TurboTax still without Oregon update, those affected must amend their returns to get all of their refund.

Updated at 3:30 p.m. Thursday to reflect date of expected update; TaxACT's update. Portland State University junior Maggie Brown is buying books on spring break, so an Oregon tax refund could come in handy right now.

But she's still waiting for her software provider -- Intuit Corp.'s TurboTax -- to update its programs to account for changes Oregon legislators made March 8.

"I’ve used TurboTax the last four, five years," said Brown, who's majoring in child and family studies. "It makes me think I’m probably not going to use them next year after this."

Hundreds of other Oregonians are probably in the same boat. In December, Congress and President Obama extended a variety of tax breaks covering college tuition as well as out-of-pocket educator costs. But Oregon legislators didn't make the same changes in state tax law until March 8, leading to a disconnect and potentially higher state tax bill for early filers. This evening, an Intuit spokeswoman said updates reflecting Oregon’s changes would take effect Saturday morning. “TurboTax Online will be automatically updated and taxpayers using the CD version of TurboTax should make sure they download any updates before completing their return,” Ashley Kirkendall said via email. The deductions mostly impact anyone paying up to $4,000 for college tuition and books, as well as elementary and secondary schoolteachers deducting up to $250 in out-of-pocket expenses. It also would allow parents to keep their children on their health plans until they reach age 26 without being taxed on the benefit.

Before lawmakers acted, Oregon taxpayers filing returns were supposed to add the deductions back to their income on their state returns. At least 15,500 individuals did so, Oregon Revenue Department officials said today. Those taxpayers now must file amended returns to lower their state tax bill, department officials say.

Brown expects the change to turn her $160 state tax bill into a $200 refund. Educators might only save $20 by amending their return or waiting to file, given that most taxpayers pay an effective rate of 8 percent.

Tax-prep software providers led Oregon taxpayers to add those deductions back on any returns filed before the Legislature fixed Oregon law, state officials say.

H&R Block At Home updated its software March 17, spokeswoman Kate O'Neill Rauber said. UPDATE: 2nd Story Software Inc.'s TaxACT made its changes March 15, spokeswoman Leigh Aragon said Thursday.

But TurboTax, the nation’s leading software provider, hadn’t updated its software. In fact, its website still encourages customers to “file by March 25 (Friday) for a lower price” on federal returns, though it’s unclear whether that discount applied to state returns.

State officials referred software questions to providers. "We don’t control when they make those changes," department spokeswoman Rosemary Hardin said. "We hope it’s sooner rather than later."

Customers say the company’s customer support center had given conflicting information as to when an update might take place.

Posters on a TurboTax "Live Community" chat room expressed frustration with the delay. “We're all still waiting for that update,” a user identified as OrCollegeMom, wrote on Tuesday. “The idea of a manual override is appealing. I'm getting pretty frustrated with Turbo Tax and may not use them for our state return next year. What's taking so long?"

Brown's low income meant she qualified to file a federal return for free. But she said she paid Intuit $30 to file her state return electronically 30 "and they still don’t have an update."

For more on the issue and tips on how to deal with the changes, read It's Only Money's column in this Sunday's Oregonian.

Erin Murphy

David Bixel

MB Tax Pro

www.mbtaxpro.com

Portland, Oregon

97210

6 Unexpected Tax Deductions

Last month, first lady Michelle Obama kicked up a surprising amount of controversy when she suggested that mothers be encouraged to breast-feed their children. The remark probably would have gone unnoticed had it not been for a concurrent addition to the tax code allowing parents to deduct breast pumps as a medical expense.

While it's not clear why anyone would object to the new rule (breast feeding has been around, well, forever), the dust-up did highlight the hundreds of myriad ways that taxpayers can reduce their tax burden by itemizing deductions.

Many of the most common deductions are well-known -- for instance, most people realize that you can deduct the interest paid on your mortgage, donations to charity or even moving costs. But few people realize just how many ways the system can be tweaked to score a deduction.

