This edition is a bit lengthy, so to make it easy to skim, we have bolded the questions. Some may fascinate you and others may seem relative only to your parents or in the looming future.

Our contributing editors are: Nina Barlow: a freelance accountant now living in Detroit, but formerly from San Francisco, Jim Bronstein, CPA from Friedlander, Cherwon, Capper, an accounting firm in San Rafael specializing in taxation, and Steve Vella, a loan consultant in Marin, with access to a variety of lenders. Phone numbers for all of these kind-hearted professionals can be found in the "Business Builder" section of Propville.com. We archive all past columns in the Tricks of the Trade portion of the Propville.com website. You can read them at your leisure, even after the next edition is posted. Thanks for your continued subscriber-ship. "Welcome to Propville. Today is your day to be the hero." IT'S NOT WHAT YOU MAKE, It's What You Spend. Vol.1 #7 Best Saving's tip for the self-employed:
S.V. Start a Roth Ira this is better than a regular IRA because it is non-taxable when you pull it out, unlike a regular IRA. Also you can use this money for buying a house and again it's not taxable when you pull it out. Remember that paying taxes is the biggest expense you will ever have, not a house, as many people think. Get a good accountant they are worth every dime. They can show you the best ways to deflect taxes. This will save you more than you ever thought possible, (writing off credit cards, vehicles, home office, etc.)

N.B. "For people with cash flow difficulty, I'd also include the idea of having a separate savings account linked to the account you deposit into... every time you make a deposit transfer 10-20% of it over to the savings account. Then use that savings account to pay your quarterly estimated taxes and your income taxes in April. Use restraint and don't use it for anything else. I highly recommend that for self-employed people who don't have the income stability of larger businesses."

Buying vs. Renting.
S.V. "Buying a house has a two-fold effect. It has two positive impacts on your wealth and your taxes (remember your biggest expense). First, You buy a house for $300,000 let's suppose you put 10% for a down payment, which is $30,000. If the value goes up 10% you made $30,000. If you had the $30,000 you used in the bank and let's assume you got 10% interest, which we know is not even close to the rate you would really get which is about 4%, If you did manage to make 10%, that means you made $3,000. Well, not really because you would have to pay taxes on that $3,000 you would receive about $2,700 net. You have to live somewhere, why not own it! You get a tremendous return on your investment over time, you have place to live and you get to deduct all the interest and property taxes you pay, which reduces your taxable income.

Things to do before you buy:
S.V. Get your credit prepared. Your credit is scored now from 0-850. A score of 660 is 'A' credit. These scores are driven by your last two years. That is the window of time a bank looks for an established a pattern of bill paying. It doesn't mean you cannot get credit if the last two years are not great, but you get much better interest rates if your record is clean the last two years. Keep your money in one place try not to constantly move your money around. If you don't know a lot about making money with your money go to a stock brokerage that manages portfolios. Unlike Charles Schwab or E-Trade these companies give you very little advice. A trained and experienced broker can ask you what type of growth you need to get you on the path of buying a house by investing in Mutual Funds, Stocks, T-Bills or all three.

Finding an accountant/ bookkeeper that fit your financial style (creative vs. conservative):
J.B. "I feel that the number one consideration is rapport and trust. A successful businessperson should be looking to enter into a long-term relationship with a CPA as a trusted advisor. There are many qualified CPA's out there, of varying degrees of specialization and technical ability, as well as of varying levels of aggressiveness and creativity as it relates to the interpretation of the tax laws. So, once you find someone you like, (before hiring them based on the touchy feely criteria) you really also should assess where they fall in the ability/experience area. If your tax or financial situation involves both large dollars and complicated issues, you may be looking for an accountant that may have an advanced degree in taxation, and/ or who has handled issues similar to what you may be confronting. Also, you should want to ask them about how aggressive they are willing to be with the tax law. Personally, I like to interpret the law aggressively, but legally. By doing that I can save my client money, where a loophole or potential loophole exists, but warn them when a position may get them into trouble with the law. So, anyone looking for a CPA who wants to be aggressive should get a feel for how that CPA looks at things, prior to hiring him/her. For those that are conservative, and simply want to pay the tax as specified by the IRS Regulations, they may be able to hire a CPA who is not necessarily that creative and who plays it "by the book". I'm willing to bet that the fees are cheaper for the latter type of CPA, as there is both less time and risk involved where this approach is used.

