Recently I opened a business checking account, and also a private mailbox at a UPS Store. Bank of America even offered a $50 bonus in the branch. The box costs $15 a month. This will just about finish my 2006 Q1 goal of separating business and personal finances. Another reason why I am doing this is for my future endeavors – proper treatment will avoid the IRS treating them as hobbies and not businesses.
The mailbox will serve a couple of purposes. It will allow us to receive mail and UPS/Fedex packages even if we are not home, and prevent them from just leaving it on our doorstep or having to drive to their warehouses. Also, we can give out a business address that is not our home address. Finally, both the rental fees and the mileage to and from the mailbox will be a deductible business expense.
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I’ve thought about doing this, but think it might be a pain to pick up mail in an extra location . Seems like you’re ok with that, huh?
If your business is a legitimate business, the IRS has to fight against the presumption that it is a business – it’s tough for them to do that.
I wouldn’t do the mailbox thing just for deductibility. And if you’re receving personal fedex packages there then you’ll have to be careful about a 100% deduction of the mailbox fee.
Just my 2 cents 🙂
Assuming you are going to the UPS store from you home, to qualify as deductible business mileages, you must have a home office, i.e., a principal place of business at your residence. The reason being we can’t deduct our commuting mileages between home and place of employment, right? 🙂
Strictly speaking, you do have to subtract out a personal portion of your UPS mailbox fees if you use it partially for personal purposes but in the real world, not many people actually do it.
Also, you are supposed to reduce your charitable deduction by the value of items that you received (e.g., magazines, CDs, books or other goodies you receive from your local PBS station after you make a pledge). But again, not many people actually do it in the real world.
I know H&R Block would deduct your entire DMV payment as itemized deduction even though technically the “registration” part is never deductible (in my state anyway..) And for some strange reason, not many people are aware of this rule.
The burden of proof (on whether your Sch C business is a legitimate business or just a hobby) is on the IRS if there’s a “profit” (i.e., $1 or more). However, if there’s a loss, such burden of proof (namely the “hobby loss” rule) resides with you, the taxpayer. So, beware!
FMF – Ah, I forgot one useful detail – Always pick a mailbox on the way to work/school. You can now deduct part of your commute!
Jesse – I don’t know about that. I’ve read about too many horror stories to think that the IRS perceives me as ‘innocent until proven guilty’. Rather, it seems the other way around. *I* am the one that has to keep receipts and mileage records, so how is the burden of proof on them?
Wesleman – Yes, I have a home office. That part won’t be hard to prove, although the percentage of use might vary as the year went on. And I am *only* going to use this mailbox for business packages being received. Whenever I freelance, sometimes people send documents via Fedex, and I want to be able to give a dependable address. I don’t get that many important personal packages.
Jonathan,
You have any suggestions on setting up a business checking account? I was thinking about doing so, but would love some tips. It seems that the majority have a pretty solid min. balance to open, or maybe i’m looking in the wrong places.
Micah – I did Bank of America for many reasons. I already do my personal banking with them, so they are close and convenient.. So the branch people know me somewhat, which may help down the line with any issues.
Right now, at least where I live, there are no direct deposit requirments, no minimums, and no fees AT ALL for 2 years for their Economy Business Checking plan. That’s long enough for me, I’ll have moved by the time that ends.
Mailbox:
The UPS store near me is $25/mo compared to $58/year for a PO Box, which I have currently. I like the idea of a street address and the handling of FedEx and UPS packages but the extra $250 a year had stifled motivation to convert… though your post reminding me of it has me reconsidering.
Bus. Checking:
I have my business acct at the same bank as my personal, as well as a real estate acct. Having all these accounts in one place keeps me in constant view. This has proved beneficial in a multitude of ways.
I’ve found that some affiliate programmes I’ve signed up for expressly forbid the use of mail box addresses – might this be a problem?
Jonathan, I forgot to mention the following but it only works if you have a home office and also a regular job. So long as you can show that you either listen to your business VM, check your email or open your snail mail before going to work in the morning and after coming home from work, you can deduct your entire R/T commuting mileages as your business expense (as told by my attorney/CPA/professor back in college!:)
The idea being as long as “no” end of your trip is your residence (residence with home office notwithstanding), you may deduct the mileages. There’re exceptions regarding temporary place of employment out of your principal one but that’s another story.