We pored over the tax code to find some unexpected deductions, and spoke to tax experts to find out how a creative interpretation of the tax code can get you some strange but budget-friendly deductions. Here are a few of our favorites.

Weight Loss (Sometimes)

As with any medical expense, this one can get tricky come tax season. As a general rule, costs associated with a weight-loss program are only deductible if there's a medical justification. To quote the Internal Revenue Service, "You can include in medical expenses amounts you pay to lose weight if it is a treatment for a specific disease diagnosed by a physician (such as obesity, hypertension, or heart disease)." Lap-band surgery, which is only used in cases of health-threatening obesity, is also deductible.

But there are limits: Your doctor might suggest that you start eating healthier, but that doesn't mean you can start deducting the cost of vegetables, says Jackie Perlman, principal tax research analyst for the Tax Institute at H&R Block.

Visiting a Christian Science Practitioner

In another twist on the deductions you can claim for medical expenses, the tax code evidently takes a fairly broad view of what constitutes treatment. Christian Scientists, who don't believe in conventional medical treatments, may deduct the cost of treatment by a Christian Science Practitioner. Given that these practitioners do all their healing through the power of prayer, it's a bit odd that this would be classified as a medical treatment, but we're not about to begrudge anyone their belief system -- or a tax deduction.

Dog Food

Most dog owners won't be able to deduct the cost of puppy chow, but there are two ways to get a tax deduction on pet-related expenses. The first is to have a seeing-eye dog or other service animal -- it's essentially considered a medical device (albeit a cute, furry and loving one), so all costs for buying, training and feeding the animal are deductible.

The other pet-related deduction offered is for a guard dog for your business, which can be deducted as a business expense. The actual purchase of a dog isn't deductible, but training and feeding it is. "If your business uses that dog for protection, that meets the definition of a business purpose," says Bob Meighan, vice president at TurboTax.

Breast Implants

The IRS says that "unnecessary cosmetic surgery" cannot be deducted from your tax bill, but there are always exceptions. For one, survivors of breast cancer who have had a mastectomy may deduct the cost of breast reconstruction, as it constitutes a medical expense.

Meanwhile, breast augmentation for non-medical purposes can also be deducted if there's a business angle. Rob Seltzer, a certified public accountant who operates a private practice in Beverly Hills, recalls the story of an exotic dancer who was able to claim her breast enlargement as a business expense.

A Pool

Seltzer recalls helping a client who had sustained severe neck and back injuries while playing racquetball. "The doctor said the only way for him to be active was to swim, so we built a lap pool and deducted it," he says.

Of course, you'll need to make sure you have the backing of a physician when you make a medical deduction like this; Meighan notes that if the IRS contests the deduction and you wind up in tax court, your doctor may be called upon to explain why it was medically necessary. In other words, don't think you can get away with conspiring with your doctor to score a tax-deductible pool.

Your Clown Costume

Jackie Perlman says that H&R Block's tax preparers are frequently asked whether clothing purchased for work is tax deductible. And usually the answer is no -- even if you never wear suits outside the office, the suit you had to buy for your corporate job isn't tax deductible because it's not considered a uniform.

"The key word is 'uniform' or 'costume' -- something not normally suited to street wear," says Perlman. So if you work as a clown and the cost of buying and maintaining your clown suit exceeds 2.5% of your adjusted gross income (the standard for business expenses), you can claim a deduction.

Erin Murphy

David Bixel

www.mbtaxpro.com

MB Tax Professionals

Portland, OR 97210

What Are Your Chances of Being Audited By The IRS? (2010 Stats)

reprinted from Kiplinger

Want to know your chances of being audited by the Revenue Service? New IRS statistics give the details on audits of individuals in fiscal 2010. The overall exam rate for individual returns rose to 1.11%, the highest since 1997. Taxpayers with incomes of $1 million or more got the most scrutiny. The Service audited 8.36% of these filers. That’s one out of every 12 returns. Three other classes of taxpayers experienced significant audit heat as well, with audit rates more than twice the average: Filers with incomes of at least $200,000 but less than $1 million. Business returns with gross receipts of $25,000 and up, such as Schedule C filers. And returns where the earned income credit was claimed. We have compiled a list of common audit triggers...a dozen ways your return may draw extra scrutiny.

