Once upon a time there was a candle lady named Wendy who lived in the land of OZ. She had an annual responsibility to pay her taxes because she made so much darn money from her candle business that the government of OZ considered her candle business to be just that... a business. She loved paying taxes, because it really made her feel like she had made it as a business person.
However, Wendy didn't want to overpay her taxes, because she (and any business) should only pay taxes on profit. Wendy's profit was the amount she got paid (the incommies) minus all the expenses she spent money on in order to make the incommies (the outgoies).
So, each year, Wendy thought about what outgoies took to run her business.
- The Car - Wendy owned her car, got it serviced, insured it, had roadside assistance, and put petrol into it regularly. She saved receipts for these things. One year, she showed her accountant the receipt for the car she bought and for the car she sold. She left it up to him to figure out if there was part of that big outgoie that could be subtracted from her incommies. Turned out there was, but it was too complicated for Wendy to figure out on her own.
- The Phone - Wendy paid a monthly bill for her mobile phone. She also paid a monthly bill for her home phone. She estimated that her business use of these two was 75%.
- The Product - Wendy bought display products to use at her shows, for door prizes, and for team raffles and incentives. She saved receipts for these things.
- Show Costs - every time Wendy's hosts had a $400 show, Wendy paid a $10 fee for the $50 bonus hostess voucher. She kept track of these payments on her Profit Statements.
- Training and Events - Wendy loved to go to training, Leader's Summit, and the Annual Conference. These things made her a better Consultant and a better Leader. In 2009, Wendy was part of the 101 Dalmatians (award winning costumes) at Conference and you know what? She even kept track of the $10 she paid Eliana for making the Dalmatian Suit. She kept track of all her outgoies for these - including the coffee at the airport.
- Books and CDs - Wendy invested in books and CDs to help her and her team improve in many areas (sales, leadership, network marketing, networking, etc.). She saved receipts for these things.
- Advertising - Occasionally, Wendy would seek approval from PartyLite to advertise her business in various publications and at fetes, fundraisers, and market stalls. These advertising outgoies would result in leads and, hopefully, sales. So Wendy kept her receipts for these.
- Customer Events - Wendy hosted parties at her home several times a year to give her VIP clients some VIP treatment. She bought food, drink, and used candles at these events. She kept track of these outgoies.
- Consultant Events - As a Leader, Wendy ran Unit Meetings and New Consultant Training. She had raffles, gave away literature, and bought nibbles and drinks.
- Bank Fees - Wendy set up a special bank account just for her business, so she kept track of all the outgoie bank fees she was charged.
- Internet - Wendy used the Internet almost exclusively to build her business. She invested in a faster connection so that she could provide better customer service and so she could be more efficient in putting in her orders. She estimated that 90% of her time on the internet was related to business.
- Computer - Wendy provided receipts for her new laptop to her accountant. Laptops are equipment that can be claimed over a few years, not all at once, so Wendy left that up to her accountant to figure out. But Wendy also used lots of printer toner and paper, so she kept track of those outgoies.
- Networking - Wendy got out into the world to meet new people. Sometimes she attended breakfasts and lunches and meetings where there were fees. She kept track of these outgoies because each event helped her grow her business.
- Mail - Wendy and the post office were very close. She knew her postal delivery man by name and she also had a big fan base at the post office (they liked the way Wendy's deliveries made the place smell so good). She bought lots of stamps and cards and envelopes. She kept every receipt for those outgoies. (And she wasn't too happy every time the postal fees got raised).
- Business Cards - Wendy had business cards made and she went through a lot of them. They help spread the word about her business, so she kept track of those outgoies.
- Display Bling and Giftwrapping - When Wendy wanted her display to look great, she bought some fake flowers, some placemats, and some coloured rocks. She also bought gift bags, organza bags, gift wrapping paper, and ribbon. Lots of things to advertise her shows and her business. Those outgoies were all carefully tracked.
Wendy put all of these outgoies into a spreadsheet and filed the receipts into a big envelope.
Incommies for her PartyLite were easier for Wendy to track. Each week, PartyLite would create a report (a Profit Statement) for Wendy showing how much money she had been paid. Wendy would just put that information into her spreadsheet. She could also get year to date information off the CBC.
Other Jobs, Other Income, and Other Tax Deductible Expenses
When she used to have another job, Wendy got a Group Certificate for that job, too. She would give that to her accountant. She also had an investment property that she shared with her husband, so every year she had to bring that information to her accountant, too. Whenever she gave money to charity, she'd keep track of that. When her health fund would mail her its annual report, she'd put that into her tax file. (Wendy didn't have any income from places like Centrelink, so she wouldn't have had any idea how to account for that. Absolutely no idea. Definitely an area requiring special research!)
The Hero of the Story - The Accountant
Every year, Wendy took all of this information to her accountant and gave him a rundown of what she was giving him. He would ask questions and make sure she had included everything. He would look at her strangely when she asked if she could claim dog grooming outgoies since it made the dog more attractive and better smelling to consultants and clients. (Alas, no.)
She would pay her accountant every year (also a business-related outgoie). He would crunch all the numbers and make sure Wendy only paid the taxes she was supposed to pay.
How Wendy Saved For Her Tax Bill
Wendy actually liked to have all her tax money saved up before her tax bill would come. She hated surprises, especially when they were outgoies! So Wendy used the Stash Cash program to save money for conference AND for her tax bill. She found that by putting $50 aside from every show, at the end of every financial year, she had plenty of money for her annual conference, her taxes, and any leftovers were her self-created "refund." As a reward for being such a good saver, Wendy loved to spend her "refund" on full body massages.
Why Wendy Had to Deal with GST
In 2009, Wendy sold over $75000 worth of candles which was one criteria for her to have to register for GST (there were other criteria that might have made this happen, too). She dealt with this with her accountant and now keeps track of GST, too. (One hint: Don't register for GST unless you have to - it's an unnecessary headache. One other hint: If you do register for GST, tell PartyLite right away - it changes a few things about how you get paid.)
So in the land of OZ, Consultants who ran their candle business as a business started keeping great track of their outgoies so that they could pay the right amount of tax. Not too much, not too little. They all got accountants to help them. They all started saving early for the inevitable tax bill (a sign that they were making lots of money).
And they all lived happily ever after.
Repeat big disclaimer: I'm not a professional tax person. I use a professional accountant to file my taxes. I do not expect you to take this post as anything other than a story from Wendy. It is not advice. It's a story.