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Mary953 (72.90)

Schedule C - What expenses go where for your business?

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March 28, 2009 – Comments (44)

This is the promised list of where to put business expenses by category on a Schedule C for your taxes.  Hang on to it.  Print it out.  This doesn't change.  Also, lumping all of your expenses together and sticking them under misc. is possible, but it gives the IRS computer a case of heartburn.  Instead of Tums, the IRS computer could call for an auditor to chomp on the offending return.  Then you still have to break this stuff out anyway.  Comments from other tax preparers are welcomed (the 2006 tax code was the same word length as 10 king james Bibles, For one person to know all of that would be insane) - Oh, and if you are one of the ones that requested this, I hope it helps.  You know to use at your own risk (standard disclaimer, all cases different, etc, etc, blah, blah, blah, due diligence, and all that stuff)

First two special situations -

If this is the first year for your business, you have a box to mark on the form (or a question on the automated program to answer) BE SURE YOU MARK THIS.  A startup business has more expense than one that is underway.  That is taken into consideration. 

If you expected a W-2 and got a 1099-MISC with box 7 filed out, you are your own business - surprise!  You may have done landscaping, personal training, painting, office work, the list is endless.  By paying you this way, your employer didn't have to pay benefits, Social Security, or Medicare.  If you are not certain, look at your last pay stub.  If there are deductions for Social Security and Medicare, you are on a W-2, Otherwise, you are a contractor.

If this is you (the sudden personal business), figure up the number of days you went to work.  Google the distance from your home to your work (double it to get a round trip).  Round trip mileage multiplied by days worked is the basic business mileage you can claim.  Use a form CEZ.  The first half of the year, each mile driven takes 50.5 cents off of your income.  The second half of the year, the rate goes up to 58.5 cents per mile.  If you take this, you cannot deduct new tires, repairs, gas, or any other car expense, but it will also reduce your income drastically.  The place you worked is considered the place you commuted to.  Other of these expenses may apply. Usually you can use the short form of CEZ. - Lots easier!

Expenses -

Advertising (line 8) - advertising and promotional costs like print or media ads, business cards, mailers, brochures, wavers out front, signs, pens and give-away items with the company name, samples or freebies to promote business, Include here also any sponsorships like buying an ad in a high school sports program to promote the business (AAA business wants to wish the Warriors a great season)

Car/Truck expense (9) - mileage cost for your vehicle (figured on part II of sched C) OR (and you only get one or the other) from Form 4562, your gas, oil, repairs, insurance, depreciation, license tags

Commissions/Fees (10) - Vary by state and locality - Business license, medical license, vendor fee for set up in a public place, inspection fee, any fee which must paid in the course of opening your business

Contract Labor (11) - Landscaper, Electrician, Remodeler, Cleaning service.  You hired a contractor to handle some one time job like replacing a roof or an ongoing chore like keeping the landscaping up to par so that you don't have to.  The key is that you hired a company to handle this.

Depletion (12) - Rare - Are you working with an exhaustable natural resource (mining, wood, quarry)?  If not, skip this.  If so, get help from someone who has dealt with it. I have not.

Depreciation and section 179 expense deduction (13) - The gist of this one is that when you buy a large ticket item for your business, whether it is a car or a computer, there is a table that will tell how long it should last. Each year, you get to write of a portion of that cost so that at the end of the item's life, you have effectively written the whole thing off.  You will need some help on this as well.

Employee Benefits (14) - For your employees only - health, accident, life insurance premiums; also, dependent care, education or adoption assistance, even achievement awards for long service, any benefits that you supply to your employees.  (You can deduct your health insurance premiums on line 29 of your 1040 or as part of the medical deduction on Sched A, POSSIBLY) 

Insurance(15) - Again, Not your insurance (see 14).  This insurance is for your business and for the operation of your business.  Examples would be liability (the coffee is hot, maam), fire (yes, maam, really hot), theft, robbery, flood, hail, volcano, Acts of God, [too much?  okay]

Interest (16) - Interest on loans to finance your business, on credit card charges for business expenses, and interest on a vehicle loan for car or truck used in business (if car used 1/2 time in business, deduct 1/2 interest here, 1/2 on sched A-which you may or may not need)  Just as a word of warning here,  If you are going to be doing a lot of credit card purchasing for business needs, you would do well to open a card just for your business and keep the accounts separate.