www.mbtaxpro.com

MB Tax Professionals

Erin Murphy

David Bixel

Portland, OR 97210

IRS Audit Red Flags: The Dirty Dozen

reprinted from Kiplinger

Ever wonder why some tax returns are audited by the IRS while most are ignored? Well, there’s a whole host of reasons to this age-old question. The IRS audits only about 1% of all individual tax returns annually. The agency doesn’t have enough personnel and resources to examine each and every tax return filed during a year. So the odds are pretty low that your return will be picked for an audit. And of course, the only reason filers should worry about an audit is if they are cheating on their taxes.

However, the chances of you being audited or otherwise hearing from the IRS can increase depending upon various factors, including whether you omitted income, the types of deductions or losses claimed, certain credits taken, foreign asset holdings and math errors, just to name a few. Although there’s no sure way to avoid an IRS audit, you should be aware of red flags that could increase your chance of drawing some unwanted attention from the IRS. Here are the 12 most important ones:

1. Failure to report all taxable income.
The IRS receives copies of all 1099s and W-2s that you receive during a year, so make sure that you report all required income on your tax return. the IRS computers are pretty good at matching these forms received with the income shown on your return. A mismatch sends up a red flag and causes IRS computers to spit out a bill. If you receive a 1099 for income that isn’t yours or the income listed is incorrect, get the issuer to file a corrected form with the IRS.

2. Returns claiming the home-buyer credit.
First-time homebuyers and longtime homeowners who claimed the homebuyer credit should be prepared for IRS scrutiny. Make sure you submit proper documentation when taking this credit. First-time homebuyers have to attach a copy of their settlement statement to the return, and longtime homeowners should also attach documents showing prior ownership of a home, including records of property tax and insurance coverage. All claims for this credit are being screened. As of May 2010, more than 260,000 returns had been selected for correspondence audits (examinations done by mail rather than face-to-face) because filers did not attach the necessary documents to their tax returns. And those numbers will continue to grow.

Also, the IRS has ways of policing the recapture of the homebuyer credit. Generally, the credit is required to be recaptured if the home is sold within three years for homes brought in 2009 or 2010 and within 15 years for homes bought before 2009. The IRS is checking public real estate databases for sales of homes for which the credit was taken.

3. Claiming large charitable deductions.
This comes up again and again because the IRS has found abuse on audit, especially with those taking larger deductions. We all know that charitable contributions are a great write-off and help you to feel all warm and fuzzy inside. However, if your charitable deductions are disproportionately large compared to your income, it raises a red flag. That’s because the IRS can tell what the average charitable donation is for a person in your tax bracket. Also, if you don’t get an appraisal for donations of valuable property or if you fail to file Form 8283 for donations over $500, the chances of audit increase. Be sure you keep all your supporting documents, including receipts for cash and property contributions made during the year, and abide by the documentation rules. And attach Form 8283 if required.

4. Home office deduction.
The IRS is always very interested in this deduction, primarily because it has a pretty high adjustment rate on audit. This is because history has shown that many people who claim a home office don’t meet all the requirements for properly taking the deduction, and others may overstate the benefit. If you qualify, you can deduct a percentage of your rent, real estate taxes, utilities, phone bills, insurance, and other costs that are properly allocated to the home office. That’s a great deal. However, in order to take this write-off, the space must be used exclusively and on a regular basis as your principal place of business. That makes it difficult to claim a guest bedroom or children’s playroom as a home office, even if you also use the space to conduct your work. Exclusive use means a specific area of the home is used only for trade or business, not also where the family watches TV at night. Don’t be afraid to take the home-office deduction if you’re otherwise entitled to it. Risk of audit should not keep you from taking legitimate deductions. If you have it and can prove it, then use it.

