A question I get a lot this time of year is, “If I didn’t make any money do I even need to report it on my taxes??” And my answer is YES! Here’s why:
1. If you put money into starting a new business you can deduct the startup expenses. There can be a lot of costs to get a business off the ground. It is important to keep track of all of these expenses so they can offset income later.
2. Certain losses, such as those from rental properties, can offset other types of income. For example, if you have a rental condo that lost $5,000 and you have a job where you get $40,000 on a W-2, your income would net out to $35,000.
3. Sometimes businesses can generate what we call net operating losses. This is when the business’s deductions are bigger than it’s income. While it stinks to lose money in business, these losses can be applied to other years and offset income- or even generate tax refunds!
4. Investment losses – up to $3,000 in capital losses can offset other income (similar to the rental property example above). If you have more than $3,000 in capital losses you can carry them forward until they are used up.
The key to taking advantages of these money losing situations is to have good documentation, and the help of a knowledgeable CPA. Contact me for a free consultation!
After the last #FinanceFriday post, many of you contacted me about setting up Mint.com and Liveplan.com. Congrats on taking that huge first step! And if you didn’t set up either – go do it now!
After setting up one of these accounts you might hit the point of overwhelm and think, now what?!? My advice is first to hook up bank accounts in Mint or accounting system in LivePlan and start bringing in transactions. Both of these programs will turn all of that jumble of numbers and data into visual graphs that will make it easier for to understand and digest.
Now you are ready to evaluate your spending! Why should you do this? The reason is that, for most people, this is the aspect of their finances that they have the most control over. You might not be able to increase your income or change your debt levels over night, but you can very quickly change how you spend your money.
When you first look at where your money goes you might be surprised. Maybe you spend way more on eating out and entertainment than you through. Maybe your rent or your cell phone bill is too big of a portion of your income. Or maybe you have a big pile of cash stashed under your mattress.
Whatever you discover, it is important not to judge yourself harshly. This exercise isn’t a tallying of your financial sins. It’s an objective look at your cash flow. As you look at this information, think about whether your spending is in line with the life or business you want. Then you’ll be ready for the next step.
Need help with Mint or LivePlan? How about taxes? Set up a meeting with me here.