Be a Know-it-all Smart tax payers understand all the deductions they can take

A smart business owner not only knows all of the deductions available to her business, but she takes them to lower her taxable income as much as possible. After all, knowledge without action isn't much good.

I get really excited when I explore and discover new tax secrets I can use to benefit myself, which is why I've chosen to be a coach at Pathfinder. Needless to say, this passion for learning about U.S. tax code isn't always shared. Whatever your interest level is on the topic, you'll want to read this article. Here, you'll see how simple it can be to acquire this knowledge, and when you do, you'll be one step closer to the financial freedom of your dreams.

#1 Know where your money is going

Knowing where your money is going is the first step. Get organized. Once you know your spending habits, along with legitimate deductions available to you, you can get started. How can you know what you're allowed to deduct unless you know what you are spending your money on?

To find out what your monthly expenses are, riffle through your credit card bills, checkbook and bank statements, as well as receipts. Start with the first day of the year; this is the only way you are going to get the full picture.

Almost all of us have regular expenses, including basic monthly expenses:

• Mortgage
• Utilities
• Phone and fax lines (including cell phones for the whole family)
• Groceries
• Automobile payments and insurance
• Automobile Fuel and maintenance
• Children
• Eating out and entertainment
• Education for yourself or children
• Medical
• Insurance plans (house, health care, vehicle, etc.)
• Travel

These you can usually stir up from memory and do quickly BUT unless you actually sit down and go through your spending records you are not going to remember everything you spent money on. So do yourself a favor and stop telling yourself, "Oh, I know what I spend my money on." Instead, make a date with your records and go through them carefully. You'll be well on your way to becoming an organized tax payer.

You'll probably find some charges surprise you. Perhaps you forgot about some of the little things we buy every time we fuel up, such as coffee, candy bars or a pack of gum. Forgotten lunches with friends or colleges, office supplies and software, vitamins and over the counter medications - the list goes on and on. Don't forget the cost of hosting backyard barbecues and guest dinners, last-minute weekend trips, countless handouts to the kids (and yourself), gifts for holidays and birthdays and books that you pick up here and there that catch your eye. It's all there, hiding in a kitchen drawer full of crumpled receipts or in bank statements.

It's up to you to find it all. Once you've categorized it all, you'll be ready to move forward, knowing deductions that apply to your lifestyle.

#2 Convert your expenses to legitimate business deductions

Home office: If you work a certain amount of your business from home, you can deduct a percentage of your mortgage (or rent), utilities and
regular home maintenance costs.

Business supplies and equipment: The cost of these things that you need to keep your business running smoothly is fully deductible. We purchase paper, staples and other supplies so regularly, yet sporadically, that often times we lose track of our spending. Take another look around. What about the countless business books lining your shelves? Have you made sure to document all of them for your yearend records?

If you remodel the area in your home dedicated to your business so that you can work more efficiently (or need to make it more presentable to your clients) this is 100 percent deductible - NOT limited to the percentage. The same goes for that extra phone line or fax line you got specifically for the business.

Cell phones: You will be able to deduct whatever percentage of your cell phone you use for business. If you hire family members, their wages are deductible.

Children: The day your children turn seven years old, you can hire them for your family business. Make the tasks they perform and their salary reasonable for their age; it should grow as they grow. You can pay your children under 18 up to $5,450 per year with little or no payroll taxes. The purpose for this? Simple! By doing this, you convert endless cash flow to them from taxable dollars to deductible dollars. Hire them through your business, pay them accordingly and deduct this amount as employee wages. THEY pay for their own expenses from now on. You are doing them a favor by giving them world experience, instilling in them a strong work ethic and helping them live on a budget. What a gift!

Child care: The IRS allows your business to pay for up to $5,000 worth of dependent care as long as your business is a C-Corporation and you hire yourself.

Education: If you're footing the bill for children currently in college, hire them as employees. This allows your business to provide educational reimbursement of up to $5,250 per year, per child. Remember to give them reasonable jobs with reasonable pay to keep yourself legal.

Snacks: Coffee, tea, sodas, bottled water, energy drinks, chips, fruit, nuts, candy. We buy these kinds of things every time we go to the grocery store. Keep track of these expenses because if you were on the job when you ate them, your business can buy them. Get in the habit of buying them on a separate receipt or with the business account. Keep it reasonable. The rule of thumb is about $700 per person.

Supper money: You can deduct meals you and your employees have while working late to finish a project. Keep the receipt, write down why you had to work late and file it away for your deductions. Keep it safe and don't do it more than once a week.

Automobile: If we own the business, we have to drive for the business. We drive to office supply stores to pick up equipment, to the bank to deposit our hard-earned money and to restaurants to meet clients or partners to eat and discuss work. The rate is 58.5 cents per mile and that adds up to a nice big deduction, so just get your log and start recording mileage. (Plus it is an IRS rule that you must have a log if you are going to deduct mileage.) The start point is your principal place of business. Log trips for medical or charitable reasons (read on to learn why).

Eating out and entertaining: If you meet someone to talk about business at restaurants, sports arenas or other hot spots, keep track of them carefully. Always write down WHO, WHAT, WHEN, WHERE and HOW MUCH. You will need it because you can deduct 50 percent of the bill. Don't take the 50 percent part lightly. This is another one that sneaks up on people. We all have to eat, and we're dining out more then ever these days.

Entertaining in your own home: If you invite people over to your house to discuss your business, you can deduct 50 percent of your entertainment costs. However, if you promote your products to your guests, or if you host an employee or client appreciation party, then your costs are 100 percent deductible. Keep receipts, you'll need them.

Gifting: Giving is great, but it is even better if it's deductible. Accompany your gift with a card promoting your business and you can deduct up to $25 of the cost. If they are already your client of employee, the figure jumps to $75 and even greater if you and your friends or family have a corporation as it is unlimited in the amount.

Travel: If you have to travel for business, you're probably already deducting travel costs. But you may be able to turn a vacation into a deduction if you are willing to hold your corporate meeting at that location, at that time. Or you can research your destination and find business seminars or people to meet with for business.

Medical: This is such a big area. Most business owners already know that their medical premiums are deductible as long as they are not being taken out of another paycheck before taxes. The expenses we miss the most are out-of-pocket expenses:

• Travel expenses to and from medical treatments. Each fall, the IRS adjusts standard mileage rates. The rate for the last half of 2008 is 27 cents per mile.
• Cost of long-term care insurance, up to certain limits based on your age.
• The doctor told you that you have a medical condition and a vitamin or a supplement can help the condition? Get it in writing and deduct those supplements. Maybe he even told you to get a humidifier to alleviate your chronic breathing problems. The device (and possibly the cost of additional electricity to operate it) is deductible.
• The IRS also has deemed that costs for programs to help you kick the smoking habit are medically deductible, as are weight-loss programs undertaken at a physician's direction to treat an existing ailment such as heart disease.
• Co-pays, deductibles and uncovered prescriptions are easy to remember but what about all of your over-the-counter medications, first aid supplies, reading glasses, dental costs and more. The list goes on and on. Download a list of deductions called IRS publication 502; find it at www.irs.gov and display it somewhere it can serve as a reminder.

Charities: If you donate money to charities or churches, you probably are already deducting it. But don't forget the little things add up, such as non cash items (always have the organization provide you with a receipt for your records) and the mileage to and from making the donation. The IRS allows for 14 cents per mile.

Moving: Did you have to move more than 50 miles this year for the purpose of your business? Good news, it's deductible.

Cost of living or meals and lodging: If you are running a farm, campground, storage units, pet hotel or even breeding a specific animal on your property, your business (if it's a corporation) may be able to own the property and provide it to you for the purposes of taking care of the grounds and product. Consult your CPA to learn more about if this could make sense for you.

