grants are applied for and awarded to other federal agencies, states, cities, colleges and universities, and research organizations.”

So it seems that free federal money to start a business is more myth than fact.

Next then, let’s consider programs on the state and local level. Here we find a bit more help. For instance, many communities offer incentives for small businesses to set up shop in economically distressed areas, although these incentives often take the forms of tax breaks or rent subsidies rather than grants per se. There are also plenty of incentives today to make your business greener, but again no, no free money.

What about private, non-profit grant makers? These are organizations with very specific goals in mind, who work hard at fund-raising, and who fund only the most worthy, cost-effective programs. Some may help with business capital if that is the business they are in and you meet their very specific criteria and stringent prerequisites. No one gives money away willy-nilly. Expect to be thoroughly vetted to make sure that what you are proposing is what they want you to be doing.

Expect to also spend a lot of time and effort in the process. Applying for and getting grants is a difficult, rigorous process, often requiring expert assistance. “Grant writer” is a job for a reason.

And understand this too: Grants come with strings. In the remote chance that you do find and get a business grant, you will also be expected to thoroughly account for whatever money you get and spend it exactly in accordance with the strict guidelines of the grant maker. Failure to do so will land you in plenty of legal hot water.

At a time of huge federal government deficits, an incredibly expensive war with no end in sight, and recession, you are looking for free government money? Think again.

If it sounds too good to be true, it probably is.

Today’s Tip: One place to find out what state and local assistance is available to your business is the online Catalog of Federal Domestic Assistance; a database of all federal programs available to state and local governments, organizations, various groups, and individuals. Once you locate a program that may be a fit, contact the office that administers the program and learn about the application process.

Once millions of Americans began applying for and getting credit cards, the credit card companies began seeing dollar signs – and out of greed, destroyed something that was meant for good.

While the concept of having a credit card may be great, once you try to take advantage of a card with all the perks and extras, you may notice that it feels more like a ripoff than a good deal.

Fees

Many credit cards have lots of extra fees. You get charged for making a payment late. You get charged for going over your credit limit. You even get charged a fee for transferring money from your credit card to a bank account.

How can one little card have so many fees?

Some credit card companies claim they exist to help you rebuild your credit. Somehow they also think they are helping when you have pay $250 dollars just to get a bad credit credit card which has a very low credit line.

Interest

The Annual Percentage Rate (APR) is the next hidden evil in credit cards. If your credit score is high, then you get a low annual percentage rate. If you are like most Americans, your credit score is far from high – and you end up with an APR of 11 or 12 percent.

Unless you do the math, you may not realize just what that interest rate really means. Let’s say you go to the store and spend $100 dollars on a TV. The bill comes and you only send the minimum payment due.

Then next month, you’re charged interest on the balance. Once again, the credit card company will ask you to pay a minimum fee, and then charge you the interest again. At the rate they ask you to pay, you could be paying that $100 TV off for years.

Ignore the Ads

Many a financial advisor will advise that you spend with cash, to minimize the interest risks. The credit card companies are battling this. You may have seen a popular commercial on TV. Everyone is shopping and having a good time using their credit cards until someone pulls out cash to pay for their purchase.

All of a sudden, the music stops and life is pretty much on hold until they pull put their credit card and swipe it – and everyone goes back to having a good time.

What kind of picture is that sending to our young men and women getting out of school and going into the real world? The lesson they are learning is that you are not popular if you do not have a credit card.

This has turned us into a society where everyone is trying to have what everyone else – has even though they cannot afford it.

This is supposed to help boost the American economy. The obvious question is how you and your business are going to spend your share of the stimulus check.

Put It Back Into the Business

As a small business owner, you want to invest the money. Buy something that is going to make your business earn more income, and help the economy.

Equipment

You may need to buy new equipment. If you buy more equipment, you are giving money to the company that makes the equipment (keeping their employees working).

You will also have to hire people to run the equipment, thus doing your part of keep to help alleviate the unemployment issue.

Real Estate

If you have been thinking of expanding, you can make a positive impact on the real estate market by using the money to move to a bigger office, so you can be more productive.

Security

Is there something that you have wanted for a long time but have not had the money to afford? Now that you are going to have the money, this is an excellent opportunity to make that purchase.

Maybe you have been thinking about getting a security system. While your business may be running just fine without one, having one will give you more peace of mind when you close shop for the day and go home.

Evaluate Your Needs

How you choose to spend the money will depend on what kind of business you have. All businesses have unique needs, even businesses that are in the same category. If you have a restaurant, your establishment may need to the money for completely different purchases than the restaurant down the street.

By this time, the wheels in your head should be spinning as you contemplate the best ways to spend your tax rebate check so that it positively impacts your business.

You may want to make a list of the ways you can spend your rebate to best benefit your business. In addition, ask your employees and get their feedback. When it comes to knowing what will make you business more productive, your employees may have ideas that will make the business run more efficiently, that you may have not considered.

Start Shopping

No matter how you choose to use your money, the key is to spend it. That is why we are getting it in the first place. Keep in mind, however, that this is a one-time thing.

If you invest the money in something that is going to be profitable to you now and in the future, then your business’ future will be bright. Conversely, if you choose to spend your money on something frivolous, your future will not be as bright as you would like it to be.

The business tax rebate is being given out to be spent in an effort to aid the economy. Do not simply put it in your bank account and leave it there. Also, do not blow it without thinking it through and making a wise decision.

