Archive for June, 2009

 

Your Self Employed Hidden Paycheck – Little Things Add Up (Part 2)

In Your Self Employed Hidden Paycheck – How to Pay Yourself More with Less (Part 1), I showed that my 2008 hidden paycheck from being self employed was $23,606. Here is how the numbers add up. We’re talking about items my family gets direct benefit from, but can be attributed to the business and are taken as small business tax deductions. If you are self employed your family also gets paid in “stuff” that employees normally buy after they get their paycheck, but you can buy before you take your paycheck. The business purchase of this stuff, instead of you personally constitutes a hidden paycheck.

Most articles found on the web and elsewhere focus on self employed taxes and the tax savings aspect. Like the $6,610 savings I made last year in self employed taxes. But this article focuses on the hidden paycheck produced by legitimately buying goods and services used for you business that also has personal benefits.

Make sure you check with your CPA before you take any of these deductions since your situation is most certainly different.

My Self Employed Hidden Paycheck items for 2008:

Self employed health insurance – First, the big one. As an employee, it’s not deductible even if you pay the whole thing. Being self employed, it’s entirely deductible. I spent $5,068 last year.

Cell phone – I have five lines for my family. These cost $179 a month after subtracting the kid’s lines, although all are necessary to my business and my sanity.

Home/business phone – Working from home allows me to write off my phone ($45/mo) and my long distance VOIP line with BroadVoice ($35/mo).

Internet – My Internet at home costs $50/mo. Who could run a business without that?

Lunches/dinners out – Meeting with clients and prospects over lunch or dinner is a relaxing way to build business. Even after the 50% deduction, I spent $129/mo.

Party leftovers – My client party at my house had 146 clients and prospects last year. In Berks County, it’s a mortal sin to run out of food, so I ended up with a steak, shrimp, appetizers and alcohol left to freeze. Although extremely hard to estimate, I would say safely about $500 total was the value of what we ate later in the year with family and friends.

Travel – I have a lot of clients near San Jose, California where I used to live, many began as close friends. Traveling there three times last year to see them and the clients they refer is like a vacation for me. Since I stay with my mother-in-law (who I just love), I only spent $2,772 on three trips last year.

Vacation – When many people go on vacation, they work part of the time and deduct part of the cost. I didn’t last year, so my business deductible vacation was $0. This can be a significant amount as we will see in a future article.

Home office deduction – Working from home allowed me to take $3,484 last year off my taxable income. Think of it as the business paying part of the electric, mortgage, pool maintenance, and everything that goes into maintaining a house divided by the square footage used for your business.

Per diem meals – I found this little known tax deduction works for me because I stay at my mother-in-law’s house when I visit my clients in CA. Per diem meals is a daily rate based on where you travel allowed for deduction where you don’t need a receipt. California is $59/day and I spent 47 days there last year. So I get to take $2,802 as business expenses.

Office supplies – With two teenagers in school and various Boy Scout projects, we use extra office supplies such as paper, toner, and notebooks. Maybe it’s not worth mentioning at only about $200 a year, but it illustrates that there are probably things you haven’t thought of yet.

Auto mileage – If you routinely stop at the grocery store, department store, or friend’s house on your way home from a client or meeting, you have saved yourself a trip and pocketed the mileage. Make it a habit and it is money your household is getting without spending. With .55 cents a mile, that was around $1,294 last year.

Computer equipment – Who could run a business without a computer? It also serves as my personal entertainment, shopping aid, and correspondence tool. We tend to buy a laptop about every year for either my husband or me and give the older one to our kids or assistants. Patrick’s MacBook and all its software, cases and parts was $2,052. Yes, we bought other computer stuff, but I’m only counting here what we would have had to buy for the family (and unable to deduct) if we weren’t self employed.

Telephone equipment – Between dropping my Ipaq and being a woman with the ‘no pockets’ problem, I need to upgrade my cell phone nearly each year. Without extending my contract, it cost $299. At home we have a TalkSwitch PBX which died after 5 years and we replaced it for $826.

NOW, a big disclaimer, I do not do taxes! I work with an excellent CPA who specializes in self employed taxes. She is a tremendous help to me. I then pass onto my self employed clients whatever they are missing. So if you have any questions regarding whether something is business deductible in your situation, ask your CPA. I am only helping to stimulate your brain and get this stuff recorded in the first place. You can’t count it if you don’t track it.

How do you figure your hidden paycheck? Comment now.

Now stop reading about your hidden paycheck and start doing! Let’s create your personal profit strategies for growing profit. Call small business profitability coach Merra Lee Moffitt, CFP®. She can be reached at, 888-920-2030 or by email at merralee@captureprofits.com.

Your Self Employed Hidden Paycheck – How to Pay Yourself More with Less (Part 1)

As self employed, we’re pulled in two directions. We want better income from being self employed, yet we want our self employed taxes to be as low as practical. We want our family to benefit from having a better income and all the luxuries it can buy: travel, TVs, cell phones, dining out, and more. But the more dollars in your paycheck, the more self employed taxes you pay.