5. Business meals, travel and entertainment.
Schedule C is a treasure trove of tax deductions for self-employeds. But it’s also a gold mine for IRS agents, who know from past experience that self-employeds tend to claim excessive deductions. Most under-reporting of income and overstating of deductions are done by those who are self-employed. And the IRS looks at both higher-grossing sole proprietorships as well as smaller ones.

Big deductions for meals, travel and entertainment are always ripe for audit. A large write-off here will set off alarm bells, especially if the amount seems too large for the business. Agents know that many filers slip in personal meals here or fail to satisfy the strict substantiation rules for these expenses. To qualify for meals or entertainment deductions, you must keep detailed records generally documenting the following for each expense: amount, place, persons attending, business purpose and nature of discussion or meeting. Also, receipts are required for expenditures over $75 or any expense for lodging while traveling away from home. Without proper documentation, your deduction is toast.

6. Claiming 100% business use of vehicle
. Another area that is ripe for IRS review is use of a business vehicle. When you depreciate a car, you have to list on Form 4562 what percentage of its use during the year was for business. Claiming 100% business use for an automobile on Schedule C is red meat for IRS agents. They know that it’s extremely rare that an individual actually uses a vehicle 100% of the time for business, especially if no other vehicle is available for personal use. IRS agents are trained to focus on this issue and will closely scrutinize your records. Make sure you keep very detailed mileage logs and precise calendar entries for the purpose of every road trip. Sloppy recordkeeping makes it easy for the revenue agent to disallow your deduction. As a reminder, even if you use the IRS’ standard mileage rate to deduct your business vehicle costs, ensure that you are not also claiming actual expenses for maintenance, insurance and other out-of-pocket costs. The IRS has found filer noncompliance in this area as well and will look for this.

7. Claiming a loss for a hobby activity.
Your chances of “winning” the audit lottery increase if you have wage income and file a Schedule C with large losses. And, if your Schedule C loss-generating activity sounds like a hobby…horse breeding, car racing, and such…the IRS pays even more attention. It’s issued guidelines to its agents on how to sniff out those who improperly deduct hobby losses. Large Schedule C losses are audit bait, but reporting losses from activities in which it looks like you might be having a good time is just asking for IRS scrutiny.

Tax laws don’t allow you to deduct hobby losses on Schedule C; however, you do have to report any income earned from your hobbies. In order to claim a hobby loss, your activity must be entered into and conducted with the reasonable expectation of making a profit. If your activity generates profit three out of every five years (or two out of seven years for horse breeding), the law presumes you’re in business to make a profit, unless the IRS establishes to the contrary. If audited, the IRS is going to make you prove you have a legitimate business and not a hobby. So, make sure you run your activity in a business-like manner and can provide supporting documents for all expenses.

8. Cash businesses.
Small business owners, especially those in cash-intensive businesses…taxi drivers, car washes, bars, hair salons, restaurants and the like…are an easy target for IRS auditors. The agency is well aware that those who primarily receive cash in their business are less likely to accurately report all of their taxable income. the IRS wants to narrow the tax gap, and history has shown that cash-based businesses are a good source of audit adjustments. It has a new guide for agents to use when auditing cash intensive businesses, telling how to interview owners and noting various indicators of unreported income.

9. Failure to report a foreign bank account.
The IRS is intensely interested in people with offshore accounts, especially those in tax havens. U.S. tax authorities have had some recent success in trying to get foreign banks (such as UBS in Switzerland) to disclose information on U.S. account holders. Also, the IRS had a voluntary compliance program where people came in and reported their foreign bank accounts and foreign assets in exchange for lesser penalties than they would have otherwise been subject to. The IRS has learned a lot from these probes.

Failure to report a foreign bank account can lead to severe penalties, and the IRS has made this issue a top priority. Make sure that if you have any such accounts, you properly report them when you file your return. Keep in mind, though, that if you have never previously reported the foreign bank account on your return, and you decide to do so for the first time in 2010, that might also look suspicious to the IRS.