#3 Recruit a great CPA or accountant

Get a good accountant on your team. Schedule a meeting and provide your compiled records. Using your new knowledge about deductions, work with your CPA to put together a game plan for your taxes. A savvy accountant can help you determine what deductions are right for your business and what you have to do to qualify for the deductions if they are not. Don't worry: usually qualifying requires a little tweak here or there, such as having the correct corporate status or making sure you have the right forms in place.

Do I have to File a Tax Return?

You must file a federal income tax return if your income is above a certain level; which varies depending on your filing status, age and the type of income you receive.

Check the Individuals section of the IRS website athttp://www.irs.gov or consult the instructions for Form 1040, 1040A, or 1040EZ for specific details that may help you determine if you need to file a tax return with the IRS this year. You can also use the Interactive Tax Assistant available on the IRS website to determine if you need to file a tax return. The ITA tool is a tax law resource that takes you through a series of questions and provides you with responses to tax law questions.

There are some instances when you may want to file a tax return even though you are not required to do so. Even if you don’t have to file, here are seven reasons why you may want to:

1. Federal Income Tax Withheld You should file to get money back if Federal Income Tax was withheld from your pay, you made estimated tax payments, or had a prior year overpayment applied to this year’s tax.
2. Making Work Pay Credit You may be able to take this credit if you had earned income from work. The maximum credit for a married couple filing a joint return is $800 and $400 for other taxpayers.
3. Earned Income Tax Credit You may qualify for EITC if you worked, but did not earn a lot of money.EITC is a refundable tax credit; which means you could qualify for a tax refund.
4. Additional Child Tax Credit This refundable credit may be available to you if you have at least one qualifying child and you did not get the full amount of the Child Tax Credit.
5. American Opportunity Credit The maximum credit per student is $2,500 and the first four years of postsecondary education qualify.
6. First-Time Homebuyer Credit The credit is a maximum of $8,000 or $4,000 if your filing status is married filing separately. To qualify for the credit, taxpayers must have bought – or entered into a binding contract to buy – a principal residence located in the United States on or before April 30, 2010. If you entered into a binding contract by April 30, 2010, you must have closed on the home on or before September 30, 2010. If you bought a home as your principle residence in 2010, you may be able to qualify and claim the credit even if you already owned a home. In this case, the maximum credit for long-time residents is $6,500, or $3,250 if your filing status is married filing separately.
7. Health Coverage Tax Credit Certain individuals, who are receiving Trade Adjustment Assistance, Reemployment Trade Adjustment Assistance, or pension benefit payments from the Pension Benefit Guaranty Corporation, may be eligible for a Health Coverage Tax Credit worth 80 percent of monthly health insurance premiums when you file your 2010 tax return.

For more information about filing requirements and your eligibility to receive tax credits, visit http://www.irs.gov.

Tips in choosing a Professional Tax Preparer

Most professional tax preparers are honest, know the updated tax laws, and give you excellent service , but there are some unscrupulous tax preparers that can cause you legal and financial problems. No matter how you file, even if you

file taxes online. always check out the credentials of the tax preparer. The last thing you want is to get audited. Start with contacting the BBB and check their license status through state bar associates of attorneys.

Remember you, the tax payer is legally responsible for what is in your tax return even if it is prepared by another individual or a professional tax preparer.

Find out about the service fee when a professional tax preparer prepares your taxes, avoid those who base their fee on a percentage of your tax return , get a professional to give a flat fee for their service that is provided to prepare your tax return, professional tax preparer who is accessible after your return had been filed, a contact way to get in touch after taxes are prepared, preparer signs your return along with you, and assist the tax payer in IRS audits if errors are made.

6 Best Web Apps for Personal Finance to Manage Your Money

In the digital age, we have apps for shopping, locating coffee shops, and renting movies — it’s a good thing, then, that some responsible souls took it upon themselves to develop tools to manage our seemingly un-trackable spending. Whether you’re looking to devise a comprehensive budget, make a savings plan, or simply keep track of mounting bills, the following six apps can increase your financial savvy tenfold — all with the click of a mouse.