Legal/Professional Services (17) - fees for tax advice and tax preparation (boy, do I wish I knew where to send a bill *sigh* - rec maybe?)  And in the infinite wisdom of our tax system (you will love this one) only the cost of preparing the sched C, CEZ, SE, 4562, 8829, and accompanying worksheets can be deducted here because they have to do with your business) Figure that at $100-$300 per business.  If you and your spouse have separate yours, mine, and ours businesses, for instance, that could be $300-$900 depending on the complexity.  Other business professional services can be included here.  I put accounting, payroll, and reference firms under contract labor on line 11.  Other tax preparers may put them here.  Either works.

Office Expenses (18) - Office Supplies - Ink, paper, toner, pens, staplers and staples, paper clips, folders, and, guess what?  If you have an office with a public bathroom, then use that company credit card to buy hand soap, towels, toilet paper and the rest because it is deductible too.  Coffee service is here if for clients.  You can put snow removal, lawn care, cleaning service under this also.  Remember that the name of the game is to spread the expenses out so that you have something under as many spots as possible.

Pensions/profit-sharing Plans (19) - This is where you add in the cost of any contributions you made to pensions or profit sharing plans for your employees.  Once again, you will look back to your 1040 form, on line 28 to record any contribution that you made for yourself.  (and of course, once again the line 28 of 1040 comes with the modifier MAY be able to take)

Rent or Lease (20) - You have two lines here -

20a - this is for leasing a vehicle, machinery or some equipment.  (if you kept the lease going for more than 30 days, you may need to look into something called the inclusion amount which may reduce the amount that you can put on this line)

20b - this is for payments of office rental or rental of other spaces for storage and any real property leases that didn't fit onto 20a

Repairs and Maintenance (21) - This one refers to cost of labor, supplies and any other items that do not increase the value or life of the property.  It broke and you had it fixed.  If you fixed it yourself, you cannot pay yourself and then deduct the labor.  If you replaced whatever broke with something new, you need to put that under a new purchase - 13 for a big item, 18 or 22 for a small item.

Supplies (22) - Are you producing a product?  What do you need to create it?  What must you order to have it in stock?  Those are your supplies.  Put the cost of them here.  Do not include your inventory.  (Cloth for a seamstress = supplies, cloth for a cloth store = inventory.  The first example belongs here.  The second does not.)

Taxes (23) -  If you don't take a tax off somewhere else, it falls into this category.  Look at it like this - on an office space, it goes in with the rent but not here.  Sales tax on merchandise you sell is turned over to the state and not reported here.  HOWEVER - You can deduct real estate and personal property taxes on business assets, employer's share of FICA taxes, federal & state unemployment tax aid, Federal highway use tax, business permits, and licenses and taxes on a car or truck used in business (if car used 1/2 time in business, deduct 1/2 taxes here, 1/2 on sched A-which you may or may not need) 

        Did I hear someone say that they hate taxes?

Travel, Meals, Entertainment (24) - Not even going here - You have to be away from your "tax home" overnight.  That means away from where you do business, not away from where your family lives.  The expenses have to be business related.  There is a portion of the schedule C to enter these expenses and then you will get to deduct either 30 or 50% of the total allowable.  The 3 martini lunch is folklore.  Wiped out by an overzealous media.  Business travel is mainly a lot of very unhappy people sitting 1 to a table, wishing they were somewhere else.  And Not at all the glamour painted.  Even in the so-called hot spots.  Oh, the entertainment part.  You and a client and you need to be getting some business done.  Sorry

Utilities (25) - If it is directly related to the business, list it here.  Telephone, lights, gas, etc.  If you have a separate office away from home, deduct 100%.  If you have a pager or cell that is business only, 100%. If you use part of your home, take the square footage of the home, the square footage of the work only area and that will give you the percent of work space in your home.  If it is 15%, take 15% of your utilities.  (A construction worker that housed his truck, fully loaded with tools, in a locked garage where the only other things were a desk and storage for more work tools could legitimately claim the garage as a home office - if no one else ever parked there)

Wages (26) - Wages, salary, and bonuses.  Medicare and social security that you pay on employees goes in this category as well.

Other Expenses (27) - You spent it on the business and would not have needed it except for the business.  You only used it in the business.  Put it here with an explanation of what it is.

Just one last thing,

If you go in to a tax professional and say, "I'm not going to declare all my income this year."  That person should request that you leave.  He or She is going to be signing at the end that "to the best of my knowledge this return is full and complete."  If it isn't, your tax preparer just lied to the IRS, so why do you think you were not lied to?  I will try to find every legitimate way for a person to keep every bit of their own money.  Every legitimate way.  Good Luck All!