As far as rates go, like anything else CPA/Accountants rates will vary. In Marin County, a very skilled CPA generally will charge between $135-$200 hour/depending on experience and availability. Some charge much higher rates, but generally for specialty work. To have your taxes prepared also varies greatly depending on how complicated one's returns are, as well as how the organization of one's books and personal records. Generally, for simple tax returns, involving say, a proprietorship, and itemized tax deductions, you looking at a minimum of about $400 up to $1,000. Prior to agreeing to have a CPA do your work, you should get a rough fee quote. If the price billed is higher than the range quoted, you may want to ask for an explanation.

It's important to remember that the tax system is voluntary, and based upon self-assessment. (You compute your own tax.) There are many different of ways of handling tax matters, and varying types of CPA doing it. Go with a CPA or accountant who comes recommended to you and that you like and seem to trust. If it turns out to be a good fit, great…keep them around for years and years, if you make a mistake and don't feel comfortable after a year or two, you should find a new one, there are plenty of us to choose from!

S.V. A quick quote from Steve, the loan consultant, about accountants; "There is a reason rich people pay comparatively smaller taxes. They have an accountant that knows the tax laws and they buy Real Estate"

N.B. "Ask around at other studios (photo, graphic design, small labs, stylists) and see who they use. The best bookkeepers come from good recommendations. Don't be frustrated by the fact that the best bookkeepers are very busy and often can't take on new clients. A bookkeeper from another studio is good because they'll be familiar with your industry. Don't fret too much about conflict of interest. Bookkeepers often work for competing firms and hold to strict confidentiality. If you're still concerned, talk to the bookkeeper about it at the beginning and see if you're comfortable with their response. Never hire a bookkeeper you don't feel comfortable with at the first meeting. Money is a funny thing and while you may feel fairly passionate about your finances (or lack of them!) bookkeepers usually see the accounts as just numbers and columns and it's easy get your wires crossed about the importance of the many totals and figures that need to match. Hiring someone who communicates well is very important.

Also, be prepared to spend 3-4 times more time and money at the beginning of the process than you anticipated. Invariably, the bookkeeper will have to do considerable set-up or clean-up if you've been without a standardized system.

In San Francisco the going rate is between $30-55/hour for weekly maintenance. In Detroit the going rate is $20-35. Remember that you get what you pay for. Remember the old adage about 'the forest and the trees'?

Quicken categories that are frequently missed or mislabeled or overlooked.

N.B. Auto Expenses:
Check with your CPA as to the advantages of expensing your auto by the mileage formula or the percentage-of-total-cost formula. If you choose the mileage formula you MUST keep a log. At a very minimum you must log your mileage at the beginning and at the end of the year, but most CPA's require more record keeping than that. Remember that traffic tickets cannot be expensed. It's easy to separate them out by creating a sub-category under Auto Expenses called "Tickets" and always posting your tickets to that category.

Equip Expense vs. Equip Asset:
Check with your CPA about a reasonable baseline amount for expensed equipment. This means that your have a limit of how much an item has to cost before you call it an asset and then depreciate on your tax return. Some CPAs like $200, some like $1000, it really depends on your income and tax liability. Determine that amount and stick to it. Consistency will help you post it correctly throughout the year, which will make tax preparation easier.