10. Engaging in currency transactions.
The IRS gets many reports of cash transactions in excess of $10,000 involving banks, casinos, car dealers and other businesses, plus suspicious activity reports from banks and disclosures of foreign accounts. A recent report by Treasury inspectors concluded that these currency transaction reports are a valuable source of audit leads for sniffing out unreported income. The IRS agrees and it will make greater use of these forms in its audit process. So if you are a person who makes large cash purchases or deposits, be prepared for IRS scrutiny. Also, beware that banks and other institutions file reports on suspicious activities that appear to avoid the currency transaction rules (such as persons depositing $9,500 cash one day and an additional $9,500 cash two days later).

11. Math errors.
One of the biggest reasons that people receive a letter from the IRS is because of mathematical mistakes they make on their tax returns. If you make an error in your favor, you are going to hear from the tax man, and there is a greater risk of the IRS pulling the whole return for audit. So take time to ensure all your calculations are correct. Even though math errors may not lead to a full-blown audit, it’s always best to remain under the radar of IRS computers.

12. Taking higher-than-average deductions.
If deductions on your return are disproportionately large compared to your income, the IRS audit formulas take this into account when selecting returns for examination. Screeners then pull the most questionable returns for review. But if you’ve got the proper documentation for your deduction, don’t be scared to claim it. There’s no reason to ever pay the IRS more tax than you actually owe.

www.mbtaxpro.com
Erin Murphy
David Bixel
MB Tax Professionals
MB Tax Pro
Portland, OR 97210

Residential Energy Tax Credits

Have you bought an energy saving appliance or home system that should give you a credit on your Oregon tax return? If you didn't get a postcard certificate with the actual amount of the tax credit in the mail, then you haven't received the credit yet. We can not accept the receipt of payment for the appliance, we must see the actual credit certification. Please see the link and information below if you would like to finalize your energy saving credit and receive the certification in the mail.

Residential Energy Tax Credits

Who can get the tax credit?
Homeowners and renters (if you own the appliance or system) can apply. You must be an Oregon resident. The qualifying equipment must be used in the home you live in (your primary residence) or in your secondary (vacation) home located in Oregon. Vehicles must be registered for use in Oregon to qualify for a tax credit.

What qualifies?
The Oregon Department of Energy maintains lists of qualifying equipment, systems and services for the Residential Energy Tax Credit program. Only items eligible at the time of purchase qualify. You must the owner of the eligible equipment and the equipment must be new (original use must begin with you).

It is important to note that appliances and equipment labeled as energy efficient by the federal Energy Star^TM program are not always eligible for the state Residential Energy Tax Credit program. In most cases, the state program has higher standards than Energy Star^TM or incentive programs offered by the Energy Trust of Oregon or utility companies.

You must apply and be approved before taking the credit on your Oregon income taxes. Don't wait, send your application to us as soon as your appliance, heating or water heating system is installed. You can save time by applying online for appliances and water heaters. See the bottom of this page for more information about tax credit eligibility and the application process.

How much is the tax credit?
The tax credit amount for qualifying equipment or systems is based on the energy saved and the cost of the equipment. The maximum tax credit for each item is the amount listed on the Oregon Department of Energy qualifying list or 25 percent of the eligible net purchase cost, whichever is less.

www.mbtaxpro.com
Erin Murphy
David Bixel
MB Tax Professionals
Portland, OR 97210

IRS Pushes For Six Years To Audit

Yes, this headline is meant to sound frightening. The good news is that most of the time, the IRS has only three years after you file your tax return to audit you and that rule is not changing. With your tax return due April 15, the statute of limitations should normally run three years later. If you file early, the statute runs exactly three years after the due date. If you file late and do not have an extension, the statute runs three years following your actual (late) filing date. It’s good to monitor when the statute expires so you can determine when a particular tax year is in the clear. This is especially true if you’ve taken controversial or aggressive tax positions. You may want to maintain a cash reserve to handle a tax controversy or pay additional taxes if the IRS comes along.

