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**Stay on top of accounts receivable. **It’s easy to get caught up with fulfilling your business obligations while invoices you've sent out go unpaid. Agree to payment terms in advance with new customers and immediately - but politely - communicate with them as soon as they miss a payment deadline. Keep current with regular invoicing and collections.


**Keep your bookkeeping records up-to-date.** You may not realize you have an unpaid invoice that's several months old unless your bookkeeping is up-to-date. Keeping accurate books involves more than balancing your bank accounts once a month. In addition to your monitoring your bank accounts, also consistently look at your accounts receivable, accounts payable, any debts (credit card, car loans or other borrowings), and all money you invest in your business. Ask for help if you don't have enough time to do the bookkeeping yourself, or if you need help properly setting up your bookkeeping software.


**Check on permit requirements.** Depending on what type of home-based business you have, you may be required to obtain various permits, licenses or other registrations. If you have not already done so, check with your town or city for local requirements. The Small Business Administration is also a good source to research information on permits.


**Get insured.** Obtain adequate insurance for the type of operation you’ll be running. Besides the insurance required for business activities, you might consider adding a rider to your homeowner’s policy for liability protection should an accident occur on your property.


**Stay on top of technology. **While you may not need a top of the line computer, be sure that the technology equipment you use can handle the bandwidth of everything you'll ask it to do, including video calls, software apps and data storage. Also consider scheduling a time for your internet provider to visit your home to make sure everything is in working order and your security protocols are top notch. Have a back-up plan in place for when a device breaks down, including where you'll go to have it repaired.


**Cash in on tax breaks.** Take advantage of the tax breaks available to home-based businesses, including deductions for supplies, equipment and vehicle expenses. You may even be able to deduct the cost of your home office, including a pro-rated amount of your real estate taxes and utilities, if certain conditions are met.


**Set aside money to pay your taxes.** Ask for help to calculate how much of your incoming cash you should be setting aside to pay your federal, state and local taxes. Consider opening a separate bank account to transfer your tax money into.


Home-Based Business Accounting 

**The rule:** If you receive rental income for less than 15 days per year, that income is generally not taxable income.

**Added benefit: **In addition to tax-free rental income, you may still deduct your mortgage interest expense and property taxes as itemized deductions. Neither of these tax benefits is reduced by the income from up to two weeks of rental activity.

## Would someone want to rent your property?

Sure it sounds good, but why would someone want to rent your property? Here are some ideas:

Special events. If a big event is in town, consider renting out your home for participants and fans. Common examples include:

*   Football games

*   Concerts

*   Golf tournaments

*   Conferences and expos

*   State high school tournaments

**Vacation home rental.** If you have a cabin or cottage, consider renting out your place for two weeks. If you find responsible renters, you may have an opportunity to find reliable repeat renters each year.

**Hotel alternatives. **Oftentimes travelers from other cities and countries would love to rent out homes or rooms within homes while traveling. This lets travelers have a real local experience.

### Know the risks

The hassle factor needs to be considered prior to taking advantage of this tax-free income opportunity. Having a proper rental agreement, damage deposit, and insurance are key factors to consider. Also remember that if you rent out your property for more than 14 days, all rent received is taxable and rental income rules apply. And don't forget to review any local regulations prior to renting your property.

Home rental sites like Vrbo and Airbnb can help you better understand your options for renting your property.


Tax-Free Short-Term Rental Property

The time to organize your tax records is now. Informational tax information is hitting your regular and digital mailboxes from now until late March. To make matters worse, this year there are economic recovery payments, unemployment benefits, and advance child tax payment records to organize!

Here are some tips to get on top of your tax records.

## Organizational Strategies for Tax Documents

If you have not already done so, create a folder for the current year’s files. Here are some filing suggestions.

*   **Tax return and support.** Create a file with copies of your signed tax return(s) for the year. Include any support documents provided with your filed tax return.

*   **Files in tax return order.**Create annual files to match the flow of your 1040 tax return. Here are some suggestions.

    *   ***Income.*** Copies of W-2s, 1099s, Social Security statements, interest income, K-1s, and investment activity go in this file.