44 Comments – Post Your Own

#1) On March 28, 2009 at 2:38 PM, binve (< 20) wrote:

Mary, Wow! Thanks! Seriously, I know how busy you are with all the returns you are working on, and yet you take the time to put together a massive and massively helpful post for us tax payers during tax time. You rock!

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#2) On March 28, 2009 at 3:27 PM, outoffocus (23.35) wrote:

Good stuff Mary! I know you do taxes but are you an accountant/CPA? Just curious.

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#3) On March 28, 2009 at 5:28 PM, Mary953 (72.90) wrote:

I started doing my own taxes 35 years ago.  No computers, calculators, programs, etc.  Some years ago, I joined a tax firm that was starting.  It was run by a CPA (national chain - and no not the one with the major ad campaigns).  During the season, we worked as a team and in the off season, we learned from a CPA/tax professional who had 40 years in and had started with the IRS so we learned which things would cause an IRS computer to 'hiccup.'   Also, during the off-season, we took and passed the appropriate certification tests to demonstrate knowledge and proficiency in tax related matters.  I am registered with the IRS. 

For what it is worth, the training and testing were provided through the office that I worked in and were a result of the owner of that franchise wanting his business to be the best available.  It is not necessary to have any training nor is it necessary to pass any sort of certification testing to call yourself a tax preparer. 

Anyone can get a number from the IRS or just use their social security number and charge to do taxes.  Be very certain that you know the sort of training the person has who is doing your taxes. 

Believe it or not, I now help out friends, family, and even people I don't know just because I think that I was sent in that direction for that reason at the time.  It has paid off in helping me to start to work with some of the things on CAPS without intimidation.

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#4) On March 28, 2009 at 6:29 PM, outoffocus (23.35) wrote:

I definitely understand the one does not have to be a CPA in order to do taxes.  My mother did taxes and shes a bookkeeper. Thats actually one of my main arguments on what a CPA actually does.  Way too many people think that the only thing that CPAs do (and make money from) is taxes.  Therefore if anything happens to simplify or automate tax preparation, then a CPA is rendered useless. That is a big misconception among people. 

On the other hand, since people dont seem to know what CPAs really do for a living, I'll have less competition and I can continue to make money from the countless other services we provide (business consulting, compilations, reviews, personal finance consulting, audits, examinations, and oh yea, taxes).

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#5) On March 28, 2009 at 6:40 PM, RussWild (< 20) wrote:

Mary~ Your a sweetheart! that is exactly what I needed! One question that I think I know, but I'll ask anyways. If I take the full square ft. for Utilities (25) and I'm a home business, can I deduct a % of my house rent?

You out did yourself and I know your busy at this time of the year. For you to take the time to help us is priceless. I hope I can pay you back in helping as well!

Thanks and your the best!!

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#6) On March 28, 2009 at 7:48 PM, wolfhounds (29.09) wrote:

I'm attaching the official IRS regulations which define self employment income. http://frwebgate1.access.gpo.gov/cgi-bin/PDFgate.cgi?WAISdocID=282420405010+24+2+0&WAISaction=retrieve

As to what peercentage of home expenses are deductible, you can deduct the square feet of your home used to conduct business or store products. You must measure the actual space as a percent of yor total space. That percentage is applied to all expenses allowed as deductions except depreciation which is calculated separately. See the form for Home Office Expenses.

What distinquishes CPA's who do taxes for a living from all non professional is their knowledge of the tax code. Turbotax can crunch numbers, but it can't tell you the definition of a self employed person or what home expenses are deductible on Sch C. Nor can it tell you what to do with a complex K-1 you got from that MLP you bought. Nor can it cumpute losses subject to the "wash sale" rule on Sch D. I think you get the picture. I just filed amended federal and state returns for a new client back to 2005 and he received $33,000 in refunds. Those returns were prepared by a national chain.

I suggest that anyone that has any complexity or has a business use a CPA. We are not going out of business. Quite the contrary; the tax laws keep demand for our services in high demand. And Obama will soon do his part to keep me from retiring.

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#7) On March 28, 2009 at 7:50 PM, Mary953 (72.90) wrote:

Outoffocus -

Don't forget "box-lady syndrome."  We had one lady that came in every year with a large box of receipts (unorganized) and dropped them on a desk wanting taxes done for her business.  What she actually wanted was Book-keeping to turn the box into records.  Then she needed the records used to have taxes done.  After two years, she was informed that there would be an hourly bookkeeping fee for the time needed to create her books for her.  She still came in.  It was worth it to her and the cost was deductable as a business expense.

