Nacondra Moran: Welcome to tax preparation. One-on-one for freelancers and small business owners. This presentation is all about getting your business ready to file taxes. So if you have any questions about filing taxes as an entrepreneur or freelancer, small business owner, you've made it to the right place let's get started.

Nacondra Moran: So who am I? I am Nacondra. I am the owner behind Exceptional Tax Services, where we offer simplified accounting services to small business owners. We have a big passion for bridging the wealth gap for entrepreneurs by educating them on one of the biggest pain points in growing a business, which is taxes, bookkeeping, and accounting in general. So through educating and servicing our clients, we're able to help them grow, help them to be proactive and not reactive when dealing with the money side to their business. So no matter where you are in your business, money taxes and bookkeeping will at some point become relevant. So this presentation is all about getting your business ready to file, what that looks like and how to make it easier for you going forward year to year. So we are going to first discuss why this is important and why you should be paying attention.

Nacondra Moran: And I thought this was a really interesting quote because this is definitely not, you know, where it says, "I'm glad I learned about parallelograms instead of how to do my taxes. It's really come in handy, this parallelogram season." So, you know, we weren't taught this in school. So some of these things dealing with taxes, bookkeeping, and accounting, you may not know these things, but the reason why you should pay attention is because this is so important, you know, as you're growing your business taxes and bookkeeping are just going to be a part of that mix and having the information, being able to set up the proper foundations, being able to, you know, be more organized for tax time and know, you know, what to expect, what your requirements are as a business owner, it's still very important. So being able to know this information will definitely help you be proactive in the future, and it will also help things to be a lot easier for you.

Nacondra Moran: All right. So this is,

Nacondra Moran: We are going to be learning today. So we're going to be learning tax filing requirements as a small business owner, getting yourself organized for tax preparation, how to file your tax return or how to be better prepared for your tax professional and some tools to help you stay organized for years to come.

Nacondra Moran: All right, first,

Nacondra Moran: Let's talk about self-employed income and what are the requirements for you to file taxes? So a question that I get is am I even, you know, required to file my small business income on the tax return? And the question is, if, and the answer is if you have any net earnings from self-employment of $400 or more, then you do need to file a tax return and report those earnings on your tax return for the tax year. So I think some people think because the income is so low that they don't need to report it, but the IRS says that if you do have self-employment income of over $400 then, or $400 or more then you do need to file a return. So, another question would be, well, what if I made no income, but I had expenses, meaning, you know, I'm just a startup business.

Nacondra Moran: I'm just like getting my foot on the ground. And I don't necessarily have any income yet from the business, but I actually made, you know, I bought, you know, a course or I made purchases and startup expenses for the business. So do I need to file that or do I not, or do I just exclude it? So some business owners will just opt to not, to just not include it. I would say that you definitely should, if you have any expenses that you've made for the year, even if it does give you a loss on your tax return or on your business return, you should still claim it because if you're still working, if you may also be, working like a W2 salary job, the loss of the expenses that you are making for purchases for your business could offset some of the W2 income that you've received working as an employee.

Nacondra Moran: So that still kind of gives you a tax break because some of those expenses will kind of reduce your taxable income and reduce your tax liability. So even if you do have a loss, and you don't have income or it's very little, but you had a lot of expenses for a year or the expenses exceeded what your income was, you should still claim it. and then that way, if you did have any additional income, like a W2 from working, you know, like an, for an employee or a salary position, then that could also reduce your tax liability.

Nacondra Moran: All right. So getting yourself organized for tax preparation. So I like to kind of address tax preparation for entrepreneurs in a two-part way. So before we even get on the business, before we even talk about, the business at all, we want to first, just talk about the personal side to the tax return, because you're a business. if you are a sole proprietor and you're operating, even, an LLC, but operating as a sole proprietor in your filing on a schedule C, then that is an attachment to your tax return, which means that you're still filing the 1040 and then the schedule C is just an attachment. So before we address the schedule C before we address the business part of the tax return, let's first just address all the personal side, all the personal things to the tax return, because that may make things a little easier by having that foundation ready.

