Tax Deductions: I just started my new business. Is there a list of all the business deductions I can take?
Believe it or not, the IRS is the best place to start looking for possible deductions and for information to help you with your taxes. You can download forms with instructions and informative publications for free from their Web site at www.irs.gov. Some key publications for micro – businesses: Publication 334, Tax Guide for Small Businesses Publication 463 Travel, Entertainment, Gift, and Car Expenses Publication 505 Tax Withholding and Estimated Tax Publication 587 Business Use of Your Home
Estimated Taxes: As a micro-business owner, do I have to file quarterly estimated taxes?
Whether or not you need to make quarterly payments is determined by your family’s total tax position, not just the business. If you have enough earnings form your business, you may have to make quarterly estimated tax payments. But if your family has enough withholding form other jobs to cover your tax liability, then you would not have to make quarterly payments. Your estimated taxes should reflect your family’s total expected tax liability. That tax liability will depend on this such as:
- Amount of family income
- Itemized deductions
- Number of children
- Amount of business expenses
Business Income: I began work as an independent contractor at the beginning of the year, but I don’t own my own business. When tax time comes next year, do I have to file taxes as a business or can I just use my regular tax return?
If you’re providing services as an independent contractor then you do own your own business. Congratulations! Income that you earn as an independent contractor is generally considered income from self-employment. You should report it on Schedule C, Profit or Loss from Business. Attach Schedule C to your personal income tax return, Form 1040, which is filed by most individual taxpayers. If you have net earnings of at least $400, you will also need to file Schedule SE, Self-Employment Tax.
Per Diem Deduction: I travel for business several days each week. Can I deduct a per diem for meals instead of having to keep all of the receipts?
Yes! The IRS provides a per diem for the expense of meals that you incur while traveling for business. To qualify for the per diem expense you must be away from your tax home, which is the entire city or general area where your principal place of business is located. The amount of the per diem is based on the city in which you are working while away from your tax home. The rate is generally higher for urban areas than for rural areas. The IRS maintains a detailed list of cities and the related per diem rates in IRS Publication 1542, Per Diem Rates.
Home Office Deduction: I don’t own a house, but I do work out of my apartment. Do I qualify for the home office deduction?
If you use a portion of your home “regularly” and “exclusively” for business, then you qualify for the home office deduction, even if you rent your house or apartment. The exclusive part is usually the more difficult of the two requirements to meet. This means that the space can be used only for business and have no other personal usage. For example, if the room you use for your office has a TV that the kids use to play video games, then the space would not qualify for the home office deduction. If your business space meets the regular and exclusive requirements, all of the costs associated with then maintaining that portion of your home are deductible, including your rent and utilities. The deductible amount is based on the business percentage of the use of the home.
Cancelled Debt: A taxpayer received a 1099-C reporting cancelled debt from credit cards he used for personal purchases. The taxpayer is neither bankrupt nor insolvent. The 1099-C indicated that a portion of the cancelled debt included interest. Is the interest portion also included in the taxpayer’s income?
Yes. Since the interest on the debt would not have been deductible had the taxpayer paid the credit cards, the interest is included in income as part of the cancelled debt income.