1. Mint. Probably the most popular option for its ease of use, Mint.com has been covered by the New York Times and The Wall Street Journal among countless others. Mint is a free, polished, comprehensive budgeting tool that graphs trends in spending and sends alerts to your phone when bills are due and accounts are at risk of being overdrawn. Users share their online banking data with the site — and in return, Mint automatically categorizes expenses and mines the data for cash-saving tips. It also suggests services that may help in your spending, such as low-interest credit cards. Mint also lets you set and track financial goals (ex. paying off credit debt, traveling) by asking you to provide information on how much the goal will cost and which funding sources you plan to draw from. As of October 2010, there are mobile Mint apps for both the iPhone and the Android.

2. Billeo. Billeo is a browser plug-in that manages and tracks your online shopping and bill-paying activities. It contains four “assistants”: the “bill pay assistant,” “shopping assistant,” “password assistant,” and “offer assistant,” which work together as well as separately to chart online shopping habits (and save online receipts) and chronicle bill history.

3. Yodlee. Mint and Yodlee have an interesting relationship: Yodlee at one time powered Mint’s “backend,” but Mint was bought by Intuit for $170 million dollars in 2009, little of which was retained by Yodlee. It continues to power over 150 financial institutions, and works with over 10,000 accounts, so linking one of yours to its interface should be relatively easy. It includes a bill pay tab as well as contains budgeting apparatus that tracks spending. In summary: Virtually the “heavy-duty” version of Mint, though perhaps less aesthetically pleasing.

4. Rudder. Rudder is a money management tool that can be used entirely from your email. It notifies you not only about upcoming bill payments, but tells you how fast you’re burning through your money. You can also add other “widgets” to your account (”What’s Left,” which gives you your balance once you pay off your bills, “Savings,” and “Bills.”) What Rudder doesn’t have, unfortunately, are mobile apps — but it makes up for it with its highly customizable user interface.

5. Buxfer. Buxfer is highly similar to Mint, but your financial information is stored offline — in your machine — using Google Gears capacity. The offline information syncs with your online account, and if you have a Google or Facebook account, you won’t even need another login. Buxfer also allows you to track spending among multiple parties (i.e., rent spending, grocery bills) and report IOU’s to each participating individual. Buxfer’s basic program is free, but has increasing levels of membership: Plus, for $1.79 a month, and Pro, for $2.79 a month (which allow you to increase the number of accounts you link to).

6. BillShrink. This excellent comparison engine aids in lowering your bills all around (credit cards, wireless service, television service, gas stations, savings and cds) by taking information you provide about your specific usage, scanning millions of data points, and informing you via e-mail if the site discovers a better deal based on your situation. Billshrink is especially useful for those that have acquired a ton of consumer debt and are looking for quick, easy ways to cut down on it.

Though the budgeting tools listed maintain a high level of security, as always, there is a certain unavoidable risk to be considered when dealing with programs that need access to sensitive financial information. Make sure to be vigilant with your data, and pull it from the web entirely if you won’t be using it often. If you stick with it, however, you’ll be a budgeting pro in no time — or, at the very least, you won’t be dipping into your savings to pay for scones and Grandes at Starbucks anymore.

Last Minute Tax Strategy

Between your end-of-year business obligations and your holiday family schedules, you’ve got a lot on your plate. The last thing

you want to think about during the merriment and bustle of the season is the tax man. Alas, as December 31 approaches, so too does your window for last minute tax breaks.

There are legitimate tax opportunities you may want to act on in December, but you have to know where to look and you need to be sure that those opportunities are the right ones for your business.

What's Coming & Going

If (and we certainly hope this is the case) business has been going “up and to the right,” and you expect a healthy profit in 2010; that profit, of course, is going to be taxed. But just how much that profit gets taxed will depend on your ultimate strategy.

For example, if you want to sell your business in the next few years, or need to secure lines of credit or attract investors, then you should be focused on producing a healthy balance sheet, profitability and a strong EBIDA. In this case, year-end tax deductions might not be a priority for you because you want to show that profit to prove that your business is doing well.

