If you’ve been anywhere near the real estate market, you’ve probably heard the term “STR.” But what does it mean, and why is everyone talking about it?
STR stands for Short-Term Rental—typically a house, cabin, or other dwelling rented out for an average stay of seven days or less. If you meet certain IRS criteria, your property can qualify as a short-term rental for tax purposes. These criteria generally relate to how the property is used, the average rental period, and your level of participation in managing the property.
The Tax Advantage
Accelerated Depreciation: Investment properties allow for depreciation deductions, but short-term rentals can take this a step further through a cost segregation study.
Normally, residential rental properties depreciate over 27.5 years. A cost segregation study reclassifies certain components—such as electrical systems, plumbing fixtures, and landscaping—into shorter depreciation periods.
This reclassification enables accelerated depreciation, meaning you can claim larger deductions earlier in ownership. These deductions can reduce your taxable income by “front-loading” expenses.
Why Does This Matter?
Passive losses generally only offset passive income. For high earners (over $150,000 a year), long-term rentals often provide limited tax benefits. Short-term rentals, however, can qualify as non-passive under certain conditions, allowing deductions to offset W-2 income.
Bottom Line
Short-term rentals can be a powerful strategy to reduce your tax liability and keep more of your hard-earned income.
And what to do with the receipts you save from them.
Lots of folks get stumped by the blank receipt cards handed back to them after dropping off a donation at the local Goodwill or Salvation Army.
Do you write in the value yourself? Do you add them all together? Do you even need one of these if the items weren’t worth much to you?
We’re here to give you the tax advice you need.
First of all–
Are you going to itemize on your federal tax return? Standard deductions on federal tax returns cover charitable contributions up to a certain dollar amount. With them you don’t usually take the time to list out every single item you’ve given away. So, you can chuck that receipt card into the recycling bin.
Except…you may need it for your Minnesota State individual income tax return. Combined cash & non-cash donations worth over $500 can get deducted, whether you take the standard deduction or not. But you’ll need to save that receipt. Now back to your federal tax return. If you are going to itemize on your federal return–
Ask yourself this:
If you were to sell the item for its market value, would it be worth more than $250?
For example, you bought a TV for $3,000, but that was a few years ago and you’re getting an upgrade. If you sold it on Facebook Marketplace, you could make $1,900 on it.
The rule is that all non-cash donations (i.e. personal property) worth $250 or more need a receipt. So these become very important if you donate a highly valued item or make multiple donations of personal property.
However, you also need to answer a second question.
Are your total non-cash donations for the year over $500? –If “yes,” then you need to have a detailed record for each of your contributions, even the ones worth less than $250.
If “no,” then no detailed records are required, and you don’t need to include the receipt with your federal tax return.
Here’s our rule of thumb.
If you routinely donate personal property as a charitable contribution, or you make one high-value gift in a year, save the receipts. You’ll want to keep them with your other tax source documents for at least 3 years after that specific return has been filed.
Training kids on how to earn and use money wisely is an important part of parenthood. But what kind of jobs are available for an eager 10-year-old? Not many, unless…
You employ them yourself. Yes, you heard that right. No, there’s no issue with child labor.
The goal is to find them a task or list of tasks that they can do (according to their skill level) and pay them an appropriate rate for their time.
Now, how to keep track of this in your bookkeeping AND make sure everything stays above board? Here are some simple steps to take:
You report your child’s work as Outside Labor/Other Expense on a Schedule C (which should be familiar if you’re a Single Member LLC). Then you pay your kid–cash is best.
You DO NOT put them on payroll or even call it payroll. You DO NOT pay them directly out of your S Corp. And DO NOT create a W-2 for them either.
But why? Why not treat them like any other employee?
First, because you would never give a minor a W-2 out of your business. Second, because there is zero requirement to withhold FICA, SUTA, FUTA, or Worker’s Comp on your own child. Circular 230* actually says you don’t have to.