Fortunately there are common, regular and necessary expenses in your business that have direct benefit to your family. The average employee must pay for all these items AFTER he gets his paycheck. Being self employed, you can count these items against your business and pay for them BEFORE you take your paycheck. Your self employed income will seem lower but your family gets “paid” in the stuff the business pays for. This, in turn, builds your hidden paycheck.

This hidden paycheck is part of what makes being self employed worth the effort. Many items in our daily lives are also used for business. For the purposes of tax reporting, we get to take those expenses against the business because they are necessary for running the business. Depending on your business, this adds up to a hidden paycheck of $15,000 to $25,000 a year.

Your CPA can help you figure out exactly which costs fall into the various buckets and where to report them on your tax forms. Let’s go over some examples. Better income from your hidden paycheck comes from:

I’ll go into detail in part 2, here are just some totals. Last year, my hidden paycheck amounted to $23,606. I’ll show you how I got there in Your Self Employed Hidden Paycheck – Little Things Add Up (Part 2)

Here are the categories I used:
Self employed health insurance
Cell phone
Home/business phone
Internet
Lunches/dinners out
Party leftovers
Travel
Vacation
Home office deduction
Per diem meals
Office supplies
Auto mileage
Computer Equipment
Telephone equipment

What’s in your self employed hidden paycheck? Comment now.

Now stop reading about your hidden paycheck and start doing! Let’s create your personal profit strategies and demand growing profit. Call small business profitability coach Merra Lee Moffitt, CFP®. She can be reached at, 888-920-2030 or by email at merralee@captureprofits.com.

Your Service Pricing: Get Ready For the Recovery

How to price service during recovery

How to price service during recovery

Are you trying to survive the recession by lowering your prices, adding free stuff, and bending over backwards to please the customer so you can keep them? You are not alone. Let me ask you this. When will it stop? How will you stop it? Have you been planting the seeds so that you can stop giving away your time, energy, and expertise? Does your services price list even have your “desired” prices on it?

Take these steps to get ready to raise your service pricing as the economy improves, and prepare your clients so they’ll value you more and happily stick with you.

1.  Make a list of all your current services and your ideal services price list. Give each item a specific service price. This list of service prices is NOT to be given to customers; this is your own secret pricing of services you believe you should be charging. Call this list “Primary Service Prices List”. Use the prices for services you should be charging, not the discounts you are currently giving due to recession, fear of losing the business, self doubt or whatever makes you undercut your own service price list. Think of this list as what your service pricing would be if you were not afraid to lose the business.

2.  On a separate sheet list those services you have been doing for clients but doing for free. Call this list “Additional Service Prices.” Keep adding any services that clients ask for, but don’t charge because you “don’t want to nickel and dime” your client. Also include items you routinely do but have never specifically priced.

For example, one of my commercial cleaning clients is frequently asked to:
Change light bulbs
Put up window screens
Dust air ducts
Dust plants
Put away holiday decorations
Clean up after parties
Initial ‘extra’ cleaning to bring rooms up to standard

On this Additional Service Prices List, start adding the prices for services you think should be charged. Again, this is your own private pricing of services, so don’t worry about how to price services in the best way just yet. Just keep adding distinct services to the list and assigning them a price. If it helps, estimate the amount of time for each item.

3.  Change your proposals.  Be specific in your prices, services, and delivery specifications. Build a clear checklist of what each primary service entails. You’ll then be able to point out when the client has asked you for an extra service. That’s because that service won’t be on your delivery list and will be on your Additional Service Prices List.

4.  Begin believing that this recessionary era of “free” will soon be over. This is a change in your thinking. Look for evidence of it. You’ll find it. Remember, what you think the service is worth (and ask for) is what clients think it is worth.

5.  When a client asks you to do something on your Additional Service Prices List, your response should always be positive. Say, “I’ll be happy to do that for you Sally. Our price for that is $75. Would you like me to add that today or schedule that for Tuesday when we work with you next time?” If you don’t have the courage just yet, say something like, “Normally we charge $75 for that but since you are such a good customer, I’ll add it this time.” You’ve now begun establishing the value of your services. Listen for feedback.

6.  Tell your clients when you are giving them something free. Put those items in your invoice with their new normal service prices, but begin listing them as “no charge”. You’ve been giving them something of value; you want them to see it.

7.  Now start adding an end point to all these free and cheap service prices. When providing a free service, add “30-days free” or “6-months free” after each item. That way, you’ve started to tell the clients what the end date is.

8.  Practice adding in those new service prices and charging for those items on the Additional Service Prices List. Add these service prices to your proposals, and in your response to client requests. Further, begin suggesting these services as you see your clients need for them. You will be adding value and making helpful suggestions. Don’t wait until all your competitors have raised their prices or started adding these services. While you may be afraid to be first, be more afraid to be last.

Notice how changing your service prices are a lot about the way you are thinking? So don’t give up at the first sign of resistance.  Tell me what you’ve been giving away for free in your comments.

Now stop reading about how to price your service and start doing! Let’s create your personal profit strategies for growing profit. Call small business profitability coach Merra Lee Moffitt, CFP®. She can be reached at 888-920-2030 or by email at merralee@captureprofits.com.