If however, you want to reduce the amount of taxes your business will incur in 2010, you should be looking for legitimate ways of reducing that profit this year. There’s only so much you can do about that, particularly in December, but if your business has the cash to handle it, here are two ways you may be able to realize significant savings:

• Defer money coming in. Any income you bring in during December will be reflected in your 2010 taxes. If you know you have income due in December, consider deferring it and instead recognizing that payment in January. Push that income out until next year..
• Maximize money going out. It’s the holiday season, it’s time to shop! Consider paying in full for new equipment, office furniture and other items your business will require in 2011 before the end of the year to maximize your deductions for 2010. There are all sorts of things this can apply to, from a new laptop, to building repair --- even the E-Myth Mastery coaching program which some clients will pre-pay for in December. Before you go on a spending spree though, run the purchase by your professional tax advisor to make sure you’ll actually benefit from the expense.

And that brings us to the most important thing: get help!

Talk to your Professional Tax Advisor

You need not be an accountant, nor understand the latest tax laws to be a savvy business owner. Some things are better left to the experts and our advice about taxes is always: consult a professional tax advisor.

You should have one for your business already, but you may only visit with them once or twice a year when taxes are due. If your advisor hasn’t discussed year-end strategy with you yet, be proactive and reach out to them. And when you meet with them, be sure you come with a clear idea of:

• Your short and long-term business goals
• Whether you’re going to be profitable or not this year
• What revenues you can count on in December
• What expenses you can count on in the first quarter up to the first half of next year

Make the Best Decisions Possible

It’s important to keep in mind that the business decisions you make throughout the year have tax consequences – even those decisions you make on December 31. Ultimately, your goal is to keep as much money in your own pocket as possible, so consult your professional tax advisor and come up with a year-end tax strategy that will help you make the most informed and effective decisions possible.

Where’s the career market going in the next three years? In 2010, what business do you want to be in?

Assuming you’re looking to find a new career, there are two directions you might want to consider: computers and health care.

Why health care?

As baby boomers age, the health care system is facing greater demands, creating better career opportunities. Health care careers are varied, offering lots of options. Within this category, you’ll want to take a close look at fields that cater towards geriatrics.

A lot of careers in medical fields require a little more education than other positions. But it’s worth it when you look at the long-term benefits. There are also often possibilities for part-time employment, especially when considering in-home care and medical transcription.

Pharmacist: To become a pharmacist, you need a Pharm.D. degree which takes about four years of study after you finish college, officially. Unofficially, I have two friends that took their PCATS (the test which most pharmacy schools use to determine admissions) after their sophomore year of undergraduate study and did just fine. (There are positions, such as pharmacy technicians, which require less education.) Employment growth for pharmacist positions is expected to be higher than the average of all occupations past 2010.

Why computers?

Every few months, it seems like there is a brand new career path having to do with computers. Software engineering, website design, IT analysis, new media consultants – they are all lucrative career paths, and are all relatively new. In 2010, there will be jobs we are only dreaming of today.

The key to any computer-related profession is flexibility. You have to be able to cope with rapid changes, learn new technologies and often have a willingness to either travel or telecommute. Outsourcing is a major concern for people looking for technical support positions, etc. Flexibility can deal with these concerns: there is still a need for on-site technicians, and you can take the opportunity to travel to a new country to work there, if you choose. Computers also offer lots of opportunities for entrepreneurship.

Software engineer: Most companies want software engineers with a bachelor’s degree in computer science or engineering, or practical experience. It’s also expected to be one of the fastest growing careers through 2014.

Just one last thing for you to think about: take a look at this list of the fastest growing occupations, according to the U.S. Department of Labor. Almost all of these careers are in computers or healthcare.

