Tax Tips for Doulas: Keeping the Books

doula business and taxesPart 3. Five Bookkeeping Tips that Make Life Easier

If you own a doula business and are organizationally challenged, then right about now you are probably pulling your hair out as you attempt to gather varied receipts and income records in order to complete your tax return. Or, perhaps you are in a deep state of procrastination? In either case, you are not a happy camper. Put this trauma to good use and get your @#&! together! Here’s how.

Tip #1. You need a SYSTEM. When something is systematic, it means you do it without even having to think about it. One needs to set up the system, so there is a small investment of time and effort to accomplish this step, but once in place, you simply need to you use the system.

Tip #2. The system needs to work for you. If your doula business model is a simple one, then your bookkeeping can also be simple. Briefly, if you are offering services or perhaps a class or two, then your needs are straightforward and a handwritten two-column ledger book purchased at your nearest office supply store should suffice. The ledger book is super easy. For example, track income for the month on the left side and expenses on the facing page. Entries can be as simple as date, source of income, and amount. For expenses, enter the date, category of expense (e.g., office supplies or continuing education), and amount.

If you need your system to track more than income and expenses, for example inventory, then you will need something more robust. QuickBooks software is quite powerful, likely containing more functionality than you require. However, it can also be used on a very simple level as an electronic checkbook. Again, you simply enter your income (as deposits) and expenses (as checks/debits). You will need to set up your expense categories. This step is not too techy (found under Lists/Chart of Accounts) and can be amended as you go.

Tip #3. Your system needs two key components: (1) a place/way to track income and expenses and (2) storage for your receipts. Should you ever be audited by the IRS, you will be required to produce your receipts for any deductions you have claimed. Print and save all receipts! A simple method that has worked for me for over 30 years is to have a small envelope for each month labeled “receipts.” After I enter the transaction into my QuickBooks program, I put the receipt in the envelope. Once the envelope is full, I seal it and file away under “2015 business receipts.” No sorting through bits of paper, trying to read faded receipts, or puzzlement regarding purchases. Ever. Keep all tax-related documents for a period of seven years.

Tip #4. In order to claim your mileage deduction, you need written documentation for business use of your vehicle. Again, the system has to work for you. Mileage tracker booklets from the office supply store or phone apps are pointless if you can’t muster up the self-discipline to enter a start and end point for each business-related trip. However, a calendar of appointments/events, client records, and MapQuest will enable you to re-create your documentation if that is your only option. Randomly pulling a ballpark number out of thin air is another method, but one that will be difficult to justify if the IRS comes knocking.

Tip #5. Use your system! All else is moot. And do it as you go. (Here is where the self-discipline comes in.) It will make pulling your taxes together for your doula business next year a simple matter rather than a hair-pulling-out mountain (or pile) to climb.

More Tax Tips Coming Soon from the Doula Business Advisor!

Part 4. Options to Making Quarterly Tax Payments (on 4/7)

Patty Brennan is the author of The Doula Business Guide: Creating a Successful MotherBaby Business, 2nd Edition. Now offering The Doula Business Guide Workshop and Webinar Series — an inspiring workshop and online class covering the nitty gritty of establishing a doula business and growing it into a sustainable income.

Posted by Patty Brennan on March 31, 2015 • Filed under
Comments (0)

Comments

Tax Tips for Doulas: Top 3 red flags for getting audited

Part 2. Top 3 Red Flags for Getting Audited by the IRS

doula businessIt’s tax time again and for self-employed doula business owners, this can be stressful. Unless your overall family income is greater than $200,000, doulas are unlikely to be at high risk of triggering an IRS audit. Nevertheless, there are specific red flags that may trigger a closer look at your return.

#1. Deductions for a Home Office

The IRS allows a deduction for business use of your home BUT strict rules apply. Large deductions for home offices are notoriously abused and could flag you for an audit. A key qualification to keep in mind is whether or not the space being designated as “home office” is a dedicated work space. If you are using the kitchen table to conduct business, this will be a hard case to make. If you are using a room for two purposes, say as an office and a guest bedroom, you can deduct only the space used regularly for business purposes.

Deductions are calculated as a percentage of your monthly rent payment or annual interest on your mortgage (not your monthly mortgage payment). To figure your deduction, you will need Form 8829 Business Use of Home. Start by calculating the total square footage of your home or apartment. Next, calculate the total square footage of the space singularly dedicated to business use. Now you can calculate the percentage that the business use represents of the total number. This number gets plugged into Form 8829 and then simply follow the directions to figure your deduction. The same percentage can also be applied to the total of your annual utility bills.

Capital improvements and repairs to your home may also be deductible, using the same percentage. Be careful, however. A plumbing repair to keep your bathroom operational may qualify if you are conducting clients visits in your home, while a washing machine repair probably does not (unless you are also a massage therapist and regular laundering is required).

For more information on deductions, see Part 1 of our Doula Business Advisor series on Tax Tips for Self-Employed Doulas.