Russ -

If you use 25% of your living space (home or apartment) to work on your business only, then you can deduct 25% of your utility costs.  If you have a utility cost that is directly tied to the business (fax line, cell phone, web site internet connection, etc) you can deduct 100% - but only if it is business only.  Example:  14.7% of the home is a workshop for business.  You have a home phone, a cell phone, and a business phone.  The utilities, home, and cell phones can have 14.7% deducted as business expense.  100% of the business phone expense is deductible.  Clear?  Now about those yellow cheese circles......

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#8) On March 28, 2009 at 8:05 PM, RussWild (< 20) wrote:

Thanks Mary, I haven't added up the % sq. ft. yet, but it's pretty large. I'm wandering about house rent/mortgage. Lets say I have 34% of the house space didicated to a business. Can I deduct 34% of my rent as well? I promise I will have the Cheese zone out for you before this weekend is over!

Thanks again.

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#9) On March 28, 2009 at 8:31 PM, outoffocus (23.35) wrote:

I read the regulation not to long ago and I thought that you could deduct a portion of your rent as long as that portion of your apartment is dedicated solely to the operation of your business.  Correct me of I'm wrong.

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#10) On March 28, 2009 at 9:35 PM, RootnToot (30.21) wrote:

Mary,

 I am speechless (doesn't happen often).

Thank you so much!!!

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#11) On March 28, 2009 at 11:25 PM, RussWild (< 20) wrote:

Sweet! That's exactly what I needed. Time to get busy!

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#12) On March 28, 2009 at 11:44 PM, Mary953 (72.90) wrote:

Not only can you deduct a portion of your rent also, but the Sched C has a spot to put the total square feet for the house/apartment and a spot to put the square feet used for the business.  Then the tax program figures the percentage for you - how sweet is that!  You can take the home office deduction if you don't have an office outside of your home (Sched C for wife's practice - NO), (Sched C for candle business - Yes)  You must have a separate Sched C for each business.  Also, if your wife has any lab coats with her name stitched on them or things like that, they are deductible, both the cost and the cleaning costs!

ROOT - I am so glad you found this before you finished.  I was afraid I wouldn't be in time.  I will check back for questions once in a while.  This one is for small business since that is the thing that stops most people dead in their tracks.  Let me know if you have other questions.

Outoffocus - If you noticed, you have been on my favorites list for a very long time now.  I am glad for another person who can add such great advice.  Please jump in to add or correct me when you see a need or a spot I miss.  I don't think I mentioned rent, did I?  There is just so much of it.

OFFICE SUPPLIES - Buy a small notebook for your car.  Supply runs to the store are business miles if you keep a log of them.  A 10 mile round trip is another $5 in expenses on auto - how many times do you do that in a year?  Same with deliveries, but you need to have a log.  The notebook is under office supplies.  Carry it in a manilla envelope and drop your receipts in with it until you get home and can record them. (a tip for next year)

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#13) On March 28, 2009 at 11:54 PM, Mary953 (72.90) wrote:

Wolfhounds -

Just as a special note to you, you may have noticed a couple of places that I just put 'get help' in those guidelines.  There are some tax returns that should not be dealt with by yourself.  I was part of the generation that started learning taxes at age 12 in math class.  It was a life skill and there were no big chains.  Even the chain that I worked for had a policy.  If the return was old enough to require being done by hand, I got it.  No one else had ever done returns with a pencil and adding machine.  The idea that a change on line 4 meant erasing everything after line 4 and redoing it was more than anyone else could deal with.  CPA's will always be needed.  Complex returns Need people who understand the complexities of this entire system and how to get the most out of it for clients. 

Mary

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#14) On March 29, 2009 at 12:33 AM, RussWild (< 20) wrote:

mary ~ "lab coats"... OMGLOTFBBQ!!! lol you don't know how hard I laughed... She is a marige and family therapist....hehe lab coat... you know I think that might be more appropriate than a couch...lol

Thanks as always Marry. I was depressed last night because my expenses were about 40% less then I thought they were with the candle business. Rent/utilities puts me about + 20-30% of my expectation..... Yahoooooo! I'm still going to owe about 10k but that's a different story..