Nacondra Moran: And then now all you'll have to focus afterwards is just on your business. So as far as like the first steps for, for getting yourself organized for tax prep is let's just gather your personal income tax information. So, without even thinking about the business, what else is on the tax return that needs to be, needs to be pulled and needs to be put to the side for tax preparation. And this may actually be the easy part because these documents are usually sent to you either via mail or via email. So examples of gathering your personal income tax information, examples are going to be things like your W2's if you still work for an employer, it will be any 1099s that you've received, your mortgage interest statements if you own a home, any charitable contributions that you may have made, any retirement contributions or even any self-employed health insurance contributions. So any of those things where you are, either being paid from an employer, or you are making contributions somewhere, usually you'll get some type of year end statement or document. And that's what makes the first part easy, which is why I say you tackle that first, because just gathering all your personal information will make it so that now all you have to focus on is business. So the first part is gather your personal income tax information.

Nacondra Moran: All right. So after you do that, then you want to assess where you are in your business. So you've gathered all of your personal income items that are going to affect the tax return. You have your student loan interest documents, if that applies to you, your mortgage interest, charitable contributions, your W2's or interest statements from banks, all of that. So now let's discuss where you are in your business. So the first steps, when thinking about, you know, how you're going to file your tax return, and your schedule C business return is, putting your income and the expenses on the tax return. So depending where you are in your business, this may either be a stopping point for you. this may even be a frustrating part for you in your business, or you may have it all together. So no matter where you are, you know, this is a very important step.

Nacondra Moran: So organizing your income and expenses is essentially what goes on the schedule C business tax returns. So when you are reporting your business income and the expenses, the IRS wants to know the total amount of income that you've received in sales, from your business. And then the total amount of expenses broken down by category. So this is essentially the importance of bookkeeping. So if you have been doing your bookkeeping during the year, then you may already have this information, meaning you may already know how much your business has brought in for the year. And you also already know how much you spent in expenses and likely they may already be broken down in, you know, by category, but you may not have any of this. So if that's the case, then you need to gather it.

Nacondra Moran: So this

Nacondra Moran: would be ways to do bookkeeping if you have not done none all year. So if you're just starting up and you have not done any bookkeeping yet you can choose to use either a bookkeeping software, or you can choose to do a more manual option of using Google sheets or Microsoft Excel. So bookkeeping software is going to be, you know, like QuickBooks online. If you don't want to pay for a monthly subscription to QuickBooks, another good option is Wave apps and that's a free software that you can do your bookkeeping on. Both of those softwares allow you to connect your bank accounts and you're able to categorize your expenses and everything ties in into financial reports that you can pull inside of the bookkeeping software, which essentially will tell you how much your business brought in for the year and how much, you know, how much you spent in expenses broken down by business category.

Nacondra Moran: So this is a really great option, even if you don't necessarily want to invest in a bookkeeping software, you can still choose an option like Wave so that you have the intuitiveness of using a software and not doing the manual option. But of course, you're not having to invest in anything yet. You're not having to pay any out-of-pocket expenses. So it doesn't affect your cash flow as a business owner. So it's a win-win. So another option would of course be the manual route where you would use Google sheets or Microsoft Excel. And that's still totally okay, depending on where you are in your business, you may feel like you may not necessarily want to learn a new software right now, or you may feel like you don't have a lot of transactions to use some type of software and it may be easier for you just to plug it into Microsoft Excel or Google sheets.

Nacondra Moran: And if that's the case, then totally do whichever one calls to you because the whole point behind the bookkeeping is that, even though you do want to keep track of it, you don't want to hate it. So you want to choose the option that, you know, you'll have, you know, a more likelihood that you will actually do your bookkeeping if you choose this option. So if you're the kind of person that does not like spreadsheets, don't choose Microsoft Excel, you know, go ahead and even if you don't want to pay for QuickBooks, maybe try Wave, or, you know, pay for QuickBooks and have that subscription, maybe even paying for it will keep you accountable to use it, whatever, you know, your mindset is behind that, but take, you know, take bits and pieces of your personality and fit that into what would be the best option for you, and then go from there because, honestly, bookkeeping is so important to your business.

Nacondra Moran: It's literally the backbone to your business. So when you think about the future of like, you know, getting business loans or purchasing homes or having those financial records, even what we are experiencing right now with COVID 19, and a lot of taxpayers or business owners are filing for SBA loans and things like that, your bookkeeping is all needed in order to apply for all of those things. And that's why it's so important. So even if you don't necessarily like the bookkeeping just understanding how important it is and choosing a system that really works with your personality so that you can keep up with it, and that helps you stay proactive and not reactive. So these would be the two basic ways to keep up with your income and the expenses. To speak on the spreadsheets, again, if you choose to do that, you can either just go in and itemize what your sales are for the year and what your expenses are broken down by category.

Nacondra Moran: And when I say category, I mean, you know, what you actually spent the expense for, was it an office expense? Was it an advertising expense? Did you spend it on education and training? So being able to itemize and break down what you actually spent the funds on, as well as what you're going to put into the spreadsheet. So some people can create tabs and go from January to December and the bookkeeping in a spreadsheet, and then they can tally up everything that they've made for each month and then total it all to create what your business brought in for the year.

Nacondra Moran: All right. So ultimately the whole idea behind doing your bookkeeping, especially for tax time and for your schedule C, which is how you will report your income and expenses. That's the name of the tax form. So it's to get a profit and loss statement. So, as I was speaking with Wave or QuickBooks, if you were to use some type of bookkeeping software, once you categorize all of your expenses and your sales, then you're able to pull this report, which is called a profit and loss statement or a income statement. And this just pretty much tells you the income that you received and all of the expenses. So this is an example, profit and loss report, and it looks different than what you would see in QuickBooks or any type of bookkeeping software, but it's just pretty much showing you what it would look like.

Nacondra Moran: And so if you were using a spreadsheet, ultimately after you go through month by month, then you want to have the end result with a yearly profit and loss. So if you're just doing your books on a monthly basis during the year, then you would have your monthly profit and loss statement with, you know, the total income you received for the month, and then the total expenses broken down by category. But then all of that will be added up to the yearly amount that you spent and the yearly amount that you received. So this is what you would actually give to your tax preparer, or this is where you will say for yourself, if you're preparing your taxes, this is going to be the information that you transfer to the tax return after you do your bookkeeping and the categorizing of your income and expenses.

Nacondra Moran: All right. So piggybacking on what we were talking about for the categories that I've already spoken about, as far as categorizing your expenses, these are some common self-employed tax deductions for online and digital entrepreneurs. This also can be applied to a lot of other entrepreneurs as well. But these are some common expenses that you may see or that you may have as a entrepreneur. So you'll have advertising. Examples of this would be Facebook ads or any type of advertising that you spend in order to market your business. Insurance. An example of this could be any type of business insurance that you have to protect your business from a liability standpoint. Your self-employed health insurance would be any health insurance plan that you may have if you're solely self-employed and you don't have access to, you know, an employer's plan if you were working and you were receiving a W2. Office expenses would of course be anything that's, you know, necessary for you and your office.

Nacondra Moran: So any stationary, pens, pencils, notepads, paper, things like that. Dues and subscriptions. Examples of this would be monthly dues that you may pay such as, you know, if you use Canva in order to create any graphics or, you know, anything for your website, or if you are using just like a monthly subscription to, like a video recording software such as Loom. All of those monthly reoccurring subscriptions that would be categorized under dues and subscriptions. All right. So business education would be any type of courses or any type of education classes that you take in order to advance yourself in your industry. Merchant fees. Examples of this would be any payments, any payment fees that are taken out of your your sales. So if you're using merchant providers such as Stripe, PayPal, those are all examples, Square,

Nacondra Moran: in order for you to receive your payment, you have to pay a fee and that fee is deductible. So that is a merchant fee. So if you have those, that's what you would categorize it as. Bank fees and charges would be any monthly, bank fees you may have with your bank, if they charge you like a reoccurring monthly maintenance fee, that would also be an example or any, I don't know, international or any type of like fees on any particular purchases that you make, that would be deductible. Travel would be any plane tickets or train tickets that you pay in order to go to somewhere that's necessary for your business. Like if you were going to a retreat or a business conference. This would also include your hotel and lodging. So any type of travel expenses would go under this category. Business licenses and permits are going to be any annual registration.

