business expenses

Marketing and Pricing for Small Businesses

Scarsdale tax preparers at Herman & Company CPA’s have all the answers to your personal finance questions! Small Business Tips on Marketing from Scarsdale CPAHaving your own business most often means you will need to set some money aside for marketing your product or service. The following are FAQ’s I often receive regarding marketing expenses:

▼ How can I be certain that my small business product or service will be marketable?

To determine where and how you can successfully sell your product or service (and at what price), you will need to use one of the most critical elements of business planning – market research. This includes interviewing potential suppliers and investigating your competition and consumer base.

Market research has many different benefits. It can help you categorize marketing activities, generate primary and alternative sales approaches to a given market, make profit projections from a more precise base, establish the market’s profit boundaries, and develop critical short/mid-term sales goals. You will need to identify your objectives and organize the collection/analysis process first.

▼ What questions are appropriate to ask in market research?

You will want to learn about the consumers’ location, needs and resources, and what they can afford. Significant questions (can you compete effectively in price, delivery and quality? Where can the demand be created?) should be addressed.

Can the product or service be priced to guarantee a profit? Also, discover how many competitors provide the identical product or service. You will want to have a basic understanding of the economy of the area in which you will sell your product or service and the areas where that market is growing or lessening.

▼ When setting prices for my products or services, what should I consider?

There are different individual costs for each component of your service or product. Be sure to analyze every component of the product or service’s total cost. Upon completion of the analysis, prices can be established to maximize profits and eliminate deficit services. Material, labor and overhead costs are included in the cost components.

Material costs are the total of the costs of all materials of the finished product.

Labor costs are calculated based on the total work put into preparing the product. To determine the direct labor costs, you multiply the cost of labor per hour by the number of personnel hours necessary to finish the job. Be sure to include the dollar value of fringe benefits as well as the hourly wage, which include workers’ compensation, retirement benefits, social security, insurance, unemployment compensation, etc.

Overhead costs cannot be easily identified with a product. They consist of indirect materials, such as depreciation, supplies, advertising, heat and light, taxes, rent, insurance, and transportation. Indirect labor costs, such as legal, clerical, and janitorial services are also included in overhead costs. Don’t forget to include shipping, handling and/or storage and any other cost components.

Scarsdale CPA Paul Herman is here for all your financial needs. Please contact us for all inquiries and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves Purchase NY, Rye NY, Mamaroneck NY, Scarsdale NY, Bedford NY, North Salem NY and beyond.

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Business Eligibility for Schedule C-EZ

Westchester CPA Tax Tips

Your business may be eligible to file a Schedule C-EZ form during tax time.

Westchester tax preparers at Herman & Company CPA’s have all the answers to your personal finance questions!

Your business may be eligible to use the abbreviated Schedule C-EZ instead of the longer Schedule C when reporting business profit and loss on your federal income tax return, according to the IRS. That’s because the deductible business expense threshold for filing Schedule C-EZ of the Form 1040 is $5,000. This change allows an additional 500,000 small businesses to file the C-EZ rather than Schedule C.

Schedule C-EZ, Net Profit from Business (Sole Proprietorship), is the simplified version of Schedule C, Profit or Loss from Business (Sole Proprietorship).

Schedule C-EZ consists of an instruction page and a one-page form with three short parts — General Information, Figure Your Net Profit, and Information on Your Vehicle. The instruction page includes a worksheet for figuring the amount of deductible expenses. If that amount does not exceed $5,000, you should be able to use the C-EZ instead of Schedule C.  Contact us at our Westchester accounting firm for more information!

We can help you with:

Westchester tax preparers at Herman & Company can help you with:

  • 2013 Financial Planning for your Westchester-based business
  • Retirement planning, business valuation and bookkeeping for your small or medium-sized firm
  • Proudly serving all the towns of Westchester County, including Scarsdale NY, Purchase NY, Mt. Kisco NY, Mamaroneck NY, and beyond.

Business Expenses

You can save money by cutting certain business expenses.

You can save money by cutting certain business expenses.

Business expenses are the cost of carrying on a trade or business. These expenses are usually deductible if the business is operated to make a profit. Westchester tax preparers at Herman & Company CPA’s have all the answers to your personal finance questions!

What Can I Deduct?

To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.

It is important to separate business expenses from the following expenses:

  • The expenses used to figure the cost of goods sold,
  • Capital Expenses, and
  • Personal Expenses.

Cost of Goods Sold

If your business manufactures products or purchases them for resale, you generally must value inventory at the beginning and end of each tax year to determine your cost of goods sold. Some of your expenses may be included in figuring the cost of goods sold. Cost of goods sold is deducted from your gross receipts to figure your gross profit for the year. If you include an expense in the cost of goods sold, you cannot deduct it again as a business expense.

The following are types of expenses that go into figuring the cost of goods sold.

  • The cost of product or raw materials, including freight
  • Storage
  • Direct labor costs (including contributions to pensions or annuity plans) for workers who produce the products
  • Factory overhead

Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. Indirect costs include rent, interest, taxes, storage, purchasing, processing, repackaging, handling, and administrative costs.

This rule does not apply to personal property you acquire for resale if your average annual gross receipts (or those of your predecessor) for the preceding 3 tax years are not more than $10 million.

For additional information, refer to the chapter on Cost of goods sold, Publication 334, Tax Guide for Small Businesses and the chapter on Inventories, Publication 538, Accounting Periods and Methods.

Capital Expenses

You must capitalize, rather than deduct, some costs. These costs are a part of your investment in your business and are called capital expenses. Capital expenses are considered assets in your business.There are, in general, three types of costs you capitalize.

  • Business start-up cost (See the note below)
  • Business assets
  • Improvements

Note: You can elect to deduct or amortize certain business start-up costs.

Personal versus Business Expenses

Generally, you cannot deduct personal, living, or family expenses. However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. You can deduct the business part.

For example, if you borrow money and use 70% of it for business and the other 30% for a family vacation, you can deduct 70% of the interest as a business expense. The remaining 30% is personal interest and is not deductible. Refer to chapter 5 of Publication 535, Business Expenses, for information on deducting interest and the allocation rules.

Business Use of Your Home

If you use part of your home for business, you may be able to deduct expenses for the business use of your home. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. Refer to Publication 587, Business Use of Your Home, and Standard Mileage Rates.

Business Use of Your Car

If you use your car in your business, you can deduct car expenses. If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage. Refer to Publication 463, Travel, Entertainment, Gift, and Car Expenses. For a list of current and prior year mileage rates see the Standard Mileage Rates.

Other Types of Business Expenses

  • Employees’ Pay – You can generally deduct the pay you give your employees for the services they perform for your business.
  • Retirement Plans – Retirement plans are savings plans that offer you tax advantages to set aside money for your own, and your employees’, retirement.
  • Rent Expense – Rent is any amount you pay for the use of property you do not own. In general, you can deduct rent as an expense only if the rent is for property you use in your trade or business. If you have or will receive equity in or title to the property, the rent is not deductible.
  • Interest – Business interest expense is an amount charged for the use of money you borrowed for business activities.
  • Taxes – You can deduct various federal, state, local, and foreign taxes directly attributable to your trade or business as business expenses.
  • Insurance – Generally, you can deduct the ordinary and necessary cost of insurance as a business expense, if it is for your trade, business, or profession.

This list is not all inclusive of the types of business expenses that you can deduct. For additional information, refer to Publication 535, Business Expenses. Please contact our accounting firm in White Plains, NY if you have any questions.

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.