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#15) On March 29, 2009 at 2:30 AM, RussWild (< 20) wrote:

Ok, as I go trough it all... what about books or study material to help better your craft.. research type of expense??

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#16) On March 29, 2009 at 9:21 AM, Mary953 (72.90) wrote:

That can go either way.  Some of this is a judgement call as to how you feel about explaining if you had to.  Books for college courses - Yes, Books for seminars or continuing education - yes, Elliott Wave if you plan to make that more than a hobby - I would try it, Readers digest or other craft store books - no.

Don't forget to put in continuing education courses for each of you as expenses.  Hers are business expense.  Yours are employee business expense (teacher)  Also, there is a spot for you to take offf $250 in supplies that you bought for your class since you are a teacher (1040, line 23)

For a more complete answer look at this page -http://ftp.irs.gov/taxtopics/tc513.html

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#17) On March 29, 2009 at 9:36 AM, angusthermopylae (39.53) wrote:

As specific example on books:  We work in IT, among other things.  Since the books are usualy expensive ($50-$100 easily), we deduct those.

To help separate those items, we also have a bank account set up for the business with a separate debit card.  At the end of the year, if my bank statement says "Amazon purchase:  $125.98", then I know I bought technical books there.

It simplifies your yearly taxes, and all you have to do is make a conscious decision when you pull out your debit card:  Is this for the business or myself?  And all it takes is carrying around another card.

I'm not a CPA, but I work under the assumption that this is the kind of thing that can be easily abused:  Only use the business card for business purposes!  If an auditor comes around and starts seeing things like massages and McDonald's showing up on your business account all the time, he's probably going to pick up his microscope and start crawling into uncomfortable places...ouch!

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#18) On March 29, 2009 at 1:17 PM, isusan (< 20) wrote:

Mary, I can't believe the the time you put into listing all this, very generous of you!

Russ, after you get your return done, I would absolutely have an accountant review it.  I have never paid more to an accountant than he saved me in taxes.  I've also been through state business audits & it is brutal preparing for them.  But I never owed or was owed a dime.  The other thing I would urge you to do is to print out any IRS instructions you refer to & put them in your file with your return.  You may never need them again, but if you are audited a few years from now, they may be helpful to have. 

FYI - you need to check the following out with an accountant because I may not be relaying them correctly, but I wanted to give you a head's up: 

It's sounds as if your business is doing well, but just know that the IRS only allows 3(?) years of deductions if it's not, then they consider it your hobby.  No longer deductible.

For expenses, it's my understanding that some changes were made...primarily regarding phone bills.  You cannot deduct a % of the base portion of your home & cell phone service.  If they are also used for personal use, you can only deduct a % or $ of the call charges, not the basic service.  If you upped your plan due to business use, that may be deductible. 

Good luck!  http://www.irs.gov/newsroom/article/0,,id=108138,00.html

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#19) On March 29, 2009 at 3:54 PM, Mary953 (72.90) wrote:

Thanks Susan.  I wasn't aware of that change.  That is why I was hoping for comments from others, just in case.  ;)

A side note - Believe it or not, IRS auditors and workers actually get some pretty major hassles this time of year, up to death threats even.  So, fwiw guys, the main reasons that IRS agents are seen as "the bad guys" are 1) the way the media portrays them, 2) the way they are portrayed in certain tax firm commercials, and 3) the same reason that when you see a policeman you check your speed.  You know you are honest, but that code is just so darn big, you can never be certain that you got everything right.  Start looking at the IRS as the people that give you the answers and not the guys out to get you.  They are people and most of them are pretty nice about helping you out.

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#20) On March 29, 2009 at 10:08 PM, binve (< 20) wrote:

WOOO HOOOOO!!!! - Done with taxes!

Man, each year that I do these makes me wish more and more that we had a flat tax system. I hate these returns.

Enough griping, time for a drink :)

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#21) On March 30, 2009 at 6:50 AM, outoffocus (23.35) wrote:

Mary, the "untouchable" status of IRS auditor has spilled over into the audit profession in general.  I used to audit the Department of Defense, which made me the good guy because I was one of the people making sure your tax dollars were being put to good use.  Yet when I told someone I was an auditor, I was met with sighs, eye-rolls, teeth-suckings, and "oh-boys" because when I said "auditor"  people automatically thought of IRS auditor.

