Minding Her Own Business: The Self-Employed Woman’s Essential Guide to Taxes and Financial Records by Jan Zobel is a solid introduction to taxes and recordkeeping for small business owners.
We learn there are 10.6 million women-owned businesses in the U.S. (48% of all businesses), employing 19.1 million people and generating total annual sales of $2.46 trillion.
During her career preparing over 8,000 small business tax returns and teaching small business tax classes, Zobel says she learned that many people—women, in particular—are frightened by financial and tax issues.
Zobel writes: “Taxes don’t differentiate between men and women—the complexity of the laws leaves everyone confused! This book…was written with the belief that anyone—no matter how unfamiliar with or afraid of numbers—can learn to take charge of her finances.”
Minding Her Own Business, 4E covers these topics especially well:
- Tracking Expenses
- Understanding What Makes an Expense Tax Deductible
- Car Expenses and Home-Office Expense
- Depreciation and Amortization
- The Importance Of Tracking Business Revenue and Other Sources Of Income
- What Records the IRS Expects You To Keep and How Long
- Financial Statements
- Inventory and Cost-of-Goods Sold
- Retirement Accounts
- Understanding the Audit Process and What To Expect If You’re Audited (Yikes!)
- Sole Proprietorship (Schedule C) Taxes
- Self-Employment Tax (IRS Schedule SE)
- Estimated Tax Payments (IRS Form 1040-ES)
New business owners (and most business owners) operate as sole proprietorships and need to understand the three basic IRS forms for sole proprietor tax reporting and payment. Those forms (Schedule C, Schedule SE, and Form 1040-ES) are covered in detail. One-member limited liability company (LLC) owners also file as if they were sole proprietors.
Zobel writes: “Sole proprietorships file a Schedule C with their tax return, showing their business income and expenses. For this reason, the IRS calls sole proprietors Schedule C filers. Schedule C filers are audited more often than other people because the IRS thinks they may not be reporting all their income. There is less focus on businesses that don’t have a lot of cash transactions than there is on businesses, such as restaurants and hair salons, where much of the business is done in cash. Nevertheless, all businesses need to keep good records.”
Zobel does a good job of explaining the rationale behind IRS requirements and explaining tax issues in simple, real-world terms.
For example, in discussing car expenses, Zobel uses a little drawing showing commuting between home, a regular job, a second job, and a temporary work location to show when car mileage is deductible.
Zobel writes: “When asked how many miles their cars were used for business in the prior year, many taxpayers stare at the ceiling as if the answer’s written up there. Some tax preparers call this the PFTA (Plucked From The Air) approach to recordkeeping. It will not stand up in an audit. …Business owners sometimes claim that they use their car 100% for business. If you have a deductible office-in-home, 100% business car use is possible if you have another car available for personal transportation. If you don’t have a deductible office-in-home, your car generally won’t be used 100% for business because you have at least some commuting miles. Often, the business car is also used for a vacation trip or to pick up groceries. True 100% business use is rare for a passenger vehicle.”
Minding Her Own Business, 4E is completely updated for 2005 and covers important tax considerations for today. The deductibility of health insurance premiums to small business owners is discussed, as are education expenses and the lifetime learning credit.
One of my favorite chapters covers retirement planning for small business owners. With worked examples showing how much an individual could save tax-deferred with SIMPLE-IRAs, SEP-IRAs, and the new one-person 401(k), it becomes clear the newer one-person 401(k) (also known as the self-employed 401(k) or the solo 401(k), among other names) is a particularly desirable option for those entrepreneurs who don’t have employees but who wish to maximize their tax-deferred savings.
Zobel also discusses the new Saver’s Tax Credit which is designed to give a tax credit up to $1,000 to lower-income individuals for a $2,000 contribution made to a retirement account. (My first reaction: What?! A tax credit for low-income people? How did that find its way into the legislation?). Essentially, if you qualify, you can get $1,000 back from the IRS if you contribute $2,000 to a retirement account. As Zobel points out, this tax credit expires in 2006 (You had to know they’d catch it eventually!). This demonstrates the importance of staying current on tax issues. Reading the current edition of Minding Her Own Business and taking advantage of this credit, could instantly get some entrepreneurs $2,000 from the IRS for the next two years.
A great chapter focuses on IRS audits and what to expect if you’re audited. We learn that your chances of being audited is very low. Zobel writes: “In reality, only a small percentage of people are audited each year. Just 1.91% of all Schedule C filers were audited in 2003—but this was nearly triple the rate for other taxpayers. Those who believe their income is too small for the IRS to care about may be surprised to learn that in 2003, 3% of sole proprietors with gross receipts below $25,000 were examined.”
I think every new business owner who isn’t already familiar with business taxes should get a copy of Minding Her Own Business, 4E. I highly recommend this book to both men and women, especially entrepreneurs who plan to operate as sole proprietors or as one-member LLCs. Because the book is updated for 2005, I recommend people who own previous editions also acquire a new edition for current information about one-person 401(k)s and other changes affecting entrepreneurs.
Minding Her Own Business, 4E
About the Author:
- How to Set Your Own Salary as a Small Business Owner
- Advantages of S Corporations
- 7 Techniques to Improve Cashflow
- 7 Ways to Improve Your Cash Flow
- Setting Up a Limited Liability Company and S Corporation in California