Jonathan, in terms of keeping receipts and mileage records, they are “proof of expenses” only. But in terms of “burden of proof”, it’s more in the context of business vs. hobby. In other words, reasons need to be given why your business is a legitimate business. If a taxpayer has a profitable Sch C, such burden of proof is on the IRS (that the business is actually a hobby) whereas if the taxpayer has a loss Sch C, such burden of proof is on the taxpayer (that the business is NOT a hobby!!)
In this day of frequent identity theft, I suppose that’s the primary reason Mr. MMB chose to use the UPS mailbox. Besides, p.o. box is no good when it comes to certain shipments, I suppose..
Allright, first of all, while you can deduct a schedule C and have many interesting things from it, you can not deduct your miles to your “PRIMARY” place of employment – you know the place that gives you that flashy W-2 with all those numbers.
Schedule C is self employment, and while you can deduct miles for a place you would have to go, if you’re just staying at home, your best not to deduct anything.
The “burden of proof” Ahh, this is a true fun situation. As to “business” vs. “hobby” the IRS doesn’t care if you show any profits on either, you get taxed the same. The IRS however does care if you start showing losses (2 of every 5 years losses will be fine in most cases, after that the IRS will look at you to decide) Simply easy enough, show that you have seperate finances; books, checks, *advertising*, etc. If you advertise your business in magazines or newspapers it shows that you’re trying to get business as a normal business does. Then it is upon the IRS to prove it, and from there it would be hard to do such.
H&R Block, don’t get me started; however I will say this much to you, accountants/CPA’s/Tax preparers don’t take any fault about what’s on your taxes, you are signing your name saying that everything on there is correct and true. (We just fill it in for you).
You are right however, that only the Local taxes part of your DMV is deductable, because you’re being ‘taxed’ on the ‘value’ of your car. The state registration fees are not technically deductable, but many people include it. Most people just give the full number to their tax preparers (Yes we know you do it, but we don’t care – you are the one signing off on it) plus it’s a smaller amount, what are you really saving off of 70-100 dollars?
Jonathan: I would suggest you watch out on that Business use of Home aka “Home office” If you do it, it is supposed to be one specified area that is used for nothing “BUT” business. If the percentages are small, ohh well no huge deal, but start inflating it, or claim a larger room to be part of your home, and if audited, you better make it look very much like a business, and if you have your bed in that room, with a clothes drawer, makeup, and a small computer desk – the IRS will disallow it.
Haaa, no wonder it came out funny!! When I wrote regular job, I meant regular office (of your own business). 🙂
I admit not subtracting the registration part of your DMV fee or the values of CDs you received from your local PBS donation is no biggie and no one should lose sleep over it. However, if I’m signing the returns, I would still take it out as I want to hold on to my license.
Do you really think the CPA who prepared Richard’s (the original “Survivor”) 1040 would be alright had he not included his $1M prize money in his 1040 just becasue Richard signed off on it? I sure would love to believe that that is true but he automatically would’ve been disbared by his state board and his CPA career was probably over.
On a related note, as a standard audit procedure, Ken Lay also signed off to Arthur Andersen that Enron’s management was responsible for all financial data. But where is Arthur Andersen and the partner in charge of Enron audit now?
Regarding H&R Block, my take is you get what you pay for, don’t you think?
While I can’t disclose all the details, just be sure you don’t rely on the mailbox for any e-commerce vendors. For example, one of our fraud prevention methods negatively scores people using these type of mailboxes. I realize many people use them legitimately, but history has shown a *majority* of orders shipping to these are actually fradulant. Some companies may not take the time to investigate, and may simply cancel your order.
FYI: The cheapest PO Box at our local Post Office is $26/year. It’s pretty small, but can hold a decent stack of mail and if you receive anything larger, they’ll throw it in a lock box and put the key in your PO Box. I actually ended up going with the next size up for $38/year, mainly due to a lack of availability on the smaller size.