So what kind of jobs are appropriate for your children to do for your business? Ideally, ones that help you out and save you a little money from hiring out to another company. Classic examples include:
-Shredding papers, collecting garbage, or sorting recycling -Sweeping or vacuuming floors and cleaning windows -Dusting and organizing shelves (especially in storage or a back room) -Answering phones and taking messages if they’re old enough and well trained
Compensation should always be fair (they are working, after all) and reflect the difficulty of the jobs. Pay your kid $100 a month to shred paper? Perfect. Pay them $1,000? Too much.
This kind of financial move helps you set an example about income for your kids and make sure that some of the wealth you’re trying to pass on to them actually makes it into their bank accounts.
It’s easy to see certain app or service subscriptions as useful tools for your business–even if you’re only testing them out for a short-term project.
But how do you know whether buying into a subscription is a worthwhile investment or a 3-day trial gone bad?
Today we’re helping you save money and settle this never-ending business debate with three simple questions.
Is the subscription brand new?
If you just started subscribing and you’re not familiar with the platform or service yet, it’s perfectly all right to choose a month-to-month subscription for now. The upfront cost will be low, and you can be more flexible with canceling based on how often you actually use the service.
The free plan lets you record and transcribe up to 90 minutes of meetings, interviews, or audio content each month.
That might be enough for now.
However, your team needs access to the finished files, and you need to be able to upload external recordings to save time.
A pro account is only a few dollars, and it increases the number of features you can access from that service. You opt in, and your team quickly wraps up the project. Now you can quit the monthly subscription and still keep your access to the finished files from that platform.
Until you’re sure this is for the long term, month-to-month is a solid choice for subscriptions.
Which brings us to our next question–
Have you had the subscription for 6 months (or more)?
It’s easy to get started on a new app or delivery service when there’s a 3-, 10-, or 30-day free trial. Once your payment method kicks in, however, that becomes a recurring business expense.
So, how do you know whether it’s better to commit to the annual plan or stick with a monthly payment?
Simple.
If you’re already using the subscription and you have been for the past six months and this is a service you know you need long-term, it’s probably in your best interest to make this an annual subscription.
Lots of platforms and providers also offer a discount if you pay for the services in one lump sum, meaning it might be beneficial to take advantage of the annual price break!
Add it to your budget and make sure you account for it in your annual cash flow. Setting a reminder can help you keep track of a payment like this that only falls due once a year.
Here’s the caveat–
What does the annual cancellation policy look like?
If you opt for the annual plan, it’s very possible there are cancellation fees should you choose to end the subscription farther down the road.
That, or you might be stuck paying the remainder of your membership regardless of whether you use it or not. In most cases, it’s unlikely that you’ll be reimbursed or pro-rated for quitting part way through.
So unless you’re clear on the hoops you may have to jump through to cancel, be sure to stick with the month-to-month option. If you are, and you’re willing to accept them, then an annual plan could be perfect for you.
So, buy the annual subscription if:
The annual subscription isn’t going to cause you bottom-line panic.
You’ve had the subscription for some time and you love itandneed it.
You’ve read the cancellation policies and are prepared to accept them, should you decide to cancel.
Like so many of our accounting services, we’ve done the math so you don’t have to. The next time you’re using an app to double check your current subscription plans, use these three questions to evaluate whether they’re worth keeping for a little or a long while.
In the meantime, we’re always here to help you with public accounting in the Brainerd Lakes and Aitkin Area. And if you’re interested in more tips for saving money, check out our Top 7 recommended Apps for Small Business Bookkeeping.
For those with big dreams of growing their business–or net worth–this year.
Building wealth, or a better financial future, doesn’t happen overnight. (We figure you already knew that.) However, experts would say it’s not a particularly linear process either. Financial success doesn’t move from Point A to Point B. Buuuuuuuuut it’s still surprisingly simple to achieve. It just takes discipline and practice. *(Whomp whomp.)*
For that reason, we’ve put together this list so you can start practicing the 7 habits of financially successful people. (Along with some links from said successful people.) Put in the work and you could see your net worth transform this year.
The 7 Habits of Financially Successful People
Avoid High-Interest Debt
Unsecured credit card debt and high-interest car payments are not your friends. Here’s why:
Leaving your interest unpaid allows it to capitalize and increase your credit balance over time.
