Completing Your First Spreadsheet
How to Start in an Online Business
Phase 2 – Step 7
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You will now continue the process of Completing Your First Spreadsheet: Business Startup Expenses.
Figuring Cost and Life Expectancy
Once you have completed all of the information for Columns ‘B’ and ‘E’, it is time to put in the ‘Cost’ or ‘Est. Value’ for each Item. In order to complete these areas as accurately as possible, you should take the time to locate any original Receipts that you may have.
Some of us have better Filing Systems than others, so depending on yours, this may be a simple task or an arduous one. If you don’t have the best system in place, where you can easily find all of the Receipts that you need, you can simply estimate your ‘Costs’ for now, and continue to locate them over time. However, I would caution you not to forget to complete this task, as it is very important, especially at Tax Time and in cases of Auditing. You wouldn’t want your Deductions denied by the IRS just because you were too lazy to locate your Receipts.
You can use a simple system to easily let you know which Receipts have been located and which ones still need to be found. In your Spreadsheet, Bold the ‘Cost’ entries for the Items that you have found the Receipt for, and leave the others not Bolded until you locate them.
Once the ‘Cost’ has been entered for all Items in a section, paper clip those Receipts and mark them with a Post-It Note identifying the section that they apply to, and place them in a 5” x 7” Manila Envelope marked: ‘Startup Expenses’. When you have completed your Spreadsheet, the Envelope will be filed under ‘E’ for ‘Expenses’ in your Hard Copy Filing Cabinet. When any additional Receipts are located and corrections are made to your Spreadsheet, you can add them to the appropriate stack of Receipts. (Remember to Bold that ‘Cost’ entry on your Spreadsheet to indicate that the Receipt is in your Files.)
When no Receipt has been saved for a particular item, you will need to take your best shot at estimating the Fair Value. New Items will be the Value of that Item if purchased today. Used Items will be Fair Market Value for the condition that they are in when you first begin using them for your business.
(Value can be figured by dividing the Cost of the Item when purchased new (or Fair Market Value for the condition of used Items) by the Life Expectancy (explained below), and then multiplying that number by the number of estimated years left in the Life Span.
For used Items that have a one year or less Life Expectancy, you can simply use ¾ of the Actual Cost if it is in excellent shape, ½ the Cost if it is in average shape, and ¼ the Cost if it is relatively poor condition. For any Items that you are unsure of what your original Cost might have been, simply take your best guess.)
Life Expectancy of certain Categories of Items is somewhat arbitrary, but regardless of how long you think an Item will last, here are some generally accepted Guidelines:
- 1 Year for: Misc. computer supplies and misc. office supplies. Also, Direct & Indirect Repair Expenses, as well as any other Items that generally do not last more than a year, such as, printer ink.
- 5 Years for: Computers, office equipment, light vehicles
- 7 Years for: Office furniture and miscellaneous assets
I know this may sound a bit confusing if you are not at all familiar with any of this. Not to worry, we will take each Category step-by-step and I will do my best to explain things in a way that will be easily understood. If after you read my explanation in a particular Category, and are still unsure as to how to proceed, be sure to ask a question in the ‘Comments’ section of this Post (below). I will get back to you ASAP with a response. If it is all really confusing to you, you are always welcome to hire an Accountant to set things up for you.
List Your Costs & Life Expectancy for Each of Your Startup Expenses
So, let’s begin with the 1st Sub-Category: Direct Repair Expenses
Direct Repair Expenses
Beginning in Column ‘F’, enter an ‘Est. Value’ for each Item listed in Column ‘E’. Bold the ‘Est. Value’ for the Items for which you have found Receipts. (If you do not have any Expenses listed in this area, simply Key in: (none) in the second row in Column ‘E’.)
Once the ‘Est. Value’ area has been completed for all of the Items in that area, paper clip and mark the Category on a Post-It Note and attach it to your stack of Receipts. Then, place them in your Manila Envelope marked: ‘Startup Expenses’. Set the Envelope aside.
Key in: 100% in Column ‘G’ for each of the Items listed, since all of the Items in this section are 100% Deductible.
Now, we will use the ‘Easy Calculator’ method (below) to get your Sub-Total for this section entered it into the proper cell.
Creating Totals Using ‘Easy Calculator’
Once Column ‘F’ has been completed for a Sub-Category, you need to total it up. This can be easily accomplished using the ‘Easy Calculator’, as follows:
- Click on the cell where you want the Total to appear.
- Then, click on: ‘Tools’ in your Tool Bar on top, then click on: ‘Easy Calculator’ (or something similar depending on the Program that you are using).
- Choose: ‘Add’, then, click on: ‘Next’.
- Highlight the cells that you wish to add. (They will appear in the ‘Range’ window.)
- Click on: ‘Next’, and the ‘Results’ window will display the cell where the Results will appear.
- Confirm that it is the correct cell (if not, cancel, and start over), then click: ‘Finish’.
- Your Sub-Total amount should appear in the proper cell.