Nacondra Moran: So if you're an LLC and you pay your state every year, that would be part of this category. Also if you have like any other business licenses or special permits for your business, that would be an example as well. Legal and professional fees could be any fees that you pay to a professional for a particular service, or for an attorney. Accountants can be under this category as well. You can also make it more specified and just say, you know, bookkeeping or accounting fees, but you can also categorize it as just a professional fee. So that's what that category would be. Rent would be any monthly payments that you made that would be for you renting some type of space. An example of this would be maybe a coworking space or some type of space that you're paying for every month for you to be able to work that would be considered a monthly rent, and you can categorize that.

Nacondra Moran: And then your contractors are going to be anybody that you're paying in your business whose performing a service inside of your business, and they're not considered an employee, meaning you're not paying them a W2. So they're working in your business and you are paying, paying them, then they will be considered a contractor. So in general, these are some very common business expenses for people who are self-employed. If you ever get into a jam where you're trying to figure out well, is something to deductible? Well, maybe just look at it this way, in order for a deduction to be a valid business deduction, it needs to be two things. It needs to be ordinary, and it needs to be necessary for your business. So what it, what it means to be ordinary is it has to be something that's ordinarily purchased in your industry.

Nacondra Moran: So if you are a photographer, then a camera would be something that's ordinarily purchased in your industry, right? So after the ordinary test, then the next test would be well, is it necessary? And that means it was something that was necessary in order for you to do your job. So, in the example, with the camera, would the camera be something necessary that a photographer would need, or in the example of a web designer, a web designer needs a computer in order to do their work. They would also need special software. So not only would that be an ordinary expense, meaning that's something that's ordinarily purchased in a web designers industry, but also it's something that's necessary for their business, meaning that they need a computer in order to do their work. They need the software in order to do their work. So if you ever get into a jam where you're trying to figure, is this deduction even valid or is this, you know, something that can be deducted, then ask yourself those two questions. Is it an ordinary expense? And is it a necessary expense? And if the answer is yes, then according to the IRS, it is considered a valid business deduction

Nacondra Moran: Next deduction that we're going to talk about, which is so important but commonly sometimes overlooked and hopefully not now because of COVID. And so many people who have now transitioned to working at home, but the home office deduction is a very big deduction that's taken on the return and it's not taken the way that it would be with your bookkeeping. And the reason why is because, it's not expensed that way, meaning it's not like you're swiping your car for an expense and Hey, that's your home office. So there are some calculations that have to be done. So make sure that when you get ready to file your tax return that you do not forget about this deduction. So what is the home office? This is a qualified business use of a portion of your home. So to be deducted, for this to be a valid business deduction, the requirements are, is that this should be an exclusive and regular use of the main place of your business.

Nacondra Moran: So the part that you're using in your home, this needs to be a exclusive and regular area that you're using exclusively for business, or even if you're meeting with customers, clients, and patients there. Now, a lot of us are not. We're virtual. So just having that exclusive and regular space within your home would be one of the requirements, or regular use as a storage area for products you sell in your business or samples. If your home is the only place you conduct your business and/or regular use and providing daycare services for children, the elderly or disabled persons.

Nacondra Moran: So in order for you to take the home office, so if you have a dedicated space in your home and you want to take this deduction, what you would do is you would take the square foot of your home office, and then you would also take the square foot of your entire home. And when you divide that you will actually get a percentage. And the percentage is the amount that gets applied to the deductions for your home office. So for example, let's say you do the calculations and the deduction percentage amount ends up being 15%. So that means that 15% of your rent, utilities, repairs, and maintenance would all be considered deductible. So when you get ready to gather it, you would make sure that you calculate the total amount of rent that you spent. If your rent, if you're renting your home. If you are owning your home, then it would also be like your 1098, your mortgage interest and taxes and things like that.

Nacondra Moran: So you would also take your utilities. So that would be water, gas, electric, any repairs and maintenance that you've done in the home for that particular tax year. And then also one that's not included on this particular slide would also be like any cleaning. So if you pay to have, you know, a cleaning service come, or if you have some type of maid service that comes, that could also be something that's deductible as well and can be applied towards your home office. So like I said, this is still like a really big deduction that you definitely shouldn't overlook. So when you are doing your business, a portion of your return and you are gathering everything, you gather your bookkeeping first, get your income and expenses all together, and then take out a note pad and gather your home office. Well, your square foot of your home office is what the square foot of the entire home is, and sit down and calculate all of your home yearly expenses.