According to Equifax, “if your balance is growing and you can’t afford to make your payments, your credit score may suffer.”
That’s because payment history is one of the major contributing factors to your credit score. Thus, a high interest rate demands more money from you–whether you’re making monthly payments or playing catchup.
AND if it’s attached to a credit card that you’re actively using, that balance can skyrocket quickly.
Pay Off and Keep Your Vehicle
Regular lease or loan payments on a vehicle are often one of your highest monthly expenses after rent or a mortgage.
Plus, they tend to have high interest rates attached–which, as just discussed, can have a negative effect on your credit health.
After it’s paid off, however, that amount becomes money in your pocket. (Or better yet, your savings account.)
By resisting the urge to trade in your fully owned car for the latest and greatest model (which will depreciate in value the most during its first year of life), you come out ahead.
If you truly need to replace your vehicle, the best bargain is actually purchasing a 3-5 year old model that’s been pre-owned or previously leased. That way you’re getting a vehicle with low mileage WELL BEFORE it’s in need of major maintenance (depending on who owned it last).
Fun fact: according to Dave Ramsey, author of the The Total Money Makeover, the top 5 car brands owned by millionaires are Toyota, Honda, Ford, Lexus, and Subaru.
Set Aside Emergency Funds
Instead of depending on a credit card that you’ll have to pay back later, set aside $50-$100 dollars of each paycheck into a savings account. (More, if you can afford it.) You can usually find one with a decent interest rate that will actually pay you to save money–versus a credit card which charges you interest for using it.
This habit helps you avoid going further into debt for unforeseen expenses. And having the funds already saved means you can immediately pay for new tires or an urgent prescription instead of putting it off or (worse) skipping something else important like groceries.
If you’re looking for hard numbers, Rachel Cruze recommends keeping $1k liquid in cash or a specific bank account with debit access at all times. After that, you should save 3-6 months’ worth of expenses in the case of a job loss or health crisis. Then you have a safety net to recover in without going further into debt.
Make an Investment Plan
Even the smallest amounts add up over time. That’s because growing your net worth is a long-game won by investing early and setting yourself up for success 5, 10, even 20 years down the road.
So where do you start? In a chair, sitting down with a financial advisor. She or he will help you identify what your goals are and balance your portfolio so it provides the best return on your investment.
Contrary to popular belief, no one has ever gotten rich quick on stocks and stayed rich. However, everyone who’s started with an investment plan and revisited it continues to grow their wealth.
Take Advantage of Work Benefits
Not every job has these, but if your position comes with benefits like vision or dental insurance, PTO, and a 401k, it makes sense to actually use them.
Book the vacation. Get the bloodwork done. Order new glasses. Get your teeth cleaned. Start saving for retirement. Companies that make the commitment to offer their employees benefits have already weighed the pros and cons. Mostly likely they were able to get a package deal for all their staff and are thus paying a flat rate.
Regardless, you won’t save your company any money by refusing to cash in. And you might be doing yourself a disservice by ignoring these health and investment resources. So if they’re offered, it makes sense to leverage them.
Don’t Live Beyond Your Means to Keep up with the Neighbors
In The Millionaire Next Door, authors Thomas J. Stanley and William D. Danko point out that rich appearances can be deceiving. Many folks in the U.S. who own expensive cars and homes, throw luxurious parties, give elaborate gifts, and wear designer clothes are quickly broke. Their income may be large, but spending beyond their means leaves them living paycheck to paycheck along with the majority of Americans.
In this situation, feeling left out might be a good thing. The genuinely affluent–those who haven’t inherited their wealth–do the opposite, buying their jeans at Walmart and their cars pre-owned. In short, the fastest way to increase your net worth is to refrain from unnecessary spending. The money you keep can become emergency savings or part of your investment portfolio.
Look for Passive Income Opportunities
Diversifying your income is a smart move. It means that if something should happen to your job–and your emergency fund comes into play–you can keep replenishing that fund until you sort out your next thing.