• Computer software engineers, applications
• Computer support specialists
• Computer software engineers, systems software
• Network and computer systems administrators
• Network systems and data communications analysts
• Desktop publishers
• Database administrators
• Personal and home care aides
• Computer systems analysts
• Medical assistants
• Social and human service assistants
• Physician assistants
• Medical records and health information technicians
• Computer and information systems managers
• Home health aides
• Physical therapist aides
• Occupational therapist aides
• Physical therapist assistants
• Audiologists
• Fitness trainers and aerobics instructors
• Computer and information scientists, research
• Veterinary assistants and laboratory animal caretakers
• Occupational therapist assistants
• Veterinary technologists and technicians
• Speech-language pathologists
• Mental health and substance abuse social workers
• Dental assistants
• Dental hygienists
• Special education teachers, preschool, kindergarten, and elementary school
• Pharmacy technicians

Overcoming Business Frustrations

We define business frustrations as a series of specific recurring events in your business over which you feel you have little or no control.

Every business has frustrations. From small "hiccups" that hinder the flow of work, to fatal flaws that can have a devastating impact on the bottom line, and everything in between.

As it is with every challenge you face, the question is really about how you deal with it. You can ignore the frustration all together; you can abdicate and hope that somebody else will take care of it; you can apply a quick band-aid fix… But all of those options would be doing yourself, your team, and your business a great disservice.

I'd like to share this story about Michelle who owns a printing and design business. Michelle was having trouble finding the time to develop systems and processes because of constant interruptions from clients. She was getting so many project status requests that she couldn’t focus on the strategic work she wanted to do. Michelle told me that she was feeling frustrated by the fact that her customers weren’t relying on her support staff. She hadn’t taken any proactive steps toward fixing this situation because she was afraid that her clients had gotten used to working with her and she didn't want to jeopardize the level of service they'd come to expect.

There are three ways people typically perceive business frustrations like the one Michelle was experiencing.

1. Self-Directed: I am the cause. “I make my clients rely on me too much.”
2. Outer-Directed: Someone or something else is the cause. “My customers aren’t utilizing my support staff.”
3. System-Directed: The lack of an effective system is the cause "There's no system in place for proper project communication."

For Michelle, her first inclination was Outer-Directed. And that's typical, we all have a tendency to blame other people. But if you ask the right questions you can move through the blame game and focus instead on the system solution.

Finding the solution to a frustration begins by asking the right questions. The questions that will enable you to discover what the true, underlying business conditions are.

• First explore the big picture. What is the real impact this frustration has on you, your employees, your customers and your business?
• Then quantify anything and everything that might be a result of this situation. Whether it's lost time, productivity, lost revenue... every frustration is ultimately costing you money.
• Finally, keeping the first two steps in mind, observe the frustration objectively. Avoid blaming people, instead focus on the systems. Walk step-by-step through the sequence of events until you're able to dissect what’s really going on. You'll probably identify areas that can be improved with system implementation right away.

For Michelle, it boiled down to the fact that her clients went to her for answers because they were never told to do otherwise and her support staff did not have the systems in place to regularly contact clients. In short, there was no customer communication system in place.

With a System-Directed frustration identified, you have the clues you need to begin understanding the underlying business condition that is the cause of your frustration.This will eventually lead you to the solution—a system solution. What Michelle needed to do was work with her support staff to create the appropriate communication system for clients.

Now her clients receive introduction emails from their assigned Customer Service Representative at the beginning of each project along with regular status updates until the project is completed. They improved their email signatures and website contact information so that clients can be clear about who to contact for what.

The result? Michelle estimated that establishing this client communication process freed two hours of her time each day. Imagine that! Two hours she can now put to very good use working on her business. Her support staff now has clearly defined steps to take to ensure clients have an exceptional experience on each project. The positive results from this system implementation just keep coming. And it was all born from a frustration Michelle couldn’t see a solution to before!

This process, the Key Frustrations Process, is a client favorite and is really about the essential skill of systemic thinking. It helps you look at problems and frustrations strategically to pinpoint gaps in your systems and processes that a new system or set of systems can solve. When you engage in this process with your team (you should include them!) you end up creating a powerful culture of strategic thinkers looking for ways to solve problems and improve business operations instead of an endless cycle of blame and discouragement.