This is a guest post from Qiana Daniel, Senior Compliance Officer at Fundbox.
Your event planning business is all moving parts. While your focus is on throwing incredible events, you have to stay on top of so much more. Without pressing deadlines, it’s easy to let financial tracking slip to the end of your to-do list. But then tax season rolls around and suddenly, it’s high-priority.
As you grow and scale, the way you run that business will ultimately determine your success. That’s why it’s so important to pay attention to how you manage your taxes. Neglecting to do so can cost you, quite literally, in the long run. Whether you’re a one-person show or managing a small team, there are business tax pitfalls you’ll inevitably encounter. Knowing what to look out for can help you catch financial challenges early on so you can focus on throwing great events.
As the Senior Compliance Officer at Fundbox, I help make sure Fundbox is in compliance with all regulations, in order to properly serve small business owners. Here are the three biggest tax pitfalls I see business owners run into, and best practices for handling them.
Business tax pitfall #1: Tricky home-office deductions
As a small business owner, you can expense things that are ordinary and necessary for the production of your income. For your events business, these might include expenses related to travel, meetings, site visits, conference research, and so on.
If you typically work from home, the home office tax deduction can save you a lot of money. But be careful: if you don’t handle this deduction correctly, you open yourself up to the risk of being audited.
Here are some examples of how to do your home office deduction right:
- Make sure the room or area you’re claiming as your office is used only for business. According to the IRS, it cannot be a room you use for other purposes — like to watch TV, eat dinner, or sleep.
- Deduct a prorated amount based on the square footage of that room versus the square footage of your entire home.
- Take a photo of your office setup and keep it in your files. In the event of an audit, this can help strengthen your argument that the area is exclusively used for work.
You won’t have to prove that your deduction is legitimate — unless you get audited. But if that happens, you’ll need strong proof.
Business tax pitfall #2: Confusing mileage deductions
Event managers work on the go, in transit between site visits, meetings, and events. You probably spend a lot of time in the car, and if you’re like most people, it’s the same car you use for personal activities. That makes logging work mileage tricky.
Here’s a story to illustrate just how tricky it can get.
Aisha is an event planner with one car, several clients, and a child. In the morning, she takes that child to school, then drives to a client meeting across town. Next, she heads to the florist to pick up flowers for an evening event for another client. She then picks up her child from school and heads to the event. At the end of the day, she drives home.
How should Aisha log such a complicated day? Here’s how:
- Aisha does not record the mileage on the way to school.
- She does record the mileage on her odometer from the school to the client meeting.
- She makes a note about what she and the client discussed.
- She logs the mileage for her drive to the florist, but not from the florist to school.
- She logs the drive to her evening event and her trip home as expenses for the second client (even if her child joins her at the event).
But what if Aisha stops on the way home to pick up a few groceries? In that case, she should not log the drive home as a business expense, since it became a personal trip.
This can get complicated quickly. Keeping detailed logs is key.
Business tax pitfall #3: Income that doesn’t map to events
When you throw multiple events each year, you need to know how much revenue each generates in order to track expenses correctly.
If you keep detailed budget logs, you’ll have no trouble matching all types of expenses to corresponding events you manage. But you also need to match your expenses to the income generated by those events — typically months later, at tax time.
You already have a million little details about your business running through your head at all times. So next spring, are you going to remember every single relevant number? Probably not!
That’s why it’s so important to keep detailed logs not just of travel and other expenses, but of income generated per event.
The ominous audit
Why are all these pitfalls so important to avoid? All small businesses have the potential to be audited. If it happens to you, you want to be prepared.
If you get flagged as having “audit potential,” real people will be digging into your returns going back two or three years. A good rule of thumb is to save copies of ten years of tax returns, just in case.
You don’t necessarily need to save every single receipt — particularly if you’re using an online tool like TurboTax, electronic credit card statements, expense reports, or other electronic records. But you must be as organized as possible. Being able to share e-records in a neat and organized fashion will help paint a picture of you as being on top of things.
In the case of an audit, be sure to check up on rules for your particular industry and state.
- The best place to go for accurate, up-to-date federal information is the IRS page Recommended Reading for Small Businesses.
- Most state tax agencies have a similar resource where you can look for state-specific information. Note that if it’s a reputable site, it should end in .gov.
Of course, you can’t focus on clean accounting for tax season if you’re still worried about finding business funding to power your event. Learn how you can grow your business with Fundbox support here.
Want to learn more? Check out the recorded webinar How to Get More From Your Event Budget.
Disclaimer: Fundbox and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.