Maybe you own a nice boat, but most days of the summer you can’t really get out on the lake. So you rent it out to friends and family, with a signed waiver and an update to your insurance policy. While you’re taking care of other projects or relationships, your boat is making you money that will recoup the cost of gas, maintenance, and the insurance payment. Now you have a toy that’s paying for itself instead of being a drain on your income.
📌Save this page for the times when you need a little extra financial inspiration! And for more business bookkeeping advice, check out our other blog posts.
If you’re into fitness routines and personal growth, you may already be familiar with The 75 Hard Challenge.
In it, each participant follows six rules a day for 75 days. The rules demand commitment and follow-through to develop habits that can lead to a healthier, well-balanced life. Most of all, the program promotes consistency and demonstrates what humans are capable of when striving for “mental toughness.”
We took one look and thought, you know what else gets healthy and well-balanced when you follow through? Your business accounting!
So we’ve put together our own rendition of The 75 Hard Challenge, this time for the busy business owners. Committing to these six rules for 12 months will transform your business into a lean, well-balanced machine. (And probably relieve a whole lot of stress, too.)
The Rules
Each month this should be your ideal to-do list to keep your business healthy:
Balance & reconcile your business accounts. This is your power move. By completing this rule, you ultimately maintain proper control over your business finances. It also ensures that your financial data is reliable and trustworthy, instead of riddled with errors.
Process your payroll. Guarantee that your employees are paid on time, and you’ll keep their trust and satisfaction to an all-time high. While it may seem tedious to you, the outcomes of this rule pay dividends in reduced turnover and increased customer satisfaction. Happy employees provide better service 100% of the time.
Approve your tax payments. Consider this your self-help reading assignment. Yes, it can be boring and hard to push through at first. But the more you practice this rule, the more consistent you’ll become about hitting those all-important deadlines for paying business taxes. Which, as accountants, we have to admit is a thrill.
Check your inventory (if applicable). For businesses that need to keep products or ingredients in stock, this rule will help you identify popular items, avoid overstocking less desirable ones, and prevent shrinkage from theft. Overall, it has a positive impact on your revenue stream and expenses.
Review your balance sheet(s). This is a lot like the daily progress pictures from 75 Hard–but in this case, you only need to check the snapshot once a month. A balance sheet tracks the performance of your company. And unlike your income statement, it includes assets, rather than temporary income and revenue. In short, reviewing your balance sheet will give you a much more accurate picture of your business’s financial health month-over-month.
Don’t check the box if you haven’t done it. This is about accountability. If you cross any of these rules off your list without doing them, just to say you got through the month, then you’ve defeated the purpose of the program. Instead, copy it over to the next month’s to-do list and check in again as soon as you’re able.
What Happens if You Miss a Rule (or a whole Month)?
Simple. Pick up where you left off. The goal is not perfection: the aim is to increase your awareness of your business finances in a tangible, actionable way–and to stay on top of them. So if life gets hectic between April and June (because let’s be honest, some years it does), make a commitment with an accountability partner to sit down again and walk through each rule for the month you missed.
Any Way to Make it 75 “Soft”?
Sure. This list can feel daunting, but it doesn’t have to. Here are a couple tips to make adopting these rules a little easier.
Add a friend: If you have a business partner or a friend who knows about your business, plan to team up with them for the monthly “fitness” check. Maybe you two schedule a place to meet, order lunch, or just grab coffee on the way in.
Repeat yourself: To build this kind of habit across multiple months, choose the same (or nearly the same) day each month to follow the rules. Maybe you review your balance sheets every third Monday. Or you process payroll every other Friday. Some folks thrive on crunching numbers right up against a deadline. Others find it’s easier to check off each rule by breaking them up over a month’s time. Just make sure you schedule the rules into your calendar so you don’t lose sight of the challenge.
Build your tenacity: Start with one or two goals, then add two more as you get the hang of each quarter. By this time next year, you’ll have a solid understanding of what your business finances are doing and, even better, what they’re capable of.
