HOW TO KEEP WHAT YOU EARN.
WHEN ROBERT L. AND SHARON SIMPSON JOSEPH BID farewell to the corporate world to venture out on their own, they realized that there were several things they needed to do to enjoy the benefits of financial and tax planning. For starters, they went to great lengths to separate their personal finances from their business finances by creating separate bank accounts. They use credit cards in their companies' names to keep a paper trail of their spending and they fill out expense reports to record all travel and entertainment expenditures. They also use separate budgets and spreadsheets to track their cash flow.
"One of the unique things about us is that we are a household where we have our personal expenses in addition to two different businesses," says Sharon, an attorney by trade. "We make sure we have dividing lines between all three of those."
The Atlanta-based couple are the sole owners of VizMotion Inc. (www.vizmotion.com), an IT firm that provides products and consulting services to such clients as Sony Electronics and Fresh Water Soft;ware: and of Spirit Soars Inc. (www.spiritsoars.com), which provides motivational and educational books, gifts, consulting, and nationwide seminars, including a technology course for small-business owners.
VizMotion started out as a sole proprietorship, then became a C-corporation in 1999. Spirit Soars is fairly new and is just starting to generate revenues. "We made the strategic decision to create it as an S-corporation so we can declare revenues or losses on our personal taxes," says Robert, formerly a vice president with Kansei Interactive and a member of the technical staff at US West Inc. "We pay ourselves a salary, and that is the money that we use to manage our household finances."
Rather than bring all of their paperwork to their tax specialist; in a piecemeal fashion, the couple use financial and accounting software, namely Intuit's QuickBooks Pro and a spreadsheet-cash flow program that Robert developed and offers through their seminars.
The Josephs realize that sound record keeping is a crucial part of BLACK ENTERPRISE'S DOFE Principle No. 5: Engage in sound budget, credit, and tax management practices. Keeping all your receipts and pertinent documentation could add tip to big savings.
Each year, tens of thousands of people pay too much in taxes to the federal government, because they failed to keep track and list their miscellaneous deductions, says Jeff A. Schnepper, author of How to Pay Zero Taxes, 2001 (McGraw-Hill, $14.95) and columnist with MSN's Website MoneyCentral.
Miscellaneous deductions are expenditures used to produce, preserve, and protect your income, explains Schnepper. What qualifies as a miscellaneous deduction? Books, magazines, computer programs, and professional advisor fees for tax preparation, financial planning, and investing. Job search expenses tied to career counseling, resumes, postage, travel, and phone calls. Certain legal fees, for instance, those paid in divorce court.
Here are some other tips for making your life less taxing:
* Use a financial software program to track and manage your finances. Using Intuit's Quicken is a lot easier than saving your receipts in a shoebox, says Michael Steele, a CPA with Williams Adley & Co. L.L.P. in Oakland, California. "At the end of the year you won't have to go through every check. Instead you can push a button and print out a list of your checks in different categories."
* Keep a record of the receipts for all travel and entertainment expenses. You can deduct expenses that are not reimbursed by your employer for travel away from for your business, profession, or job. Travel expenses include air, rail, bus, and taxi fare, baggage fees, meals, cleaning and laundry expenses, telephone and fax expenses, and tips. You can write off expenses for the use of your car for business purposes (32.5 cents per mile) plus tolls and parking. Deductions for gas, oil, repairs, registration, AAA dues, car washes, insurance, and depreciation are based on how much you use the car for business purposes. Meals and entertainment that are work related are deductible (50%) as are business gifts (a maximum of $25 per person), business supplies, professional association dues, and educational expenses incurred to maintain or improve your skills in your current position.
* Turn everyday expenditures into deductions. If you run a home business, for instance. instead of giving your kids an allowance, have them work for you and pay them a salary. Your kids can earn as much as $6,400 and pay nothing in federal taxes.
* Invest in tax-free vehicles. Says Steele, "You can reduce your taxes by converting taxable income into nontaxable income by investing in tax-free vehicles such as municipal bonds" (see "Tax-free Investing," Moneywise, this issue). "The higher your tax bracket, the more advantageous tax-exempt income becomes."
DECLARATION OF FINANCIAL EMPOWERMENT
From this day forward, I declare my vigilant and lifelong commitment to financial empowerment. I pledge the following:
1 To save and invest 10% to 15% of my after-tax income
2 To be a proactive and informed investor
3 To be a disciplined and knowledgeable consumer
4 To measure my personal wealth by net worth, not income
5 To engage in sound budget, credit and tax management practices
6 To teach business and financial principles to my children
7 To use a portion of my personal wealth to strengthen my community
8 To support the creation and growth of profitable, competitive black-owned enterprises
9 To maximize my earning power through a commitment to career development, technological literacy and professional excellence
10 To ensure that my wealth is passed oil to future generations
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|Title Annotation:||paying less and making money at the same time|
|Author:||BROWN, CAROLYN M.|
|Article Type:||Brief Article|
|Date:||Mar 1, 2001|
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