| Jan Kovarik
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| | business, then it is a business expense.
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| If you are new to working at home, then
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| | Depending on the type of at-home business
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| you might not be aware that you can
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| | you have, you may be well beyond the
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| legally deduct many types of valid
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| | "paperclips and pens" type of expenses.
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| business expenses, such as paper supplies
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| | If you have an in-home office (used
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| or the second phone line you install for
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| | specifically for your business and
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| your business, on your self-employment
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| | nothing else), and you have expensive
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| income tax return (and thereby reduce
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| | business equipment (let's say a high-tech
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| your taxable self-employment income).
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| | copier that can handle blueprints), then
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| This article concerns only general
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| | your need to track business expenses and
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| expenses and will not deal with how to
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| | the manner in which you are going to
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| determine and deduct expenses that relate
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| | report these on your self-employment
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| to your in-home office space or
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| | income tax forms is a little bit more
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| depreciable office furnishings/equipment.
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| | complicated and may even require having
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| That is a conversation for another day
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| | an accountant. This article does not
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| (and by someone better versed in the IRS
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| | address that situation.
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| rules!).
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| | At the time of this article, the IRS
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| | allows business expense deductions up to
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| Second, let me be very clear that this
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| | $2,500.00 without requiring you to
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| article is written on the assumption that
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| | itemize your expenses into pre-set
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| you report your self-employment
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| | categories. That is, you can simply
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| income---all your income---and that you
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| | report a lump sum of $1,879.32 without
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| pay the self-employment taxes that are
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| | having to explain it. The IRS "trusts"
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| due on that income. This article is also
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| | you. If your business expenses exceed
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| based on tracking and recording
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| | $2,500.00, then you must file a "long
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| legitimate business expenses. Even if you
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| | form" and categorize your expenses as
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| have very modest income and are using
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| | specified by the IRS. Although it is
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| your kitchen table a few nights a week as
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| | relatively easy, it does mean that you
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| your office space, there are still
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| | have to track your business expenses a
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| legitimate business expenses that you can
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| | little more closely. So, for the moment,
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| use to help reduce your self-employment
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| | let's just concentrate on getting you
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| taxable income. The purpose of this
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| | accustomed to following a few simple
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| article is not to help you find ways to
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| | steps to track your business expenses.
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| pad your deductions or to dodge paying
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| | #1---Always pay separately for your
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| your taxes.
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| | business expense items, regardless of
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| Last, this article is aimed at those who
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| | whether by cash, check, debit card, or
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| are either new to working at home or who
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| | credit card, and save the receipt. If you
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| need a simple explanation of a subject
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| | are able (and are disciplined enough),
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| that may seem twisted and tangled.
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| | then get a credit card with a reasonable
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| Business expenses and tax deductions
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| | credit limit and use it exclusively for
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| don't need to be scary monsters that live
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| | business purposes. When the statement
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| with the dust bunnies beneath the box
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| | comes in each month, staple your saved
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| spring of your bed. You don't even need a
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| | receipts to the statement and pay off the
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| complicated method of data storage in
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| | balance (unless you are temporarily
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| order to track your expenses and have
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| | "floating" the purchase of an expensive
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| quick and easy numbers ready when it
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| | item). The goal here is to learn the
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| comes time to file your taxes. In fact,
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| | habit of paying separately for anything
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| you don't really need much more than a
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| | you purchase for business purposes and to
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| notepad and a nice box. Of course, if you
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| | save the receipt.
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| live for spreadsheets and bar graphs, you
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| | #2---Designate a file folder, storage
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| can get as high-tech as you like.
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| | box, or some other specific place in
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| Personally, I have a very simple Excel
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| | which to accumulate your receipts. I find
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| spreadsheet and four large file folders
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| | it easy to have four "pocket-type" file
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| (one for each quarter of the year).
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| | folders (the kind with the fold-over flap
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| OK, let's get started.
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| | and elastic bands at the bottom). These
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| It is important to know what qualifies as
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| | folders are labeled for the four quarters
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| a "business expense." Well, that's
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| | of the calendar year (Jan-Mar, Apr-Jun,
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| simple. A business expense is money that
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| | Jul-Sep, Oct-Dec). During the quarter, I
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| you pay out of your pocket in order to
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| | just toss my receipts in the proper
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| maintain your at-home business. An easy
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| | folder. If the receipt is not
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| example would be a business phone line.
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| | self-explanatory (or does not print out a
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| If you had a second phone line installed
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| | description of the item), then I make a
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| as your business line, then you can
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| | short note to myself ("presentation
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| legally deduct 100% of the cost of that
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| | folder for Flamingo Publishing proposal")
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| phone line as a business expense. You can
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| | on the receipt.
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| also deduct the cost of equipment,
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| | #3---At the end of the quarter, organize
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| installation, and hook-up (for the tax
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| | your receipts (I put mine in date order),
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| year during which you installed the
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| | and record the dollar amounts. Calculate
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| line). Business expenses do not have to
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| | your total quarterly business expenses.
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| be related to office equipment or
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| | (Please note here that if by the end of
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| furniture, or even the actual work that
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| | the second quarter [June 30th] you have
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| you do. Legitimate business expenses also
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| | accumulated more than $1,125.00, then it
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| include office supplies like computer
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| | is likely that you will exceed the
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| paper, ink cartridges, pens, notepads,
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| | $2,500.00 limit for non-itemized
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| paperclips---literally anything that you
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| | deduction purposes. If that is the case,
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| buy specifically for conducting your
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| | you will need to track your expenses by
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| business.
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| | the categories that are pre-set by the
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| I use this rule of thumb: If I wouldn't
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| | IRS so that you can show total amounts in
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| have purchased it otherwise, then it is a
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| | each category.)
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| business expense.
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| | #4---At the end of the year, and after
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| Now, I do understand that at some time
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| | you have calculated your expenses for the
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| during your life, you would probably have
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| | 4th quarter, add the four quarters to
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| some reason to pick up a package of
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| | determine your net business expenses.
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| paperclips or buy a couple of ink pens.
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| | Voila! You have just tracked your
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| What I'm talking about are the things
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| | business expense for the entire year!
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| that you find that you use regularly in
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| | Eventually, you will need this dollar
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| the course of your business. As an
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| | amount in order to calculate your net
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| example, I have two clients for whom I
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| | taxable income from self-employment. If
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| must send back-up CDs containing files of
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| | you are not planning on filing your taxes
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| work that I transmit to them via email.
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| | early in January, then bundle up the
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| This means that I regularly purchase CDs.
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| | receipts and save the printout (or
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| Since we have a second computer (that my
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| | penciled-in figure) of your total
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| husband fiercely regards as "his"), it
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| | business expenses. You should establish
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| could be argued that we might have
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| | another file folder/box/storage area for
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| purchased the CDs any way. However, since
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| | this information and whatever other
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| I routinely buy CDs in large quantity,
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| | self-employment forms you are
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| the cost of those disks is a business
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| | accumulating for Filing Day.
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| expense. We have a small supply of blank
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| | Tracking your business expenses doesn't
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| CDs for our personal use that is separate
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| | have to be hard or complicated. Make the
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| from my business supplies.
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| | system suit your style---and just
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| Once again, my thumb-rule applies: If you
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| | remember: Pay for the item(s) separately
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| buy it specifically for business use and
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| | and keep the receipt!
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| you use it during the course of doing
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