#2. Writing Off Your Entire Cell Phone Bill

Be careful about writing off 100% of your cell phone bill. You can only deduct the portion used for business purposes. Assign a reasonable percentage to represent business use and apply it to the total amount spent for the year. For example, if you and your spouse share a plan and your business use is about 50%, then your deduction is 25% of your total annual cost.

The same thinking applies to internet service provider monthly fees; only deduct the percentage used for business purposes. If the entire family is using the internet, you need to come up with a reasonable percentage that represents business use. On the other hand, if you have an office outside the home and pay separately for a land line or internet access at that location, then the total amount paid is deductible. Just be reasonable and be able to back it up.

#3. Repeat Claiming of a Net Negative Income (or Loss) for Your Business

The IRS understands that sometimes business owners invest more money in building/running a business than we make in a given tax year. In particular, many owners may find themselves in this situation in their first year or two of business and justifiably end up claiming a loss on their Schedule C. However, claiming a loss three years in a row is pretty much guaranteed to get you some unwanted attention. Typically, the IRS will not allow such a claim and are likely to go back in time and disallow the two previous years as well. Their view is that if your “business” is not making money, then it is not truly a business but, rather, an expensive hobby.

To ensure that your passion for helping moms and babies is, indeed, generating an income, don’t neglect to set some marketing goals for your doula business. For more guidance, see our doula business training online.

More Tax Tips Coming Soon from the Doula Business Advisor!

Part 3. 5 Doula Bookkeeping Tips that Make Life Easier (on 3/31)
Part 4. Options to Making Quarterly Tax Payments (on 4/7)

Patty Brennan is the author of The Doula Business Guide: Creating a Successful MotherBaby Business, 2nd Edition. Now offering The Doula Business Guide Workshop and Webinar Series — an inspiring workshop and online class covering the nitty gritty of establishing a doula business and growing it into a sustainable income.

Posted by Patty Brennan on March 26, 2015 • Filed under
Comments (0)

Comments

Tax Tips for Doulas: What kinds of expenses can I deduct?

Part 1. What kinds of expenses can I deduct?

expensesThink in terms of capturing and recording every penny you spend on your business. Anything reasonably related can and should be deducted. Why “should”? Because you will need to pay 15.3% FICA tax on the net income from your business. “Net” equals gross (total amount you earned) minus allowable deductions. This calculation happens before your net business income gets plugged into the overall personal or family income picture on your Form 1040; then your federal and state taxes will figure in. So, for example, if you netted $10,000 in your business last year, you are liable for $1530 in FICA taxes plus the federal and state taxes! Therefore, it is to your advantage to take all allowable deductions against your gross business income in order to reduce the net amount on which the FICA calculation will be made. Following is a list of applicable deductions for doulas.

  • Continuing Education—tuition or fees to attend professional conferences, workshops, webinars; expenses related to attending the educational event are deductible, including lodging, travel (airfare, train fare, bus fare, shuttles, taxis, mileage), and 50% of meals purchased; subscriptions to professional journals
  • Equipment & Furnishings—computer, printer, office furnishings (desk, file cabinet, bookcase, etc.); must be for sole use in your business in order to write off the full cost; if the entire family is using the new computer, then a percentage should be applied to represent business use; you can also depreciate these types of investments but that gets a bit more complicated so you may want to consult an accountant
  • Home office—a percentage of your rent or interest on your mortgage, as well as utilities and repairs, can be deducted but strict rules apply; large deductions for home offices are notorious for getting the attention of the IRS and could flag you for an audit (to be addressed in Part 2 of this series)
  • Insurance—professional liability insurance, commercial insurance, automobile rider (for transport of clients in your vehicle)
  • Internet access—service provider monthly fees (again, only deduct percentage used for business purposes)
  • Marketing—advertising; brochures; business cards; booth fees for community events; email service providers (e.g., Mail Chimp or Constant Contact); website design services, hosting and domain fees; professional head shot; etc.
  • Mileage—The deduction amount for business-related travel is set by the IRS. It is typically an annual rate, though occasional mid-year adjustments can be made due to large fluctuations in the price of gas. You cannot claim mileage to commute to a job or your office, if you have one outside the home. For 2014, the per mile rate is $.555. This can really add up for doulas making home visits or those who travel up to an hour radius (or more) from home to attend births!
  • Miscellaneous—gifts, cards, copying costs, parking/tolls, bank fees, etc.
  • Phone—home, cell phone (you can only claim the percentage used for business)
  • Professional fees—membership dues, certification fees, business licenses, business-name registration fee, incorporation fees, accountant fees, lawyer fees, backup doula fees
  • Rent & Utilities—for office space outside your home
  • Supplies—office supplies (printer cartridges, paper, postage, envelopes, file folders, accounting software, ledger, day planner, etc.) and doula supplies (birth ball, carrying bag, massage oil, rebozo, educational materials, etc.)

What is not deductible against business income?

