1. Your Home Based Business Get your tax records in order NOW! This workshop is for educational purposes only. You should consult with your tax professional regarding your own personal situation. Mary CofieldG. Ted Stewart, CPA

2. Agenda Hobby or a Profit Motive? Office in the Home Deduction Automobile Usage Travel Away from Home Entertainment/Business Meals Record Keeping/Documentation Travel/ SURGE Member Special Issues Expense Tracking / Phone APPS Other Resources/Information

3. YOUR HOME BASED BUSINESS Is it a hobby or a “for profit” business? Why does it matter?

4. Hobby or For Profit? IRC 183 For Profit: W-2 income $25,000 Home based expenses $5,000 Home based Income $1,000 Tax liability computed on: $25,000 + $1,000 - $5,000 expenses = $21,000 As Hobby: W-2 Income $25,000 Home based Expenses $5,000 Home based Income $1,000 Tax liability computed on: $25,000 + 1,000 - $1,000 expenses = $25,000 Only $1,000 of allowable Expenses claimed on Schedule A as Misc Expense)

5. Hobby or For Profit? IRC 183 An activity is presumed for profit if it makes a profit in at least three of the last five tax years The following nine (9) factors, although not all inclusive, may help you to determine whether your activity is an activity engaged in for profit or a hobby:

6. Hobby or for Profit? IRC 183 Factor 1:Does the time and effort put into the activity indicate an intention to make a profit? Factor 2:Do you depend on income from the activity? Factor 3:If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business? Factor 4:Have you changed methods of operation to improve profitability?

7. Hobby or for Profit? IRC 183 Factor 5 : Do you have the knowledge needed to carry on the activity as a successful business? Factor 6 : Have you made a profit in similar activities in the past? Factor 7 :Does the activity make a profit in some years? Factor 8 : Do you expect to make a profit in the future from the appreciation of assets used in the activity?

8. Hobby or for Profit? IRC 183 Factor 9: Personal pleasure or recreation. Is the business of a type that is not usually considered to have elements of personal pleasure or recreation?

9. Hobby or For Profit? IRC 183 VALIDATION B.Documentation Expense and income records (auto, diary, calendar, phone logs Talk to your tax advisor early to ensure necessary records and actions recorded A. ACTIVITY Your activity implies your motive. Training, meetings, workshops, prospecting, marketing, referrals, advertising……..

10. Hobby or For Profit? IRC 183 Additional Information Resources Early discussions with tax advisor Choose tax advisor wisely.. the buck stops with you www.irs.gov

11. Automobile Usage Transportation- Local automobile trips without need for overnight stay in your general area. Purpose to conduct business (local training class, trips to post office to mail business info to clients, trips when primary purpose is to network with people to talk about your biz. Could be grocery store, mall, conference, etc. meeting with clients, meeting with business coach, recruiting trips, meetings out of town without overnight stay.

12. Office in the Home Expense Two options available to claim deduction for office in the home: Old Method: Add up all your home expenses such as electricity and other related home expenses and claim a percentage of it on your return based on the % you determine to be office space. Space used as office/Total space. Ex 200 sq feet office/2000 sq Ft home= 10% business use New Option: To calculate the deduction, just measure your office and multiply the number of square feet by $5. The maximum Sq Ft is 300, so the biggest deduction is $1500. Note: No deduction allowed if net loss in the business. Office must be used “exclusively and regularly” for work only

13. Business Use of Your Automobile Standard Mileage Rate Easier, less recordkeeping Current rate for 2014: 56 cents per mile for 2015: 57.5 cents per mile Actual Best when gas prices high If you have a gas guzzler car Frequent repairs Expensive car If you start with Standard, you can later switch to Actuals, but if you start with Actuals, your stuck.

14. What's Deductible When You Place an Advertising Sign on Your Car? Can you deduct 100% of your car expenses if you put a sign on the side of your vehicle? A recent Tax Court case involved a similar issue with a dentist. The dentist put a license plate holder on his car that displayed the name of his dental practice. He tried to deduct 100% of his car expenses but the Tax Court ruled against him.Tax Court case Putting signs on the side of your car or on its window does not create a trip that is primarily for business purposes. You can deduct the cost of the car sign. Reference: Tom Copeland, www.tomcopelandblog.com

15. Recordkeeping: Mileage Log Documentation Includes: When incurred Business purpose Actual business miles Simple tool: Log book kept in automobile or a phone application as your log record. Keep record of your beginning and ending mileage Many Available APPS to help with tracking

16. Travel Away from Home for Business Business Purpose (Meeting training, site inspection, FAM, travel party) Includes: Transportation(car, plane, bus, train, taxi, shuttle) Hotel /lodging expense Meals while away from home overnight Misc – laundry, cleaning

17. Travel Away from Tax Home 3 Part Test 1.Usual and customary (ordinary and necessary) 2.Intent of business benefit 3.Can develop and maintain your business