However, times have changed.

The Yuan has been creeping up over the past year and is continuing to gain strength, while the Dollar is struggling in the world market.

For retailers, the impact is crystal-clear. It shows up on their invoices. As the Yuan gets stronger, the items they purchase from China are costing more. In some cases, prices have doubled over what they were just a year ago.

For larger companies, while this is an annoyance, they can spread out the impact throughout their products and company sectors. For small businesses, this is not as easily accomplished.

So what is a small business to do?

Measure the Impact

First, take an honest look at what impact the rising Yuan is having on your business. If you regularly manufacture items in China or order products for retail sale, look closely at the increase you have seen in the past year.

Now, think about what will happen to your bottom line if things continue on this track for awhile.

Adjust as Possible

Now that you know what could happen if things keep going this way, it’s time to prepare for the worst. What can you change about your operations, sales, etc, to keep things going at your current levels while this economic shift takes place?

It may mean increasing your retail prices, or learning to do more with less in other aspects of your business for a little while.

Another option is to look into temporarily using less expensive materials or supplies to offer the same products, while waiting for the market to level out again.

Wait it Out

History shows that these economic fluxes usually level out. While it may seem painful right now, the economies of the world are often like a roller coaster ride. There will be peaks and valleys, but it will all even out eventually.

Do not make the mistake of making a rash decision like as getting rid of your Chinese suppliers, because of the current increase. Just have patience.

While the shift of the Yuan into record territory these last few weeks has many people in a panic, the smarter path is to take a deep breath, plan for this trying period and look forward to when the markets are once again on the level ground you are accustomed to.

Use Your Local Resources
While the SBA offers excellent online resources (as well as various offices throughout the US), it’s not always convenient if you want to sit down and discuss your options with someone. This is where your local information outlets can come into their own. Economic development organizations are a good example, and can be found statewide. Much like the SBA, these organizations can offer both technical advice as well as details on how you can raise capital for your business. They also offer groups similar to networking set-ups, where you can speak with experts in your particular niche.

How would you feel about hiring an accountant who puts the interests of the IRS before those of you or your business? What’s that you say? You wouldn’t like it? That’s what I thought you’d say…but what if I told you you had to?

Unfortunately, that may be the case.

(I mean, I won’t force you to but a much stronger influence might…what was their name again?…..oh right! The Government.)

The Small Business and Work Opportunity Tax Act of 2007 stipulates that those who prepare returns containing an understatement of tax due – which the preparer "knew or reasonably should have known" – will be subject to penalties amounting to "the greater of $1,000 or 50% of the income" the preparer received for that particular federal return.

The act also expands the definition of tax-return preparer to cover those handling any federal return, including those for estate, gift, excise, and employment tax.

According to a recent Fortune Small Business article there are a bevy of downsides to this new legislation including:

• The act has the potential to injure the close personal relationships many small businesses maintain with their accountants.
• Smaller businesses may need to prepare more documentation than previously required. In turn, accountants may be less apt to take clients at their word.
• In some extreme cases, accountants may ask for far less data, hoping they will be less liable the less they know, which would put more of the legal burden on entrepreneurs.

So it sounds a bit like intimidation doesn’t it? And it would appear that the government would end up with a lot of free (and somewhat covert) auditors. How do you plan to handle this new legislation? Are you going to write your congressman? Did you even know this tomfoolery was afoot?

And for those of you who do end up getting audited this tax season (for real) check out How to Survive an Audit of Your Business- And Live To Tell About It

It is important to know that while seeking the help of professionals is advisable, you always want to make sure to do your own research and check for deductions on your own. Make sure that if there is any ambiguity in an IRS regulation that you check with a tax professional or with the IRS before you take a questionable deduction. No matter how great the deduction may be it is not worth getting audited over.

A great place to start is at IRS.gov where there are several publications written in a readable style to help you learn what expenses are considered tax deductible for the self employed. Form 1518, IRS Tax Calendar for Small Businesses and Self-Employed and form 535, Business Expenses, are two excellent informative publications to help you get started learning about deductions.

Making sure you follow the IRS instructions is very important and you need to be aware there are several keys that can lead to your getting audited. Claiming your house as a deduction is the number one alert to the IRS that can lead to an audit. That is not to say that you cannot deduct the correct portion of your house, just make sure that you do it within the guidelines of what the IRS allows.

Travel is another area you want to be very careful about when deducting as a business expense. The IRS has very specific guidelines regarding what is considered business travel and what traveling expenses are eligible for deductions according to the regulations.

Supplies and equipment for your business are deductible and health insurance also may be deducted. If only one member of your family is self employed be aware that you may only be eligible to deduct the self-employed family member’s healthcare costs. If the other family member is eligible for benefits through their employer then you cannot claim the cost of those benefits as a deduction.

Clothing can be deductible but only if it is usable for the business purpose exclusively. If you have a coat that can be worn when you aren’t working then it would not be considered deductible. If however, it is something like a specific fire proof jacket is needed and it isn’t possible or pragmatic to wear it when you aren’t working then that fireproof jacket would be considered tax deductible.

Studying the forms and guides provided by the IRS is a great place to start but also include a visit to your CPA who can take what you have learned and apply their knowledge and experience to maximize your deductions for the upcoming year’s tax liability you face as a self-employed business person.