Articles and Publications

<div id="articles1"><!-- [et_pb_line_break_holder] --> <h2>Tax Makeover</h2><!-- [et_pb_line_break_holder] --> <h2>Discover how two massage therapists saved thousands of dollars on their tax returns</h2><!-- [et_pb_line_break_holder] --> <p class="byline">by Cherie Sohnen-Moe</p><!-- [et_pb_line_break_holder] --><!-- [et_pb_line_break_holder] --> <p><cite>Business 98 Magazine</cite> reported a certified public<!-- [et_pb_line_break_holder] --> accountant (<span class="smallcaps">cpa</span>) study showing that in 1997, America's small<!-- [et_pb_line_break_holder] --> businesses overpaid on their income taxes by over 2 billion dollars.</p><!-- [et_pb_line_break_holder] --><!-- [et_pb_line_break_holder] --> <p>According to Bernard Kamaroff, author of <cite>Small Time Operator and<!-- [et_pb_line_break_holder] --> 422 Tax Deductions For Businesses & Self-Employed Individuals</cite>,<!-- [et_pb_line_break_holder] --> "The overpayments were made because the businesses failed to<!-- [et_pb_line_break_holder] --> take tax deductions they were legally entitled to take. Many of these<!-- [et_pb_line_break_holder] --> businesses are still unaware of their errors. They overpaid their taxes,<!-- [et_pb_line_break_holder] --> and don't even know it."</p><!-- [et_pb_line_break_holder] --><!-- [et_pb_line_break_holder] --> <h2>Case Studies</h2><!-- [et_pb_line_break_holder] --> <p>To monitor more closely the massage therapy profession, I asked<!-- [et_pb_line_break_holder] --> two massage therapists in my area to meet with Robert Decker, a CPA in<!-- [et_pb_line_break_holder] --> Tucson, Arizona, to prepare their taxes. He spent almost two hours<!-- [et_pb_line_break_holder] --> with each therapist. He started out each session getting to know them:<!-- [et_pb_line_break_holder] --> finding out how they run their businesses; discussing where their<!-- [et_pb_line_break_holder] --> business and personal lifestyle (and expenses) cross over; and<!-- [et_pb_line_break_holder] --> ascertaining their understanding of tax law. Throughout the actual<!-- [et_pb_line_break_holder] --> tax preparation, he asked a lot of questions and took the time to<!-- [et_pb_line_break_holder] --> educate them about the nuances relating to this and future tax returns.<!-- [et_pb_line_break_holder] --> </p><!-- [et_pb_line_break_holder] --><!-- [et_pb_line_break_holder] --> <h3>Ann Wartchow</h3><!-- [et_pb_line_break_holder] --> <p>Ann Wartchow has been a massage therapist since 1990. She purposely<!-- [et_pb_line_break_holder] --> maintains a part-time practice to fit in her lifestyle as an outdoor<!-- [et_pb_line_break_holder] --> enthusiast. The majority of her clients are athletes. This was her<!-- [et_pb_line_break_holder] --> first experience working with an accountant, and she was a bit nervous at first.<!-- [et_pb_line_break_holder] --> </p><!-- [et_pb_line_break_holder] --> <p>Wartchow had always figured that doing her taxes was relatively easy;<!-- [et_pb_line_break_holder] --> she didn't own real estate, and her expenses seemed straightforward. As<!-- [et_pb_line_break_holder] --> it turns out, she wasn't declaring all of her deductions, the three biggest<!-- [et_pb_line_break_holder] --> areas being automotive, home office deduction, and travel. She didn't<!-- [et_pb_line_break_holder] --> include mileage for all of her out-call sessions or business-related<!-- [et_pb_line_break_holder] --> errands, she didn't take the deduction for her office, and she didn't<!-- [et_pb_line_break_holder] --> take the appropriate deductions for business travel because she didn't<!-- [et_pb_line_break_holder] --> save all of her receipts and wasn't aware of the per diem option.<!-- [et_pb_line_break_holder] --> By the end of the tax makeover, Decker saved her approximately $750.<!-- [et_pb_line_break_holder] --> </p><!-- [et_pb_line_break_holder] --> <p>The major changes that Ann is now implementing are opening a separate<!-- [et_pb_line_break_holder] --> business account, posting records on the computer and keeping a mileage<!-- [et_pb_line_break_holder] --> log. This session reinforced her writing off anything that is truly<!-- [et_pb_line_break_holder] --> business related. She says, "I feel more official and professional<!-- [et_pb_line_break_holder] --> having someone look at my stuff. I am also motivated to take my job more<!-- [et_pb_line_break_holder] --> seriously and work more. This was definitely a worthwhile experience."<!-- [et_pb_line_break_holder] --> </p><!-- [et_pb_line_break_holder] --><!-- [et_pb_line_break_holder] --> <h3>Angie Edge</h3><!-- [et_pb_line_break_holder] --> <p>Angie Edge has been in full-time practice since 1998. She sees<!-- [et_pb_line_break_holder] --> clients in her office and provides massage for a private insurance<!-- [et_pb_line_break_holder] --> company. Angie was accompanied by her partner, Barry Young. Barry<!-- [et_pb_line_break_holder] --> did Angie's taxes using TurboTax software, and had already submitted<!