  • Child Care (see Form 1040 instructions for this deduction)
  • Cost of initial training to start a new career; to be claimed as a deduction, education must meet the test of maintaining or improving a skill required in your business; training is not deductible if it is required to meet the minimum educational requirements of your present business or if the education will qualify you for a new trade or business, such as your basic doula training; however, an expansion of services offered qualifies (Examples: a massage therapist with an existing business requiring Schedule C reporting to the IRS decides to take birth doula training; in her second year of business, a birth doula decides to take postpartum doula training)
  • 50% of food/meals when doing business-related travel (think in terms of eating dinner in the hospital cafeteria, business meetings over lunch or meals purchased when traveling for continuing education such as workshops or conferences)

Watch for three more weekly installments on Tax Tips for Doulas, just in time for tax season. This series has been updated from 2015 but I thought I would run it again for all the newer doulas out there who may not have seen the series last year.

Patty Brennan is the author of The Doula Business Guide and The Doula Business Guide Workbook (NEW!). Now offering Advanced Business Training for Birth Professionals — a highly-interactive and inspiring workshop designed to help you take your business to the next level. Also offering our Small Business Basics Online Classroom with eight classes covering the nitty gritty of establishing a small business and growing it into a sustainable income.

Posted by Patty Brennan on March 18, 2015 • Filed under
Comments (0)

Comments

Summer 2017 Birth & Parenting News

Increase your search engine juice; research on stress during pregnancy; acupuncture for the childbearing year; yummy granola recipe; fall Postpartum Doula Workshop in Kalamazoo, MI; babies recognize faces while still in the womb; awesome doula meme; Trauma & the Birth Professional fall workshop; Advanced Business Development Workshop on August 5; earn 7.0 DONA continuing education […]

Read the full article »

June Birth & Parenting Newsletter

Is waterbirth safe (review the evidence); Directory Listings Summer Sale ~ get 15 months’ exposure for the price of 12; bring-a-friend special on birth doula training (save $100 each on June workshop); Doula Share Circle topic for June 19 meeting ~ the doula’s role at a homebirth; Open House Celebration at the Center; really good […]

Read the full article »

May Birth & Parenting News

Mother’s Day coupon (save 10% on all offerings); child summer safety resources; Meet the Doulas event;, grow your business and earn continuing education credit with doula business expert Patty Brennan (7.0 DONA contact hours); spring meeting of the Michigan Childbirth Education Connection with author Cynthia Gabriel of Natural Hospital Birth (newcomers welcome); and more! Read […]

Read the full article »

April Birth & Parenting News

The other end of the continuum-holistic end-of-life doula support; the words we use to talk about birth matter; Doula Share Circle April topic-vicarious trauma and self-care for doulas; hiring a doula guide for parents; Spring Special on comprehensive doula and business development training, through April 19; welcome to Gillian McClinsey-Powell, the newest member of our […]

Read the full article »

March Birth & Parenting Newsletter

Read a summary of the new ACOG opinion on limiting labor interventions and the benefits of doulas; Meet the Doulas March event; waterbirth and the newborn’s microbiome; Spring Special ~ Save 50% off our comprehensive selection of Holistic Online Childbirth Preparation classes; essential miscarriage, stillbirth and infant loss resources; and more! Read the newsletter.

Read the full article »

February Birth & Parenting News

“Love hormones”; roadmap to peaceful newborn sleep; February Doula Share Circle (on intuition); and more! Also featuring resources for after your baby is born including: postnatal fitness class (bring baby), breastfeeding support group, professional lactation support, bra-fitting (specializing in hard-to-fit women), lending library (extensive parenting topics), postpartum doula directory, and postpartum herbal healing baths. Read […]

Read the full article »

January Birth & Parenting News

Happy New Year everyone! Fighting cabin fever, delayed cord clamping-new ACOG guidelines, WINTER SPECIAL on comprehensive doula training (make this your year!), the birth of Lifespan Doula Association, Meet the Doulas Event, FREE Dancing for Birth class and more! Read our January 2017 newsletter.  

Read the full article »

December Birth & Parenting News

In our December newsletter, we share reflections on fear and gratitude; homebirth midwifery legislative action needed (call your Senator); depression and holidays; how birth affects breastfeeding; protecting baby’s microbiome; Spinning Babies Workshops coming to Detroit and Lansing areas; Karen Strange’s Integrative Resuscitation of the Newborn workshop coming to Ann Arbor in December.  

Read the full article »

October Birth & Parenting Newsletter

Babies know when and how to be born; top 10 child safety tips; lavender labyrinth; earn 7.0 DONA continuing education hours; Gentle Birth Project training; Michigan’s first End-of-Life Doula Training; grow your doula business; massage techniques for doulas; Dancing for Birth video; and more! Read the newsletter.

Read the full article »

September Birth & Parenting News

“No means no” (from Elizabeth Shadigian MD ~ book release); electronic fetal monitoring’s value questioned; post-traumatic stress & childbearing; Great Lakes Herb Faire; babywearing (how to); making competition moot (Advanced Business Training for Birth Professionals); how end-of-life doulas help families; give Dancing For Birth a try (free class September 1st); and more! Read the newsletter.

Read the full article »