Sep
17
Watch Your Business Expenses (Self-Employed)
September 17, 2007 | Comments Off
Uncle Sam is lenient on business: you can deduct business expenses from earnings. This is a big difference from personal taxation: you are not allowed to deduct most living expenses out of a salary. However, there is a point where both things may get fuzzy: small business. Many small business owners enjoy what they do so much that they may get more excited about working and using their tools (business expenses) than about a good revenue. For example, a restaurant owner may get carried over on buying too much equipment (kitchen toys/tools). And I, a computer professional and day trader, have the risk of buying more equipment than I need: in part because I like working with the latest equipment a lot more than working with less up to date equipment.
Tools and equipment is not the only place where earnings evaporate:
- Real Estate – It also happens that some business owners have such dreams of growing into a big enterprise that spend too much on looking big. I once worked with a startup of 5 people who rented a building with space for 30. We where all working out of a conference room and the rest of the building remained empty forever (big waste).
- Utilities – Take the Internet for example. You can have “business grade” Internet, or “personal grade” Internet. If you are serving data from your business location, you may need business grade. But you may not be doing so. I host my business data in a data center, not at my business location. For my business location I use personal grade Internet.
- Business Meals – Uncle Sam is smart. They know that people have to eat to survive, so they count half of a business meal expense as deductible, and the other half as a living expense. Still, people are very tempted to overdo business meals. Not all business need them. Not all situations need it either, or not the expense.
- Travel – Travel is a place where you can really cut down on price. Using discounters (Southwest, JetBlue, etc.) and buying in advance helps. Also, you don’t need luxury hotels all the time. Remember, you are not on big company’s dime anymore. (That is, unless big company is paying, and will pay very soon).
- Financial Services – Do you need a bank account with an extreme amount of services, even if you just do a few transactions a month? A cheaper bank account, or one from a more flexible bank may be in order.
It is important to watch business expenses carefully. Do not spend a $1 that you can’t justify will bring more than $1 back – more so that what you could have gotten with your current equipment, location, or services.
Remember: enjoying your business is a big portion of starting a business. But good financial practices will keep it afloat so that you can enjoy it longer. The competition may be watching their wallet: and you want to outlast them.
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