Now, you need to enter this Sub-Total amount into cell: ‘A13’, next to ‘Direct Repair Expenses’. You will not be able to Copy & Paste this to the appropriate cell in Column ‘A’, as this would cause an error, since the calculation is based on other cells. You will need to Key in the proper amount by hand into that cell.
Now, you need to enter an ‘L. E.’ entry in cell: ‘C13’ (Life Expectancy). Enter: ‘1‘ in that cell, since all of these Repairs are immediately Deductible in the year that they are performed.
Now, Key in your business ‘Start Date’ into cell ‘D13’.
Return to the next Sub-Category in Column ‘E’: Indirect Repair Expenses.
(In this section, include Repairs only. Do not include any Improvements that would increase the value of your home, such as: a new roof, new furnace and A/C, etc.)
Complete this Sub-Category as you did the prior one, entering an ‘Est. Value’ for each Item, Bolding as needed, paper clipping and adding an identifying Post-It Note to your stack of Receipts and placing them in your Manila Envelope.
Now, using the ‘Easy Calculator’, get your Sub-Total for this section entered it into cell: ‘A14’.
Then, on to your ‘Percentage’ Column. Since these Items’ ‘Est. Value’ are only partially Deductible as a Home Office Expense, your Percentage will be based on your Home Office area size compared to the area of your whole home. See my Post: What is the Home Office Tax Deduction. In that post, go to the section headed: Calculating Your Home Office Business Use Percentage in order to compute your Percentage.
Once you have figured your Home Office Business Use Percentage, enter that Percentage into Column ‘G’, next to each Item that you have listed in the Indirect Repair Expenses area, as well as next to your Sub-Total.
Now, using the ‘Easy Calculator’ you need to multiply the Sub-Total amount by the Percentage in Column ‘G’, with the Result going into cell: ‘A14’, next to ‘Indirect Repair Expenses’.
Then, you need to enter an ‘L. E.’ entry in cell: ‘C14’. Enter: ‘1‘ in that cell, since all of these Repairs are immediately Deductible in the year that they are performed.
Copy cell: ‘D13’ and Paste the date into cell: ‘D14’.
Now, go back to Column ‘E’ and complete the next section: Misc. Computer Supplies.
Misc. Computer Supplies
Complete the Sub-Category: Misc. Computer Supplies in Column ‘F’, by entering an ‘Est. Value’ for each Item, Bolding as needed, paper clipping and adding an identifying Post-It Note to your stack of Receipts and placing them in your Manila Envelope. Use the ‘Easy Calculator’ to compute your Sub-Total for this section and also, Key in your result into cell: ‘A62’ or corresponding cell for: ‘misc. computer supplies’.
Enter: ‘1’ in cell: ‘C62’, since these Expenses are Deducted in the year in which they are incurred.
Misc. Office Supplies
Complete the Sub-Category: Misc. Office Supplies in Column ‘E’, just as you did for the previous Sub-Category, except Key in your result into cell: ‘A63’ (or corresponding cell) next to: ‘misc. office supplies’.
Enter: ‘1’ in cell: ‘C63’, since these Expenses are also Deducted in the year in which they are incurred.
Complete All Remaining Categories
Now, you will complete the remaining Categories, one-by-one, by entering a ‘Cost’ in Column ‘A’ next to each Item appearing in Column ‘B’, and Bolding the ‘Cost’ for the Items for which you have found Receipts. Once the ‘Cost’ area has been completed for all of the Items in each section, paper clip and mark a Post-It Note with the correct Category, and place your stack of Receipts in your Manila Envelope marked: ‘Startup Expenses’. When you have finished all of your Categories, file the Envelope under: ‘E’ (for Expenses) in your Hard Copy File Cabinet.
Once each Category has been completed, use the ‘Easy Calculator’ to compute your Sub-Total for that section. Then, Key in the appropriate ‘L. E.’ number for each Expense Deduction using the following Guidelines:
- Misc. Computer & Office Supplies – 1 Year
- Equipment – 5 Years
- Computer Supplies & Office Supplies – 5 Years
- Furniture & Fixtures – 7 Years
- Vehicles – 5 Years
- Vehicles – related Expenses (insurance, fuel, etc.) – 1 Year
- Other Expenses – 5 Years
Also, Copy your Business Start Date in cell ‘D13’ and Paste into all of the cells in Column ‘D’, which correspond to any Items put into service on your Business Start Date.
All Sub-Totals & GRAND TOTAL
After all of your Sub-Totals for Column ‘A’ Categories have been completed, you need to Key in each one into the appropriate cell in Column ‘A’ (approximately cells: ‘A141’ thru ‘A146’). Then, using the ‘Easy Calculator’, add them all up to get your GRAND TOTAL (cell: ‘A149’ or appropriate cell) for your ‘Business Startup Expenses’.
Do not close this Spreadsheet, but simply ‘Minimize’ it. You will be using it when working with your 2nd Spreadsheet.
Whew! Great Job! That Was Exhausting!
Take a break, get something to drink, park in the recliner for a bit and relax.
Please take the time to leave a Comment or ask a Question in the Comments section below.
When you are rested, come back and continue with my next Post: IRS Depreciation Methods – Phase 2 – Step 8.