-- [et_pb_line_break_holder] --> the tax return and a check for the amount he thought was due. They were<!-- [et_pb_line_break_holder] --> both initially anxious; afterward Angie stated, "Robert was so cool and<!-- [et_pb_line_break_holder] --> laid back. We appreciated it."<!-- [et_pb_line_break_holder] --> </p><!-- [et_pb_line_break_holder] --> <p>Decker saved her almost $2,000, and submitted an amended return<!-- [et_pb_line_break_holder] --> for a refund. The biggest differences were in the home-office deduction<!-- [et_pb_line_break_holder] --> and equipment depreciation. There were also several little things, such<!-- [et_pb_line_break_holder] --> as not keeping track of laundry expenses (which does add up).<!-- [et_pb_line_break_holder] --> </p><!-- [et_pb_line_break_holder] --> <p>Angie and Barry were misinformed about the home-office deduction.<!-- [et_pb_line_break_holder] --> According to the IRS, it needs to be the primary place of business.<!-- [et_pb_line_break_holder] --> Last year she also did some work at a gym, so she didn't think she<!-- [et_pb_line_break_holder] --> could write off her home-office expenses. When the numbers came in,<!-- [et_pb_line_break_holder] --> she realized that the majority of her income was generated from her<!-- [et_pb_line_break_holder] --> home office.<!-- [et_pb_line_break_holder] --> </p><!-- [et_pb_line_break_holder] --> <p>Working with the TurboTax software wasn't as easy as they thought<!-- [et_pb_line_break_holder] --> it would be. It didn't forward through the second year depreciation on<!-- [et_pb_line_break_holder] --> her massage table. (The cost of the table should have been written off<!-- [et_pb_line_break_holder] --> fully in the first year anyway, but TurboTax doesn't make it clear that<!-- [et_pb_line_break_holder] --> you can take the full deduction of equipment up to $20,000 without<!-- [et_pb_line_break_holder] --> having to depreciate it over seven years.) Barry said, "I didn't always<!-- [et_pb_line_break_holder] --> know what form I was putting the numbers on, and it was very confusing<!-- [et_pb_line_break_holder] --> because there were a variety of income sources."<!-- [et_pb_line_break_holder] --> </p><!-- [et_pb_line_break_holder] --> <p>Basically, Angie kept good records. She uses Quicken and now is<!-- [et_pb_line_break_holder] --> really glad that she does. She was hesitant at first because she thought<!-- [et_pb_line_break_holder] --> it would be intimidating and difficult to use, but found it to be easy.<!-- [et_pb_line_break_holder] --> The major changes she will be implementing are tracking the expenses<!-- [et_pb_line_break_holder] --> where business and personal overlap (e.g., laundry) and having an<!-- [et_pb_line_break_holder] --> accountant prepare her tax return.<!-- [et_pb_line_break_holder] --> </p><!-- [et_pb_line_break_holder] --> <p>However, keeping good records isn't enough for tax preparation.<!-- [et_pb_line_break_holder] --> There are always areas that aren't clear, and the tax codes are<!-- [et_pb_line_break_holder] --> constantly changing. Angie's tax return is a perfect example. "It was<!-- [et_pb_line_break_holder] --> good to know that I was getting money back, and that I didn't owe<!-- [et_pb_line_break_holder] --> more," she says.<!-- [et_pb_line_break_holder] --> </p><!-- [et_pb_line_break_holder] --><!-- [et_pb_line_break_holder] --> <h3>Pros and Cons of Doing It Yourself</h3><!-- [et_pb_line_break_holder] --> <p>The three primary methods for preparing tax returns are to do<!-- [et_pb_line_break_holder] --> them manually, use a tax software program or go to an accountant.<!-- [et_pb_line_break_holder] --> The two major problems with doing it yourself (either manually or<!-- [et_pb_line_break_holder] --> with a software program) are it isn't as straightforward as it would<!-- [et_pb_line_break_holder] --> seem (there are thousands of codes that frequently change and most<!-- [et_pb_line_break_holder] --> are vague), and the tax returns list only a few standard deduction<!-- [et_pb_line_break_holder] --> categories. You need to know what expenses are deductible, and they<!-- [et_pb_line_break_holder] --> are not always obvious. For instance, there are options for declaring<!-- [et_pb_line_break_holder] --> deductions for business-related food and lodging expenses. Currently,<!-- [et_pb_line_break_holder] --> the standard per diem rate is $80 per day ($50 for lodging, and $30<!-- [et_pb_line_break_holder] --> for meals and incidental expenses). But the rates are higher for certain<!-- [et_pb_line_break_holder] --> cities (refer to IRS Publication 1542). If you have receipts that are<!-- [et_pb_line_break_holder] --> higher than the per diem, you can use those receipts (remember that<!-- [et_pb_line_break_holder] --> you can only claim 50 percent of the total bill, including tip). The<!-- [et_pb_line_break_holder] --> exciting part is that you can take the per diem rate even if it's higher<!