Modish Biz Tips

Your Retirement: How Not to Be Working at Safeway when you are 80

The following is a guest post by Caroline Devoy

{photo by TheeErin}

Okay, being able to retire in this economic climate is a little far fetched even if you are 85. But now is a good time, maybe even the best time, to reassess your retirement savings and what tax options are available to you.

You may know some retirement plan basics, but I'll review just in case. Retirement plans can be incredibly complicated, but I prefer to just ignore the complicated stuff. Seriously, if you are doing more sophisticated retirement planning than what is described here, you are going to need professional help anyway.¹ And not just because of the mental agony.

401(k)

A 401(k) plan is a retirement vehicle set up by an employer in which your salary can be invested pre-tax. (FYI, your 401(k) deductions are still subject to FICA and Medicare tax, aka payroll taxes.) Sometimes the employer will match a percentage of your contributions. Your money will be invested in a variety of vehicles (determined by you, but usually limited by the selections offered by the employer) and will earn money with no tax consequences until retirement or withdrawal.

You may contribute income (sometimes called a deferral) into the 401(k) as long as you are with that employer. Once you leave, you have a period of time to move it to another employer's 401(k) or IRA (Individual Retirement Account). In 2009, the maximum 401(k) deferral is $16,500, though your employer's plan can set a lower limit.

Traditional IRAs

Tax Planning for Procrastinators

Oh, I'm so excited to introduce you to a new awesome contributor to this here BIZtips blog, Caroline Devoy, from jcaroline creative! You may know her as your source for all things creative, but she's also an accountant and will be stopping by 1-2 times a month with accounting and money related advice. I think anyone who can make me laugh out loud while reading about taxes is a good lady to have around, so, without further ado, here's her first timely installment...

Tax Planning for Procrastinators a guest post by Caroline Devoy

{photo by Amit Gupta. Tax day in NYC. Don't let this be you.}

Too late to do tax planning for 2008 for you business filers? Heck no. But in 28 days it will be! It is too late to change the outcome of your year, but you can spend some time making sure you find every expense possible before you file. For purposes of this post, I'm only focusing on your business return (Schedule C) due April 15. Not getting into the personal stuff. Personal stuff, yes. Personal tax stuff, no.

For those of you that don't keep "accounting" records during the year, don't stress. Accounting is not a revenue-generating activity and though necessary, it is not a good use of your time. So, don't beat yourself up. But you do need to pull together your information in order to comply with the government. Here is a plan to do that:

Sit down with your checkbook (or bank statements), your credit card statements and your PayPal account. Any money you received or spent in your business went through one of these accounts, yes? Oh, and grab a calculator and paper or a computer and let's start grouping these numbers together. I'm also assuming that most of you are cash basis taxpayers, meaning you don't report anything where cash did not change hands. If that isn't the case, go beat up the accountant that didn't make you a cash-basis taxpayer. By default, individuals (Schedule C filers) are cash basis.

Income is pretty easy. If you got money for virtually anything, it is taxable income to your business. You may have received some 1099-Misc from your clients, but they should just replicate what you already knew from your checkbook. Paperclip them together nicely and stuff them in your tax folder. Also, remember that any money you put into your business personally or any loans you received are not income.

Expenses are where it gets exciting. Really. The IRS says any expenses are deductible that are considered "ordinary and necessary" for your business. So if the expense is for your business, it is deductible. (Okay, there are a few exceptions, but start by assuming EVERYTHING is deductible and then we can eliminate later.) Obviously, what is ordinary and necessary for a graphic designer is different than what is ordinary and necessary for a plumber. You are the authority on what is ordinary and necessary for your business. Of course, the IRS can argue with you, but we'll worry about that later.

Start with a spreadsheet of basic expenses and then put everything you spent for the year in one of these categories. Here's a list to get you started: