Question: I’m a doctor and my finances are a mess! I make good money but I’m behind in taxes, I have too much credit card debt and I bounce a lot of checks. What can I do? ~ Dr. Debbie
Answer: Hi Dr. Debbie, I’ve worked with a lot of different Health Care Practioners and your situation is shared by many.
First, most of you start off with a lot of student debt and many years of deprivation.
Suddenly, you’re making a “lot” of money. Some make up for lost time by purchasing a lot of toys, others get behind in paying their income taxes. Either way, you woke up one day and found yourself in trouble, right?
While there are some basic things you can do, this is a good time to start working with someone like me to address your particular situation. Just like your patients, there’s no “one size fits all”.
Here are some basic things to do:
- Get a clear vision of where you’d like to be in 6-12 months. These goals can help you make spending and saving choices that will help you achieve the goals.
- Start using cash for purchases instead of your credit cards. If you have credit card balances, any new purchases get charged interest immediately — no grace period.
- Take the minimum credit card payments from this month and make the same payment every month regardless of what the card says. If you’re not using your credit cards for new purchases, the balances will start to go down.
These same items work for all professions and walks of life. It is hard to do this on your own, call me and I’ll work with you. Everying is so much easier and faster when someone shows you the way instead of having to figure it all out for yourself!
If you need help getting out of debt, the all-new Pay Debt Quickly Kit is the answer to your prayers.
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This is part of our Financial Literacy Month Question and Answer series
Question: I want to start a business. Do I need a separate checking account? ~ Monica
Answer: Monica, with a small business it is very easy to mix business and personal expenses especially when you’re just starting out.
For some people the business started out as a hobby or a way to make a little extra money on the side. There wasn’t much thought to profit or a permanent enterprise at the time. All of the money funneled into one account.
Then, things began to snowball and soon you were making money hand over fist. As a sole proprietor working for yourself, the government categorizes you as “self-employed” for tax purposes. Once you make over $400 in a year, you have to pay taxes on your business profit. Having only one account makes things much more confusing for you and your tax accountant.
Business expenses are items or services directly related to the business and its management. Business expenses can be deducted on your tax return if you are self-employed. Personal expenses cannot. If everything is in one account it is hard to separate the two convincingly and may raise a red flag with the IRS.
If you haven’t already, start a separate business checking account. All business deposits and expenses should be paid for out of this account (including your salary).
Keeping things separate also helps you to see if your business is profitable (the major goal of owning your own business, of course).
Get a business checking account at the best bank on the planet – ING DIRECT!
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]]>A hobby can deduct expenses up to the amount of money you make. So, if you make $100, you can deduct $100 worth of expenses.
If you run your hobby as a business, however, you can deduct all your expenses even if they are more than you made from the hobby.
What’s a business?
The IRS defines a business as an activity engaged in for profit. (Income minus Expenses equals Profit.) But they don’t require you to make a profit, only that you have the intention to make a profit. If you show a profit in 3 of any 5 consecutive years, the IRS assumes you are intent on making a profit.
Let’s take gardening, for example. If you grow flowers and sell them to your friends and family for $1000. You can deduct $100 of the cost of fertilizer, seeds, compost, tools, classes, transportation, etc. Setting up your gardening as a business (see checklist), allows you to deduct all expenses from your taxes.
Here’s what you need to do to show that you are intending to make a profit.
- Operate like a business by keeping accurate records.
- Act professionally by hiring or consulting with experts in your field and keeping track of how you followed their recommendations.
- Make a serious effort by devoting time to your business although it doesn’t require 40 hours. If you have employees, make sure they are qualified to be in their position.
- Make sure there is the potential to make a profit. Even if you have losses over a number of years, you can still demonstrate a profit motive if assets you have purchased are expected to appreciate.
- Past success or experience in the field can demonstrate a profit motive in the current business.
Specific things to do:
- Register your business name in either your state or county.
- Set up a separate checking account
- Create and use business cards and stationery
- List your company in the phone book
- Keep logs of business contacts
- Advertise
- Send mailings to customers and prospects
- Have a business telephone
- Pay quarterly payroll or estimated taxes if appropriate
Final words…
If you have a hobby that can make money, set it up as a business. This is a good recession move and the government will help you get started in the form of tax deductions.
Note: Please review your business set up and tax deductions with your personal tax advisor.
Warmly, Cindy
P.S. If you need help with your money, taxes or your business finances, contact Cindy.
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Answer: Hi Todd, that’s a great question. I call that “Roller Coaster Income”. Realtors, doctors, sales people and self-employed or small business owners often run into this situation.
Most people with Roller Coaster Income spend the money or pay off old bills when they have high income and starve when there isn’t much coming in.
A better way to do this (not necessarily the easiest!) is to create a monthly spending plan based on the lowest, most likely income and the highest expenses. If you still have money left over, you know that you will be able to weather any storm.
In the months that you make more money than the minimum, set it aside the “extra” in a savings account for when you make less than you need. This account will also serve you when you have “emergencies” like car and home repairs, medical bills, etc.
If your expenses are less than the worst case scenario, you will have some extra money to set aside as well.
As your savings account grows, you can “pay” yourself more. When you are on straight commission, or self-employed it is like being in business for yourself. Take good care of your employees (that means you)!
Hope this helps!
Warmly, Cindy
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