18. Recordkeeping: Travel Deduction Five questions: What was the money spent on? When did you spend it? Where did you spend it? Why did you spend it? Can you prove you spent it (paid the bill?) Tax Tip: Write on back of receipt and/or business journal

19. Entertainment/Business Meals (Local meals and out of town business biz meals) Ordinary and necessary Meals and Entertainment: Allow 50% of the cost Four (4) requirement test: Future business benefit If entertainment, talked about business Principal reason to conduct business Incurred expense so you could talk directly with the person (buy you lunch to talk about travel) Clear business setting Associated Entertainment (qualifies if occurs during the same day(before or after the show) NOTE: Some meals may be 100% deductible. Keep meal and refreshment expenses related to party/meetings separate. Maintain guest list/sign in sheet

20. Document: Entertainment and Business Meals Within 24 hours recorded in journal or on the receipt Meal or entertainment expense under $75 does not require a receipt but must be recorded. Hotel/car rental always a receipt. Tax Tip: Make a bunch of peel able labels to put on the back of the receipt or in your journal that has the 5 areas that must be recorded: 1.Date… 2.Amount… 3.Place… 4.Purpose… 5.Relationship

21. Major Business Expense and Income Categories Keep records in these general categories Advertising and promotion (news ads, event fees) Vehicle operating costs (mileage, inspection stickers, beginning and ending mileage for the year, mileage log) Lease or purchase of business assets (computer, phone, desk, printer, file cabinet) Commissions earned or paid (in your back office ) Legal and Professional fees and costs (CLIA, E-campus, website fees shown in your back office) Business use of your home (determine sq ft of area used exclusively for business, take picture for records) Office supplies (paper, pens, folders) Business travel and entertainment (separate local mileage from travel and business travel overnight) Misc other business expenses

22. Documentation is key to total allowable deductions Keep records even if later not deductible Preparer needs proper documentation to give you the best tax advantage Business owners, especially NEW business owners should consult with a tax professional Keep a business journal to record activity time(for profit) Don’t understand tax rules? Keep records and let the professional help. No records, no deduction!

23. Monthly Expense Log Monthly Business Expenses Keep records in these general categories _______Advertising and promotion _______Vehicle operating costs(document miles driven for business and total miles for optional standard mileage rate, log book) _______Lease or purchase of business assets _______Commissions earned or paid _______Legal and Professional fees and costs (Monthly fee, annual fee, training fees, ) _______Business use of your home(New option, measure sq feet of office and whole house can claim flat rate per sq feet) _______Office supplies _______ EZ Travel Buttons _________SURGE Membership as marketing expense _______Business travel and entertainment ______Overnight trips keep separate(hotel, meals, transportation, convention fees, site inspections, tour conductor status, travel research trips, Ie. FAM, miles driven ______ Local auto mileage no overnight (Daily log) ______ Meals as business expense to meet with clients, prospects, _______Travel parties /Product Parties/Social with business purpose (Keep quest list) ________Open to the public(100% food deductible) ________Other 50% deductible (house party food) ________Keep guest list and expenses ________Space rental for meetings _________Cell Phone usage (% biz) Cost______________ ________Misc other business expenses KEEP A DAILY JOURNAL OF ACTIVITY TO SUPPORT BIZ PURPOSE

24. APPS and Tools for Tracking www.taxbot.com www.mileiQ.com Quickbooks

25. Special Tax Deductions for SURGE Travel Professionals SURGE Membership/Vortex Link/SBA Personal expense IF only used for personal use. Changes to business expense IF used to demonstrate membership as a SBA(associate) AND MARKET YOUR VORTEX LINK. You must be actively pursuing the business portion of the opportunity to claim as a business expense.

26. Special Tax Deductions for SURGE Travel Professionals PTN Travel Agent Status as travel agent allows additional expenses for site inspections, FAM Trips, destination reviews, etc. SBA (SURGE BUSINESS ASSOCIATE) Expenses related to enrollment, marketing, finding new enrollees, purchase of additional EZ Buttons

27. Major Expenses (SURGE Agent) Related to Your Travel Business  Web site purchase  Website monthly fees  Meeting event fees  Office supplies( paper, pens, printer ink, computer, file cabinets, travel party supplies, business cards, domain name)  Travel Party (keep list of attendees and food)  Entertainment and business meals (one on one)  Travel Expenses OVERNIGHT ( for site inspections, FAM, tour guide, group leader, travel research, conferences, out of town meetings, training events)  Transportation LOG (local auto expenses, tolls, parking fees )  Cell Phone records costs and usage(% used)

28. Don’t Worry! Be Happy! Basic Recordkeeping Tools: Auto Log Book Business Journal (Spiral Subject Book) 12 envelopes for monthly expenses Smaller envelopes for total biz trips Document travel parties, keep food receipts, guest list Generic printed labels Category Reminder Sheet New smart phone and Iphone applications (www.taxbot.com) One Page Expense Sheet (Tax Help) IRS.gov Google: Great resource to get basic information to discuss with your tax professional