Equipment Assets:
After you've determined the threshold for Equip Expense vs. Equip Asset, keep a separate file of the photocopied receipts for all asset equipment. This file could help your CPA fill out your depreciation schedules at the end of the year and it will help you determine your insurance needs when your policy renewal comes up. It will certainly be instrumental proof of replacement costs in the event of a loss. It's also a very helpful record to have in lieu of a full equipment inventory list. But remember, a good time to do your equipment inventory is in January, right after your big end-of year purchases. Update your insurance coverage often... you'll be glad you did.

Job Numbers:
In Quicken, if you use Job names or numbers consistently in the Memo field of every transaction, you can then create a Transaction Detail Report using that information to create Income and Expense reports for jobs as you go along. Be sure to stay consistent in naming the jobs and keep a list of job names or numbers on the wall near the computer to remind you how to type it into the Memo field. Note: QuickBooks takes care of this issue with your Customer List and Job Numbers.

Payroll:
Honestly, considering the time and effort involved, look into having a payroll service do the work for you. It's worth the monthly fees just to have them be fully responsible for the regular tax deposits and ongoing tax changes every year. Talk with your CPA about the status of your assistants and day-rate workers and whether it's in your best interest to let them remain 1099 contractors. Remember, once you've classified them as contractor or employee you can't switch back and forth between the two systems of employment.

Travel:
Be sure to keep a separate file for the receipts of each trip and include Polaroids, gang sheets or tear sheets of the work done. This small amount of organization will help you much later on when you need to refer to the job for a client or your CPA.

Deposits:
If you work in Quicken, seriously consider posting each of your deposited checks separately, listing the payer in the "Description" field and listing their check# and your invoice# and Job# in the memo. This may seem overly anal and time consuming but the quick-fill feature in Quicken will remember the transaction and make the next one easier. It will only take a few more minutes to reconcile your bank statement deposits. However, next January, when the 1099's start to flow in, it will be very easy to create a Transaction Detail Report in Quicken using their name, in order to determine if your figures match theirs. It will also help you find banking errors easier and if you're ever audited (god forbid!), you'll be very happy you did it this way. Note: if you're using QuickBooks, there is no need to record your deposits this way... QuickBooks "receive payments" and "make deposits" processes already do it for you.

Also, remember to photocopy the checks you receive, staple them to the appropriate bank deposit receipt and file them in date order in a folder called "Deposits". This may seem elementary, but it's surprising how many people don't do it and have a mess when they're trying to recover their paper trail. And obviously, it will help you find banking errors and save your booty in an audit.

Never do Cash Back at the ATM when you do a business deposit. Always withdraw money as a separate transaction. It's a sure-fire flag in an audit and is a bad practice in small business.

What are some creative alternatives to traditional "gifting".

J.B.: "The issue of gifts is one that lends itself to a lot of creativity. I think most people know that anyone can give anyone else gifts valued at $10,000 per year, and not have any gift or estate tax consequences. Also, keep in mind that this is a very complex area, so prior to acting upon anything here, one should consult a CPA or attorney. There are other alternatives to the straight "cash gift", which everyone likes, but which are not always possible (i.e. grandma is broke) or may not be the best tax planning strategy.

One idea is to forgive debt. If the generous person who wishes to (either) reduce their future estate tax liability, or just be plain old nice, they can just write up a letter that cancels out a portion of a debt owed to them from a relative. For example, if Joe borrowed $100,000 from Grandma in 1995, and has been paying her interest each year; Grandma can write a letter to him (preferably notarized), which reduces the debt to $90,000. Another often-overlooked idea is for a donor to give away illiquid assets (fee simple interests in real estate, or partnership interests.) By giving away property in this fashion, one can employ a concept of "discounting", which allows the gift to be worth perhaps more than $10,000, but will only count as $10,000 to the IRS. Did you borrow money to buy equipment or start your business? This may be for you.
There are numerous other ideas for gifting, including items such as Charitable Remainder Trusts, Grantor Retained Annuity Trusts, Qualified Personal Residence Trusts, and Family Limited Partnerships, which are very complex, but which can generate enormous estate tax savings. So for any of you that have a "family nest egg", please consult your tax advisor or attorney.

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