Six Year Risk

But sometimes the IRS can take up to six years to audit. The circumstances in which the IRS gets this double time have become controversial. The IRS gets six years if your return includes a “substantial understatement of income.” Generally this means you’ve omitted 25% or more of your gross income, but exactly what that means is

currently the subject of litigation. The IRS argues that anything that has the effect of a 25% understatement of

gross income triggers the extra three years. The IRS has pushed especially hard for six years to go after basis

over-statements. Example: Suppose you sell a piece of property for $3 million, claiming that your basis (what you’ve invested in the property) was $1.5 million. In fact, your basis was only $500,000. The effect of your basis overstatement was that you paid tax on $1.5 million of gain when you should have paid tax on $2.5 million. Your basis overstatement probably means a six-year statute applies. There have been several court cases on just this point. In fact, the IRS just earned a major victory in the Seventh Circuit Court of Appeals. In Beard v. Commissioner, the appellate court reversed the Tax Court and said the IRS was correct that it had six years.

But despite the big IRS victory in the Seventh Circuit, the IRS is losing elsewhere. In Home Concrete & Supply LLC v. United States, the Fourth Circuit sided with the Ninth Circuit’s decision in Bakersfield Energy Partners LP v. Commissioner, and the Federal Circuit in Salman Ranch Ltd. v. United States. Finally, the Fifth Circuit weighed in, also holding for the taxpayer in Burks v. United States. All four of these appellate courts said no to the IRS attempt to apply the six-year statute of limitations to omissions of more than 25% of gross income caused by an overstatement of basis.

Amended Tax Returns, Too

If you want to amend a tax return, you must do it within three years of the original filing date. How does amending your tax return affect the statute of limitations? Most people assume that once you amend, the three year clock starts ticking anew. Nope. If your amended return shows an increase in tax, and you submit the amended return within 60 days before the three-year statute runs, the IRS has 60 days after it receives the amended return to make an assessment. This narrow window can present planning opportunities. An amended return that does not report a net increase in tax does not trigger an extension of the statute.

www.mbtaxpro.com

Erin Murphy

David Bixel

MB Tax Professionals

Portland, OR 97210

10 Mistakes That Start-Up Entrepreneurs Make

reprinted from the Wall Street Journal

When it comes to starting a successful business, there's no surefire playbook that contains the winning game plan. On the other hand, there are about as many mistakes to be made as there are entrepreneurs to make them. Recently, after a work-out at the gym with my trainer—an attractive young woman who's also a dancer/actor—she told me about a web series that she's producing and starring in together with a few friends. While the series has gained a large following online, she and her friends have not yet incorporated their venture, drafted an operating agreement, trademarked the show's name or done any of the other things that businesses typically do to protect their intellectual property and divvy up the owners' share of the company. While none of this may be a problem now, I told her, just wait until the show hits it big and everybody hires a lawyer.

Here, in my experience, are the top 10 mistakes that entrepreneurs make when starting a company:

1. Going it alone. It's difficult to build a scalable business if you're the only person involved. True, a solo public relations, web design or consulting firm may require little capital to start, and the price of hiring even one administrative assistant, sales representative or entry-level employee can eat up a big chunk of your profits. The solution: Make sure there's enough margin in your pricing to enable you to bring in other people. Clients generally don't mind outsourcing as long as they can still get face time with you, the skilled professional who's managing the project.

Silicon Valley entrepreneurs and venture capitalists often churn out how-to business books and fancy themselves as management gurus, but few see their methodologies adopted. Eric Ries is experiencing something different. He speaks with WSJ's Pui-Wing Tam.

2. Asking too many people for advice. It's always good to get input from experts, especially experienced entrepreneurs who've built and sold successful companies in your industry. But getting too many people's opinions can delay your decision so long that your company never gets out of the starting gate. The answer: Assemble a solid advisory board that you can tap on a regular basis but run the day-to-day yourself. Says Elyissia Wassung, chief executive of 2 Chicks With Chocolate Inc., a Matawan, N.J., chocolate company, "Pull in your [advisory] team for bi-weekly or, at the very least, monthly conference calls. You'll wish you did it sooner!"

