Monday, April 5, 2010

Simplify Your CAD Business Tax Season

For some, the least appealing aspects of managing a CAD business is with regards to bookkeeping and taxes.  But as an older gentlemen who had imigrated years ago to the United States once said, 'I am very happy to pay taxes, because in my old country I could not even earn enough to have to pay them.  But now I can.'  So with appreciation that earnings in your CAD business also neccesitates governmental obligation, let's look at how we can simplify routine bookkeeping, and what typical small business tax deductions might apply.  Of course, please do not construe the following as representative of legal advice.  As always, it is recommended that one become familiar with the specific legal requirements unique to the business location, thereby determining what methods may be best for personal business needs.

Bookkeeping Basics
A very simple, yet functional spreadsheet should contain the following columns to account for business profit and loss:
  • Date - calendar date
  • Item - brief description of the item being documented
  • Income - payments received
  • Advertising - business cards, promotions, etc.
  • Travel (miles) - travel expended for interviewing with clients, business promotions, etc.
  • Commuting (miles) - travel to and from contracted work sites
  • Office expenses - computers, software, etc.
  • Supplies - paper, printer ink, etc.
  • Taxes & Licenses - annual business license, periodic tax payments, etc
  • Travel, Meals, & Entertainment - airfare, cab, eating out of town, etc.
  • Loss - any unreceived money toward invoiced accounts

You may be pleasantly surprised to know that with this simplified spreadsheet layout, one might only need to spend 3-4 minutes each week keeping records up to date!  Yes, having a good routine makes updating business records that much easier.  For example, if you routinely submit invoices for your work on, say... a Friday afternoon, then use that opportunity as a prompt to document the weeks activities.  Also, you may choose to use this time to store any of the weeks business receipts in a designated envelope.

Maintaining these records will ensure the information is readily available with little extra effort required, when preparing periodic or annual tax forms.

Common Tax Deductions
Typical small business tax deductions are nothing new or secretive, but it can be helpful to have these items highlighted for any who simply have never needed to give thought to such.  Some of these topics will be similar, if not the same as the columns we discussed earlier regarding Bookkeping, so again we can see the intrinsic value of good record keeping.  For example, State and Federal laws may allow for deducting business expenses related to:
  • Vehicle
  • Commuting mileage
  • Home office
  • Office supplies
  • Computer / Software
  • Telephone / Internet
  • Education / Training
  • Travel / Meals / Entertainment
  • Advertising / Promotions
Again, these are just some of the topics that are typical to a small home-based CAD business, and therefore you too can benefit from these tax related deductions.

In summary therefore, we find that a little routine maintenance in bookkeeping can make for a much less complicated or harried tax season.  Additionally, it affords one to hold a clean conscience in legally availing yourself of any tax advantages ascribed by law.