Nacondra Moran: And then that way, when you are preparing your tax return, you have that information ready and all you have to do is plug it in. Okay. So, so far we have gathered all of our personal information that will affect the tax return. Any W2's, 1099s, mortgage statements, or anything that we've received via mail or email from either people who have paid us for services or contributions that we've made. We've also gathered our bookkeeping, or we at least have started the process of doing that. And we have assessed where we are and the bookkeeping part of our business. So you understand how you can do your bookkeeping, the differences between using a spreadsheet versus using something like QuickBooks or some type of accounting software, like Wave. We've also discussed the common business deductions and how to differentiate if a deduction is actually deductible or not, and is a valid business deduction.

Nacondra Moran: We also discussed the home office and what the requirements are to be able to deduct a home office and how to actually do it, what the calculations are behind that. So now that we have gathered all of that, we are now ready to plug this into the tax software and actually start the process of preparing the return. So how to file your tax return. You have many options. You can use an online tech software provider. You can use free file via the IRS's website. And when I say online tax software provider, I'm talking about the companies that you can purchase. Examples is like H & R Block home edition, Turbo Tax, home edition. Those are what, those would all be online tax software providers, where you can pay, they give you a license to their software, and then you can use their system to file.

Nacondra Moran: The other option would be free file of the IRS as website. And a lot of people don't seem to know about this, but do you know that depending on your income threshold, you can actually potentially file for free using the IRS's free file on their website. So during tax season, the free file opens and you can go there and file potentially your taxes for free. So these online tax software providers such as H & R Block, Turbo Tax, they all have a free file version on the IRS's website. And depending on your income threshold, you may be eligible to use it. So you should definitely check and see what the requirements are. And if you are under the threshold amount, especially if you're a beginning entrepreneur and you may not have a lot of income yet, that would be a great option.

Nacondra Moran: If you do want to file and prepare your tax return yourself, and you don't want to pay for, you know, an accountant or anything that could also be a viable option to be able to get your tax return prepared, if you're comfortable doing it yourself. The third option is filing by paper, which is not recommended because it's just not as easy when you're doing it by paper. And then also when you're filing electronic, they're able to fact check things and to make sure that you have submitted everything correctly and they can check for errors and mistakes before it's transmitted. So I wouldn't recommend filing by paper, but that is still an option. And then the fourth option is to use a tax professional. So you can hire a tax preparer to file your tax return, and then they can gather and plug in all of the information after you submitted to them. Going back to using a tax professional, I would also advise you to try to find someone that at least is familiar with your industry.

Nacondra Moran: They know what you do, especially if you are a online and digital entrepreneur, where you make your, your money, 100%, online. Some older school accountants may not fully understand what it means, you know, to be a business coach or to be a, you know, any other type of industry that you could potentially have where you're working, you know, a hundred percent online. So make sure that whoever you do hire to, to prepare your taxes, they've worked with entrepreneurs before, but they also not only have worked with entrepreneurs, but they understand your industry because when they understand your industry, they understand your tax deductions because your tax deductions can sometimes be specific to your particular industry, which goes back to whether a deduction is ordinary or necessary. So for something to be ordinarily purchased in your industry. So having that knowledge background for your tax preparer will help them further prepare your tax return. So I think that would be some very good advice to take as far as when you are shopping around looking for a tax preparer, just to make sure that who you hire is knowledgeable so that they can help you maximize your deduction so that you don't overpay on your taxes. Because nobody wants that. Right? Nobody.

Nacondra Moran: All right.

Nacondra Moran: So how to be better organized for your tax professional, if you choose to hire one. So if you're not going to prepare them on your own and you want to have and hire a tax professional, I would say to be organized and to have all of your documents together. So by using, in taking some of the tools that I provided here about gathering all of your personal documents and putting that to the side and then gathering all of your income and expenses, and then structuring it as a profit and loss statement, that would be a really great way to be organized in, for your tax preparer, even though it seems like it's a lot, it's really kind of simple when you kind of break it down into very tiny tasks. So even just working it, you know, you're bookkeeping month by month, and then adding that up to the year and being able to create a report to give to your tax preparer is very helpful. And then also practice good record keeping so that if they ever have any questions or if they ever needed to reference anything, they can also ask you as well,

Nacondra Moran: Alright.

