Readers, please note that DailyWorth is retracting the section below on the home office deduction, owing to the complexity of this particular tax rule. We will post a correction soon, and a lengthier post explaining this deduction. Please check back.
"Tax time is serious business for anyone, but it's especially tricky if you're self-employed or run your own company," says Roni Deutch, author of The Tax Lady’s Guide to Beating the IRS.
Here, Roni Deutch's 10 tax tips to save you stress—and some money.
Small Biz Tax Basics:
1. If you earned more than $400 in your business in 2009, you have to file a Schedule C, which is where you record business expenses, profit or loss. (If you made less than $400, the IRS may consider what you do a hobby, unless you can document otherwise.) 2. If your business expenses are higher than what you earned, you can claim a business loss—which is good! Deduct the loss from your adjusted gross income on your personal taxes—which reduces the amount of tax you owe. 3. To claim a loss, you must itemize your business expenses on Schedule C. 4. If you claim a profit, e.g. if your income exceeds your expenses, you may owe self-employment taxes.
Deductions save you money because they reduce the amount of your taxable income—and thus the amount you owe.
5. Office or Work Space. If you have a space that you used exclusively for business you may deduct:
Deductions for a home office are based on the percentage of your home devoted to business use: e.g. if your office is 1/8 of your home, you would claim that percentage of your rent or mortgage as a deduction. If you rent space, you can deduct the full amount.
- Part of the mortgage interest/ rent
- Part of the insurance
6. Vehicle. If you use your vehicle for business, e.g. traveling to a convention or meeting, you can deduct a portion of your vehicle-related expenses. 7. Utilities. If you're deducting a percentage of your mortgage/rent as part of a home office, you'd claim the same portion of utility bills. 8. Materials. Deduct supplies and materials used to create your product or perform your service. 9. Office expenses. You can deduct the cost of paper, printer and computer supplies, mailing or shipping expenses, internet-related expenses (web hosting, domain names, design, consulting, etc.) and subscriptions to business-related publications and websites. All office expenses are deductible if they are ordinary, necessary and related to your business. 10. Meals. If you pick up the tab for entertaining clients, investors, you can deduct 50 percent of the cost.
But wait! There's more to deduct at the IRS website.
Need help? If you earn less than $42,000, you qualify for free tax help from IRS-trained volunteers. There are about 12,000 free tax centers around the nation.
Or use this Google Doc, published by the IRS.