-- [et_pb_line_break_holder] --> than your actual expenses. Loopholes aren't just for the wealthy!<!-- [et_pb_line_break_holder] --> </p><!-- [et_pb_line_break_holder] --> <p>Keep in mind that a tax deduction is what you can deduct, not<!-- [et_pb_line_break_holder] --> necessarily what you spent. Sometimes this works in your benefit, as<!-- [et_pb_line_break_holder] --> in the above per diem example. The flip side of this is that there<!-- [et_pb_line_break_holder] --> are legitimate business expenses that you can't deduct the full cost<!-- [et_pb_line_break_holder] --> (e.g., 50 prercent of business entertainment meals) and others where<!-- [et_pb_line_break_holder] --> there are limits (e.g., $25 per person ceiling on gifts).<!-- [et_pb_line_break_holder] --> </p><!-- [et_pb_line_break_holder] --> <p>The main problem with using tax software programs is that they<!-- [et_pb_line_break_holder] --> really aren't designed to handle the complexities of a business.<!-- [et_pb_line_break_holder] --> They are great for wage-earners who receive W2s. So if you are a<!-- [et_pb_line_break_holder] --> massage therapist working solely as an employee, then a software<!-- [et_pb_line_break_holder] --> program might work well.<!-- [et_pb_line_break_holder] --> </p><!-- [et_pb_line_break_holder] --> <p>I'm not saying that every therapist must utilize an accountant,<!-- [et_pb_line_break_holder] --> but it's wise to meet with an accountant at least once to determine<!-- [et_pb_line_break_holder] --> what deductions you may be overlooking, and to plan for ways to<!-- [et_pb_line_break_holder] --> legitimately write off future expenditures. Consider the above case<!-- [et_pb_line_break_holder] --> studies. Ann Wartchow has a part-time practice and saved $750.<!-- [et_pb_line_break_holder] --> Angie Edge and Barry Young used a tax software program because it<!-- [et_pb_line_break_holder] --> was cheaper than going to an accountant. Additionally, they didn't<!-- [et_pb_line_break_holder] --> trust accountants; they had preconceived notions that all accountants<!-- [et_pb_line_break_holder] --> are expensive and difficult to work with. Now they feel differently.<!-- [et_pb_line_break_holder] --> "You may not get money back, but you don't appreciate how much<!-- [et_pb_line_break_holder] --> they are saving you. It definitely makes more sense to use an<!-- [et_pb_line_break_holder] --> accountant," states Angie.<!-- [et_pb_line_break_holder] --> </p><!-- [et_pb_line_break_holder] --><!-- [et_pb_line_break_holder] --> <h3>Accountant Attributes</h3><!-- [et_pb_line_break_holder] --> <p>A good accountant looks into ways to save clients money through<!-- [et_pb_line_break_holder] --> tax savings, shifting how and where money is spent, increasing revenues<!-- [et_pb_line_break_holder] --> and reducing overhead. The problematic areas in tax returns are depreciation<!-- [et_pb_line_break_holder] --> and not properly deducting expenses. There are hundreds of legitimate<!-- [et_pb_line_break_holder] --> tax deductions, and even the best accountant can't spend the time going<!-- [et_pb_line_break_holder] --> through each one with you to make sure you are aware of them all.<!-- [et_pb_line_break_holder] --> </p><!-- [et_pb_line_break_holder] --> <p>I asked the accountant, Robert Decker, to offer his opinion about<!-- [et_pb_line_break_holder] --> the biggest blunders a massage therapist (or any small business owner)<!-- [et_pb_line_break_holder] --> could make. He replied, "The two most common mistakes that people make<!-- [et_pb_line_break_holder] --> are doing their own taxes, and not setting aside money to pay for taxes."<!-- [et_pb_line_break_holder] --> He suggests putting away 20 to 30 percent of the amount you pay yourself.<!-- [et_pb_line_break_holder] --> For instance, every time you write yourself a check for $1,000, immediately<!-- [et_pb_line_break_holder] --> write another check for at least $200, and deposit it into a savings<!-- [et_pb_line_break_holder] --> account that you designate specifically for paying taxes.<!-- [et_pb_line_break_holder] --> </p><!-- [et_pb_line_break_holder] --> <p>Find an accountant who takes the time to work with you, not just<!-- [et_pb_line_break_holder] --> someone to whom you hand your paperwork and she gives you a tax return<!-- [et_pb_line_break_holder] --> to send to the IRS. You also need to feel comfortable with this person.<!-- [et_pb_line_break_holder] --> Some accountants take an aggressive approach to tax return preparation<!-- [et_pb_line_break_holder] --> while others are conservative. It's also crucial that the two of you<!-- [et_pb_line_break_holder] --> can communicate clearly and easily. Your accountant can profoundly<!-- [et_pb_line_break_holder] --> affect your business success, so choose wisely.<!-- [et_pb_line_break_holder] --> </p><!-- [et_pb_line_break_holder] --><!-- [et_pb_line_break_holder] --> </div><!-- [et_pb_line_break_holder] -->