Bookkeeping FAQs

Things to know as a client and business owner

Communication

What I'll need from you and when

Things you need to tell me about

Rate increases & what can trigger them

Elevated services I offer

Good habits

Separating business & personal funds

How to manage receipts

When your business needs more cash

Payroll & Hiring

Contractor or employee?

Determining if a new hire is an employee or contractor is not a choice. It's a matter of which one the IRS would determine them to be and ultimately it comes down to control.

The IRS has a 20 point test to determine if someone is a contractor or employee.

The 20 factors are listed below (reference this article):

Level of instruction. If the company directs when, where, and how work is done, this control indicates an employer-employee relationship.

Amount of training. Requesting or requiring workers to undergo company-provided training suggests an employment relationship since the company is directing the methods by which a worker performs their duties.

Degree of business integration. Workers whose services are central to the business operations or significantly affect business outcomes are likely to be considered employees.

Extent of personal services. Companies that insist or demand that a particular person performs the work have asserted a high degree of control, which indicates an employment relationship. In contrast, independent contractors are typically free to assign work to anyone.

Control of assistants. If a company hires, supervises, and pays a worker’s assistants, this control suggests an employment relationship. If the worker gets to control the hiring, supervising, and paying of assistants, they could be defined as an independent contractor.

Continuity of relationship. A continuous relationship between a company and a worker indicates an employment relationship. However, an independent contractor arrangement can also be an ongoing relationship that spans multiple, sequential projects.

Flexibility of schedule. If a company gets to dictate a worker’s days and hours of work, this degree of control suggests an employer-employee relationship.

Demands for full-time work. Workers who work full-time hours suggests a company has control over most of their time, which indicates an employment relationship.

Need for on-site services. Requiring someone to work on company premises — particularly if the work could be performed elsewhere — suggest an employer-employee relationship.

Sequence of work. If a company requires work to be performed in specific order or sequence, this type of control suggests an employment relationship.

Requirements for reports. If a worker has to regularly provide written or oral reports on project status, they could be viewed as an employee.

Method of payment. If a worker is paid hourly, weekly, or monthly, this could suggest an employment relationship, unless the payments simply are a convenient way of distributing a lump-sum fee. It is more characteristic to pay freelancers upon project completion or commission.

Repayment of business or travel expenses. Independent contractors are typically responsible for paying for travel or business expenses, and most contractors set their fees high enough to cover these costs. In contrast, reimbursement of travel and other business expenses by a company suggests an employment relationship.

Provision of tools and materials. Workers who use company-provided equipment, tools, and materials to perform their work are more likely to be considered employees. Work largely done using independently obtained supplies or tools supports an independent contractor classification.

Investment in facilities. While independent contractors and freelancers usually pay for their own work facilities, most employees rely on their employer to provide work facilities.

Realization of profit or loss. If a worker’s earnings are predetermined and have little chance to realize significant profit or loss through their work, they are generally considered to be an employee.

Work for multiple companies. Workers who provide services for multiple companies concurrently are likely to qualify as independent contractors.

Availability to the public. If a worker regularly makes services available to the general public, they could qualify as an independent contractor.

Control over discharge. If a company has the unilateral right to discharge a worker, this suggests an employment relationship. In contrast, a company’s ability to end an independent contractor relationship generally depends on the terms specified in the contract.

Right of termination. Most employees can terminate their work for a company unilaterally without liability. Independent contractors cannot quit their work engagements without liability, except as permitted under their contracts.

What happens if I hire an employee?

How to pay contractors & 1099s

How to handle W9 requests from your clients

Taxes

Things you can deduct

For the most part, you are able to deduct expenses you pay from your business for the purpose of generating income that are necessary and ordinary in your line of work.

It gets tricky when the expense can double as a personal expense.

If you have a question about deductions, ask me. I will likely defer to your tax preparer for the final decision but am happy to chat it through specifically.

If you tell me something is a business expense, I will take your word at faith.

Our engagement does not have us auditing your books - we are simply recording the information and answers you provide to us.

That means if you tell us something is a business expense but it is not, the onus lies with you.

If you take the standard mileage deduction (see Business Mileage below) you cannot also write off gas.

Clothing for photoshoots is not a business expense if it can be worn personally.

Your Amazon purchases can be written off if you are purchasing office supplies or other business expenses, but your personal Amazon charges should be paid with your personal card.

Apps used for business can be purchased on your business card, but your personal apps should be paid personally.

Meals can be deducted if there was a business purpose, but a family and friends dinner or your morning coffee or afternoon Ubereats cannot.

We have no way of knowing if your Amazon, Apple, Target, Meals, or Travel purchases are truly for business.

Most of the time we have this conversation upfront and ensure you know that if you are paying for any of the above on your business cards, we are going to treat it as a business expense unless otherwise notified.

If these expenses are not for business, and you get audited, it is your responsibility to have receipts to back up your deductions.

If you have taken non-business expenses as business expenses and therefore underreported your taxes, you may be subject to having to pay the tax you should have paid, plus penalties, interest, and the cost of representation under audit. You should consult with your CPA regarding deductions and also understand your responsibility and risk.

Business Mileage

There are two ways to deduct auto expenses

The actual method - allows you to deduct the business use percentage of actual auto expenses including gas, maintenance, insurance, and lease payments or depreciation (a specialized calculation of the cost of your vehicle over time). The business use percentage is found by tracking all miles and dividing business miles by total miles driven.

The standard mileage - allows you to deduct 58.5 cents per business mile driven. This means that for each 2 miles you drive you can deduct more than $1 worth of income and save money on your taxes. This adds up!

My recommended method

I recommend the standard mileage method because it's less complex and less likely to get audited if you're doing it yourself. If you're working with an accountant, it's a good idea to ask them which one is right for you and exactly what you need to do to take the deduction.

My recommendation is based on the fact that my audience is mostly solopreneurs who might still be DIYing their taxes, and this way is the least likely to mess up while also still saving you money in taxes.

You need to log miles in either scenario

Tracking your miles is simple. You just need to note the date of your trip, where you went, the business purpose of the trip, and the miles driven.

The best time to log miles is when they actually happen so you don't forget or have to go back and figure it out later. I drop my destination in my GPS and take the calculation from the round trip and drop them in my mileage log and then forget about it until tax time when I can take the information off my log and use it to save money in taxes.

Easy!

What counts as business miles?

Simple! Anything that you're doing for business!

Examples are:

business meetings
networking events
shopping for office supplies
trips to the post office

What doesn't count as business miles?

Commuting does not count as business miles. Commuting is going from your home to your regular place of work. So if you rent an office or work for one client and make the same trip daily, unfortunately that is not counted as business miles. Traveling between clients or to different clients does count.

Something to be aware of

If you're choosing the standard mileage method, you don't pay for gas, oil changes, auto tag renewals, or car payments from your business. Those are all included as an estimate in the 58.5 cents per miles that you are allowed to deduct and claiming both can get you in trouble.

What is NOT included in the standard mileage rate that can be included is parking and tolls so be sure to pay for those from your business account when traveling for business.