tax law question re: running my own business

[whitak24]

ok, i need some help from all you experts out there (i could probably find this out on my own, but i'm lazy and it's easier to ask you guys :D)

for my new job, which i am kind of starting right now (part-time until nov. 1), i am going to be paid as an outside consultant for the work i do.

now in my understanding, i will be "self-employed", which should allow me to deduct various expenses pre-tax. my question is "what can i deduct and which taxes does that apply to?"

ideally, i want to deduct as much $$ as possible before i pay social security/medicare, since i will be responsible for paying all of that stuff. i know i can charge in mileage for commuting between my office (my home) and my job location, as well as office equipment, etc.

in addition, can i deduct a portion (or all) of my rent and utilities, as i will be working from home at least 50% of the time?

also, what paperwork do i need to file to make sure i'm on the "up and up"?

any help is appreciated. tia

[sizemic1]

oh man..there's quite a bit to be written off.

I ran my own biz for a year, and never had to pay into S.S. or Medicare.

I think the best thing for you to do is to keep records as accurate as you can, then have a tax person take care of the deductions for you. It's worth it.

Save every receipt and bill possible and try to stay organized.
That's your best bet.

What kind of consulting are you doing? Will you be selling anything other than your services?

[dbax791]

Originally posted by whitak24
ok, i need some help from all you experts out there (i could probably find this out on my own, but i'm lazy and it's easier to ask you guys :D)


Are you contracting thru an agency that will deduct your taxes etc? I did that before, and although I was "self-employed" legally I was an employee of the contracting agency so I did not deduct the miniscule expenses.

If you try for the "home office" thingy - thats like sending a telegraph to the IRS saying "PLEASE COME AUDIT ME!".

If you are truly self-employed, i.e., handling your own billing and doing your payroll deductions...that is a nasty mess, all kinds of paperwork, withholding, etc. Seems like a lot of pain for only 2 weeks.

[Markel]

Originally posted by dbax791
If you try for the "home office" thingy - thats like sending a telegraph to the IRS saying "PLEASE COME AUDIT ME!".
Yep. One of the top audit flags.

There are some strict rules about it. It has to be a dedicated space (i.e., not your kitchen table), and you can only deduct the proportion of the space to your total "home", i.e., if you have a 10x12 "office" in a 1200 sq. ft. living quarters, you can deduct 10% of your rent or payment. As for electricity and such, you would probably have to prove what part is additional due to the home office (i.e., negligible).

[whitak24]

Originally posted by dbax791
If you are truly self-employed, i.e., handling your own billing and doing your payroll deductions...that is a nasty mess, all kinds of paperwork, withholding, etc. Seems like a lot of pain for only 2 weeks.
I'm going to be doing it for the next 10 months or so (i just don't start full-time till nov. 1).

basically, i'm going to be doing writing and desktop publishing for a single client. however, the firm doesn't want to officially hire me, so they will be paying me a fixed amount bi-monthly.

Originally posted by Markel
There are some strict rules about it. It has to be a dedicated space (i.e., not your kitchen table), and you can only deduct the proportion of the space to your total "home", i.e., if you have a 10x12 "office" in a 1200 sq. ft. living quarters, you can deduct 10% of your rent or payment.
when you say "dedicated space", do you know exactly what that means?

here's my situation: my apartment is like 520 square feet. i have a kitchen/dining area, a living room, a bedroom, and a bathroom. i need space for a desk, for my computer stuff, for some file storage, and maybe some shelves.

if i took half my bedroom (around 100 sq ft) and set up my stuff there, would that count as a "dedicated" space (as long as it was all my office stuff and didn't have my bed in the middle of it or something), or would that be out since it's still part of my bedroom?

[Markel]

Originally posted by whitak24

if i took half my bedroom (around 100 sq ft) and set up my stuff there, would that count as a "dedicated" space (as long as it was all my office stuff and didn't have my bed in the middle of it or something), or would that be out since it's still part of my bedroom?
I do remember hearing that if your "office" has a bed in it, you can't deduct anything for it. And no double meanings intended. :P

[whitak24]

Originally posted by Markel

I do remember hearing that if your "office" has a bed in it, you can't deduct anything for it. And no double meanings intended. :P
:(

hmmm....i'm going to have to investigate this stuff some more so i can figure out what i can do and what i can't.

[Jeffbx]

Things you CAN deduct (forget about the home office - not worth the hassle):

- Mileage (keep written records)
- Industry Publications (if you have subscriptions to writing or desktop publishing magazines, they're deductible)
- Office equipment (i.e., your PC, fax machine, etc) BUT only the percentage you use for work. So if you do personal things on the computer 50% of the time, you can only deduct 50% of the cost. Also, you normally must depreciate the cost over a number of years, but there are ways around that... talk to your accountant (yes, you should have your taxes done by a professional at least for the first year - it's worth it). It's easiest if you purchased the machine in the same year you're trying to claim it, so if you need a new machine now is the perfect time for it.
- Office supplies - pens, paper, ink for the printer, etc.
- Meals - if you take your client to lunch and you pay, it's deductible. If you go to lunch by yourself, not deductible.
- Travel (if that ever comes up)

I think those are the major ones, although I'm sure I missed some. Also, like sizemic1 said, keep all your receipts & records of everything and you won't have to worry about an audit. It still may happen, but then you'll be covered.

[WhiskeyPapa]

I gotta agree with the general concensus - don't bother deducting the home office. I did that for four years, and in the end it wasn't worth the hassle.

However, deduct EVERYTHING else. I've never been audited, but my dad has been a few times. He deducts everything remotely connected to his business, and if the auditor doesn't like the deduction, he just removes it. No penalties at all, you just have the pay the tax.

You shouldn't have to depreciate your computer or office equipment, you can just write off the whole amount the first year. Yes, there is an upper limit for that, but it's high enough that most home-based consultants are well below it.

Even if you do get audited, my dad says it's not that bad. He actually found it quite interesting. Just make sure you save everything.

[whitak24]

thanks for the info guys.

obviously, the home office deduction won't work :( and here i thought i was going to get at least part of my rent tax-free.

however, i've figured that just from mileage deductions at the federal rate of 36.5 cents/mile (i think that's the current rate), i'll be able to knock off 25% of my income :D

as for other stuff, i need a printer and probably a file cabinet, but i don't know how many other expenses i'll have, except for phone calls and stuff like that.

now, i just have to do all the paperwork and stuff....