3. Spending too much time on product development, not enough on sales. While it's hard to build a great company without a great product, entrepreneurs who spend too much time tinkering may lose customers to a competitor with a stronger sales organization. "I call [this misstep] the 'Field of Dreams' of entrepreneurship. If you build it, they will buy it," says Sanjyot Dunung, CEO of Atma Global, Inc., a New York software publisher, who has made this mistake in her own business. "If you don't keep one eye firmly focused on sales, you'll likely run out of money and energy before you can successfully get your product to market."

4. Targeting too small a market. It's tempting to try to corner a niche, but your company's growth will quickly hit a wall if the market you're targeting is too tiny. Think about all the high school basketball stars who dream of playing in the NBA. Because there are only 30 teams and each team employs only a handful of players, the chances that your son will become the next Michael Jordan are pretty slim. The solution: Pick a bigger market that gives you the chance to grab a slice of the pie even if your company remains a smaller player.

5. Entering a market with no distribution partner. It's easier to break into a market if there's already a network of agents, brokers, manufacturers' reps and other third-party resellers ready, willing and able to sell your product into existing distribution channels. Fashion, food, media and other major industries work this way; others are not so lucky. That's why service businesses like public relations firms, yoga studios and pet-grooming companies often struggle to survive, alternating between feast and famine. The solution: Make a list of potential referral sources before you start your business and ask them if they'd be willing to send business your way.

6. Overpaying for customers. Spending big on advertising may bring in lots of customers, but it's a money-losing strategy if your company can't turn those dollars into life-time customer value. A magazine or web site that spends $500 worth of advertising to acquire a customer who pays $20 a month and cancels his or her subscription at the end of the year is simply pouring money down the drain. The solution: Test, measure, then test again. Once you've done enough testing to figure out how to make more money selling products and services to your customers than you spend acquiring those customers in the first place, roll out a major marketing campaign.

7. Raising too little capital. Many start-ups assume that all they need is enough money to rent space, buy equipment, stock inventory and drive customers through the door. What they often forget is that they also need capital to pay for salaries, utilities, insurance and other overhead expenses until their company starts turning a profit. Unless you're running the kind of business where everybody's working for sweat equity and deferring compensation, you'll need to raise enough money to tide you over until your revenues can cover your expenses and generate positive cash flow. The solution: Calculate your start-up costs before you open your doors, not afterwards.

8. Raising too much capital. Believe it or not, raising too much money can be a problem, too. Over-funded companies tend to get big and bloated, hiring too many people too soon and wasting valuable resources on trade show booths, parties, image ads and other frills. When the money runs out and investors lose patience (which is what happened 10 years ago when the dot-com market melted down), start-ups that frittered away their cash will have to close their doors. No matter how much money you raise at the outset, remember to bank some for a rainy day.

9. Not having a business plan. While not every company needs a formal business plan, a start-up that requires significant capital to grow and more than a year to turn a profit should map out how much time and money it's going to take to get to its destination. This means thinking through the key metrics that make your business tick and building a model to spin off three years of sales, profits and cash-flow projections. "I wasted 10 years [fooling around] thinking like an artist and not a business person," says Louis Piscione, president of Avanti Media Group, a New Jersey company that produces videos for corporate and private events. "I learned that you have to put some of your creative genius toward a business plan that forecasts and sets goals for growth and success." (See related article, "Are Business Plans a Waste of Time?")

10. Over-thinking your business plan. While many entrepreneurs I've met engage in seat-of-the-pants decision-making and fail to do their homework, other entrepreneurs are afraid to pull the trigger until they're 100% certain that their plan will succeed. One lawyer I worked with several years ago was so skittish about leaving his six-figure job to launch his business that he never met with a single bank or investor who might have funded his company. The truth is that a business plan is not a crystal ball that can predict the future. At a certain point, you have to close your eyes and take the leap of faith.

Despite the many books and articles that have been written about entrepreneurship, it's just not possible to start a company without making a few mistakes along the way. Just try to avoid making any mistake so large that your company can't get back on its feet to fight another day.

www.mbtaxpro.com

Erin Murphy

David Bixel

MB Tax Pro

Portland, OR 97210