    *   ***Charitable Donations. ***Create a separate file for cash donations and one for non-cash donations. Include a copy of your charitable mileage log in this file.

    *   ***Medical and Dental.*** Create a file for all your medical related expenses. Include a copy of your medical related mileage log in this file.

    *   ***Other itemized deduction file.*** In this file include all other proof of itemized deductions. This includes property tax statements, mortgage interest, and state income tax documentation.

    *   ***Business activity.*** Have a file for each hobby and business activity. Include a copy of your business mileage log in this file.

    *   ***Education.*** Create a file for all documents related to educational expenses. Include in it copies of invoices, tuition and fees. Include invoices for music lessons, instruments and any materials required to purchase for your student.

    *   ***Other.*** Put all your miscellaneous receipts into this file. This includes any payments received from the government due to COVID or the new advanced child tax credit. But also save any documents you are unsure about like receipts for daycare, Form 1095s and any other tax related items.

*   **Statement file.** Sort all your financial statements by vendor, then by month. Create a separate file for these statements. This can include bank statements, credit card statements, and investment account statements. Consider creating a digital back up copy of these statements and store them on a CD or USB drive.

**The Digital Alternative**

If more of your records are in digital format, consider creating a tax folder for each year on your computer and then place your digital records into sub-folders using the same sort as noted above. Create password protection for each folder.

**Rotation idea**

Finally, at the end of each tax year place a note on the tax return to confirm the date your tax return was sent into the federal and/or state government. Note on the outside of this file when you can toss the support documentation. While you keep the tax return indefinately, most documentation is safe to shred after 3 1/2 years. But do not take this action unless you are certain of the length of time you will need to save these records.


Organizing Tax Documents

## Vehicle Donation Rule

When you donate a vehicle, the value of your donation is either the fair market value of your vehicle when you donate it OR the value received by the charitable organization for your donation. Unfortunately, you do not choose the value of the donated vehicle.

*   **If the organization uses the vehicle,** or is in the business of using your vehicle to train others, you can deduct the fair market value of the vehicle.

*   **If the charitable group simply resells your donated vehicle, **your donation is limited to what the organization receives for your vehicle and NOT the usually much higher fair market value of the item.


### How to donate your vehicle

1.  **Select the organization wisely.** Select an organization that will either use the vehicle themselves or will use it to train others. Examples of qualified organizations include groups that help single mothers obtain transportation to and from work or use the vehicles to deliver meals to seniors. Other organizations teach auto repair and body shop work to the unemployed. The cars then are given to other non-profits or needy folks. From the IRS perspective, a qualifying charitable use includes:

    1.  significant intervening use of the vehicle or,

    2.  significant improvement to the vehicle that increases its value or,

    3.  donation of the vehicle (or sells it at a below market rate) to a needy person that helps further the cause of the organization.

2.  **Research the fair market value. **Prior to donating your vehicle go to a reputable source and estimate the value of your vehicle. Online resources like Edmunds.com and kbb.com (Kelley Blue Book) are two reliable sites to do this. Also make a copy of your title and take pictures of your car prior to donating it to the charity to help support your fair market value claim.

3.  **Obtain the proper tax form. **When donating your vehicle make sure the organization gives you a proper Form 1098-C at the time you provide your vehicle. Double check the value assigned to your donation form to ensure it meets or exceeds the estimated fair market value of your donation. Remember, if your valuation exceeds $5,000 you will need an approved appraisal.

4.  **Sell the vehicle and donate the cash.** If you cannot find a charitable organization that will allow you to maximize your fair market value deduction, consider selling the vehicle and then donating the proceeds. There is a potential problem with this approach, however. Take care that you do not create an unplanned taxable capital gain with the transaction.



*Special Caution: Be aware of national advertisers like KARZ4KIDS..they almost always limit your donation amount by what they can resell your car for...often below the fair market value. And before donating, know how, and be pleased with how, the funds are to be used.*

Note: These rules apply to other vehicle donations as well. This includes motorcycles, trucks, vans, buses, RV's and other transportation vehicles.


Resources

401k Calculator

Home-Based Business Accounting

Tax-Free Short-Term Rental Property

Organizing Tax Documents

Maximize the Value of Your Car Donation

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