The Potential Benefits
The original 75 Hard Challenge claims to improve your confidence, self-belief, perseverance, fortitude, and grittiness. Honestly, we think spending time in your small business accounting can do that too. At the very least it will kickstart healthy financial habits.
Annnnnnnd you won’t need to check with your doctor before starting this challenge. In fact, as your local certified public accountants, we highly recommend taking it on.
📲Save this article to your reading list and revisit it each month until you get the hang of your new habits! (And if you have any questions about your business’s balance sheet, tax payments, or payroll, you can contact us here.)
With small business bookkeeping advice you can use to weather the hustle of the holiday season.
You’ve had this date marked on your calendar for months. The custom packaging is ordered. The extra staff hired. The clever coupon code printed on 1,600 flyers.
Cue record scratch.
Okay, maybe you’re not that prepared. But since 25-50% of your annual revenue probably comes from holiday sales and/or service deals, it’s an important time of year. And it can get quite expensive with all the seasonal extras.
So we’re bringing a little cheer and several key accounting tips to help you save big this time of year.
Tip 1: Create a Detailed Holiday Budget.
Yes, you’ve already got your normal budget for the kind of income and expenses you see all year. But everything is a little extra during the holidays. So building a budget specifically for November-December will help you track when those extra costs and revenue are going to impact your bottom line.
Some things to keep in mind are:
Extra staff brought on board
Holiday bonuses or overtime paid
Additional inventory or specialty items you don’t usually stock
Promotions, flyers, or increased advertising
Decorations specifically for the season or a related event
Coupons, discount codes, or prizes and when they end.
Microsoft Excel has templates for both event and trip budgets that can easily be adapted to reflect your holiday spending.
Tip 2: Stock up on Inventory Early
If there’s something you know you’re going to need during the holiday season–and it’s not perishable–then order it well in advance. This can be difficult for small businesses or sol-props with little-to-no physical storage space.
But buying early will save you from scrambling at the last minute and overpaying for products you routinely stock. Plus, some specialty items need extra time to deliver, so you avoid the surcharge of expedited shipping when you order them ahead.
Tip 3: Negotiate with Your Suppliers
Extra inventory means more purchases than usual. While you’re at it, why not see if your supplier offers a discount on bulk orders? Or maybe they have a sale going on for customers who shop early. If you’re near a drop-off/pick-up location, you could cut out the shipping by driving by and grabbing the package yourself.
Many companies now offer payment terms based on installment plans alongside their normal merchant services. (You’ve probably seen Klarna and Affirm pop up at online checkouts). If you need to purchase a large piece of equipment or rent extra chairs during the holidays, you could see if the vendor you’re purchasing from offers that kind of plan. (Just don’t forget to add the future payments to your succeeding budgets.)
Tip 4: Digitize Your Marketing
A lot of online marketing tools, like email campaigns and social media, can run while you sleep. That means you can (metaphysically) do two things at once: promote your business and fill orders or chat with customers simultaneously.
Some online platforms, like Mailchimp, offer automated pathways for emails, allowing you to repeatedly reach hundreds of contacts who engage with your online shop. Many offer 30-day free trials, which may be all the time you need to reach your holiday audience with a seasonal coupon code.
The main benefit of digitized marketing is that it maximizes your time, which is at a premium during the holidays. Plus, contacts who follow or join your channels will likely stay after the seasonal promotions are over.
This goes hand-in-hand with keeping a dedicated holiday budget. By monitoring your holiday spending, and analyzing it for turnover, you can track where extra cash flow is going.
Maybe you already ordered Christmas decorations in October–but you forgot about them once they arrived. Luckily, you recorded the purchase and can verify that yes, those garlands are still around here somewhere. Send an elf to go looking in storage rather than accidentally putting them in your cart again.
If you need help tracking your holiday accounting, we recommend these 7 apps for all small business owners.
Feel like the holidays might be getting too hectic already? No worries–we have your back. We’re always here as your small business support in Pequot Lakes, Baxter, and Aitkin, Minnesota.
We specialize in bookkeeping and payroll services, tax return preparation, small business consulting, and spreadsheet wizardry. So if your plate gets too full to tackle the books, just contact us here.
