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Updates & tips
PURPOSE OF FINANCIAL STATEMENTS
I have come across some small business owners who don’t have monthly financial statements because of a lack of a bookkeeping system in place.They prefer to wait until the end of the year to gather all their receipts and statements, hand them to the tax preparer for compilation and tax return purposes. Although this is one of the purposes of the financial statements, alone and by itself does not allow you to run a profitable business.If you want to have a successful business you want to know the financial health of the business on a regular basis hence have a clear picture of what’s working or not.Another reason is to have them ready to presentto a financial organization when you need extra funding and to attract a buyer or investor to your company.You cannot underestimate the importance of the financial reports.
Personal living expenses versus Business Expenses
You cannot deduct personal, living or family expenses in your tax return. Only expenses that are used for business purposes are deductible. For instance, if you take a loan, you decided to use 20% part of the money to take a vacation and 80% to fund operational activities in your business. The interest has to be allocated based on the use of the loan̢۪s proceeds. The interest portion, 20%is not deductible and should not be included as a business expense. However, the remainder amount, the 80% of the interest on the loan can be deducted.
Importance of a mileage log
Very often I have found that small business owners are not aware of the great importance of keeping a record of the mileage driven in the course of doing business. There are two ways of taking advantage of the deduction resulting from the use of a car used for business and personal purposes. You have the option of taking a deduction based on the miles driven or on the actual expenses, such as auto insurance, repairs, tires and gas. Either method will require the mileage count because the expenses are deductible based on the percentage of the miles driven for business. I recommend keeping a small notebook in the vehicle which will have a heading like this on its pages: Beginning mileage Ending mileage Difference Place Date The column difference is the mileage that will be utilized to calculate the deduction. Failure to track the mileage can result in disallowed deductions.