Nacondra Moran: So these are some tools that help you stay organized. So we've already discussed QuickBooks online, which is a great accounting software that you can use. You can connect your bank accounts and you can categorize all of your income and the expenses. You can create all types of financial reports, which is good for analyzing your business, seeing the health of your business, as well as the growth of your business. You can also do the exact same thing using Wave. This is a free option if you want an accounting software, but you're not necessarily ready to invest in QuickBooks online. Wave allows you to connect your bank account as well. And they also allow you to pull reports. And then also these accounting softwares allow you to invoice and receive payments, which may be very helpful for a lot of us who are working online. And it makes it really easy for us to be able to get paid.

Speaker 4: So those

Nacondra Moran: Two options would be really great options to stay organized. And then also it grows with you so that you can see the longevity of your business. If you ever need to reference your past year bookkeeping, you're able to do that because everything is all in one location. And so it's a very good practice to have, and it's a really sure way to help you stay organized. If you don't want to use accounting software, then of course you can use Microsoft Excel or Google sheets, and you can do the same thing by breaking it down month by month. And then just keeping track of all of this, maybe in a Google Drive so that you can reference your months and your years of how your business performs. And that's also a way to help you stay organized in case you ever need to reference it.

Nacondra Moran: It gets you ready for tax time, and it keeps you proactive. If you ever need to reference your financial records for any reason. Another good tool to help you stay organized is Google Drive. And this could just not only be for, you know, your financial bookkeeping records, but also for like any receipts or document storage related to your tax return. So as far as like gathering all of your tax documents, you can choose to use something like Google Drive or Dropbox, label it 2019 taxes or 2020 taxes, and then put all of your documents in this one folder. And then that way, if you ever need to reference it, then you can. Another option or another way that Google Drive or Dropbox can help is if you want to keep up with all of your receipts. You can create folders and you can maintain all of your receipts in these folders and keep them organized by year in case you were ever to be audited and the IRS wanted substantiation, you'd be able to provide it. Another good reason to have something like Google Drive or Dropbox is even if you are out and you're not necessarily working from home.

Nacondra Moran: Those apps that can also be on your phone for Google Drive and Dropbox have capabilities with a camera where you can just snap the picture of the receipt, and then it's already there for you, which makes it very, very simple. So these are all tools to really help you stay organized with the money side to your business, definitely some type of way to write down your finances from the business, and then some way, a way to actually keep track of all the documents and to keep them stored and organized. So these options would definitely be ways to help you stay organized year to year.

Nacondra Moran: Here are some additional resources that may help you along your entrepreneurial journey. So I hope that this presentation has been helpful and that it gave you a lot of information about how to file your taxes as an entrepreneur and how to be more organized year to year. And what it looks like to say, get all of your business, documents together so that you can file. if you need additional resources and if you are DIY in your business, you should check out my library. It's called the DIY Resources

: Library For Entrepreneurs, and this gives you the tools and education to just help you DIY your business. It has all sorts of, like, different types of products inside of the library, from taxes to estimate a tax payment, calculators. There's a home office calculator that will do all the work for you.

Nacondra Moran: There's a bookkeeping spreadsheet, a budgeting, profit first spreadsheet. There's things in there to help you stay organized and how to manage your small business finances for success. There's cheat sheets and checklists, and what to do if you owe the IRS. There's all types of resources inside of this library. So I encourage you to check it out. This is how you can reach me and how you can also reach the library. So you can follow us on Facebook at Exceptional Tech Services, LLC. You can follow us on Instagram at Nacondra Moran. You can use my link tree to check out any blog posts and other freebies, my website, as well as the DIY library is here@exceptionaltaxservices.com. And you can email me at contact@exceptionaltaxservices.com. Thank you so much for listening to this presentation. I hope that it was helpful, and I hope that it aided you in being more proactive and understanding tax preparation for entrepreneurs, and that it will help you be able to file your tax return, more organized, more seamless, and, uh, hopefully you have a better understanding of what all is required from you as a business owner. So thank you so much. And bye-bye.