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#22) On March 30, 2009 at 7:20 AM, Mary953 (72.90) wrote:

Outoffocus has a really great blog on the most ridiculous tax writeoffs of the year (her annual "wackiest" list)  If you haven't read it, you are missing a great read - http://caps.fool.com/Blogs/ViewPost.aspx?bpid=171370&t=01000344307283955476

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#23) On March 30, 2009 at 8:33 PM, en169 (< 20) wrote:

This is so incredibly helpful, thank you all for the lively discussion as well.

Can anyone answer - where do fees such as bank fees or cc fees that are not interest go on the Sch C? I've read this article as well as the Sch C instructions but can't find a clue!

Thanks in advance.

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#24) On March 30, 2009 at 8:39 PM, outoffocus (23.35) wrote:

Bank Fees - a good question.  I know that early withdrawal penalties are an above-the-line adjustment on the 1040.  I would imagine that credit card fees would charged the same as interest.  As far as atm fees  or other fees to keep your business account open and operational may go in other expenses if not counted as interest expense. But I'll let Mary give the expert answer.

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#25) On March 30, 2009 at 9:56 PM, RussWild (< 20) wrote:

binve ~ I hate you! Just kidding, congradulations!!! Time to party for sure!

Mary953 ~ I have another expense that I think will work at another category. In my wife's private practice she has a bunch of expenses for decoration and/or funiture for her office. I'm curious between "asset" (ie. rug, cough, desk) vs. decorations, flowers, candles, etc.. hummmm

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#26) On March 30, 2009 at 10:55 PM, Mary953 (72.90) wrote:

Line 16 includes all fees related to credit card fees and interest as well as bank fees, atm fees, etc BUT the only time that this stuff is deductible is if the accounts are business only.  If you use the same account for business and personal, you're out of luck.  Another good reason to keep separate accounts.

Line 18 includes office expenses including flowers, decorations, candles (even if your wife's practice bought them from your joint business - keep the receipt!) and anything else that goes into keeping up the office, even coffee, creamer, and sugar (sweetners) for the coffee if it is available.

Line 13 is for capital expenses.  Are you talking about a really good deal on a rug from Home Depot and a sale on a comfy office chair from Office Depot, or did you go all out and get a Karistani worth $1000 or $2000 at least and a chair from a very upscale furniture store?  The inexpensive option will save your wallet and might be settled in comfortably under office expenses on line 18, while the upscale choices most definitely need to go on line 13 and be amortized over several years. 

Russ - the main thing that you need to know is that if your wife has a separate office, whatever is in that office can be deducted under some category, no matter how crazy.  If she needs to test reactions by hiring someone to sit in the waiting room in a banana suit, the guy's salary goes on line 26, the banana suit can go under rentals or (more likely) under misc on line 27 under testing equipment - Do you really want to explain "banana suit"?

Oh, and if it makes you feel any better, I haven't started my own taxes yet.

Mary

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#27) On March 31, 2009 at 1:02 AM, RussWild (< 20) wrote:

Mary, bless your heart.. I default to jump into chart land and it takes much for me to focus on getting the job done..... that was perfect in your explination...Thanks again..

I don't know how i'm going to repay you, but know that i'm in your debt for sure!.... I always pay my debts... I must!

I am yours!

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#28) On March 31, 2009 at 1:05 AM, davidruan7 (< 20) wrote:

Thanks, Mary, that is great help.

I have this small question for you: I purchase a computer that cost me $600. Can I put that into office expenses(18) instead of depreciation and section179 expense deduction(13). I use that computer exclusively for my business. The reason to do that is to do that I can just use C-EZ instead of C, and if I do that in (13), I need to fill up more forms too. Also, under the exceptioin for line 13(on the instruction), my computer seems to qualify for the exception.

Thanks and I want to hear your opinion.

 

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#29) On March 31, 2009 at 9:47 AM, en169 (< 20) wrote:

Mary,

Thanks very very much for your prompt answer! I am grateful.

What about professional development and training?

 Thanks again ~

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#30) On March 31, 2009 at 9:55 AM, binve (< 20) wrote:

RussWild, Thanks man :) It is really a load off. I can always tell how much of a weight it really was once I finish. What a pain.

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#31) On March 31, 2009 at 11:16 AM, Mary953 (72.90) wrote:

David - I would put it in office expense because I absolutely hate doing depreciation.  It is your call completely.  You just cannot deduct it more than once.  You are sacrificing the extra money you could get for depreciating the computer, but I don't like working with the MACRE formula (yes, before the other tax folks on the site fuss at me, I know it's just a table - still don't like it.  I would rather look up local tax codes for counties in the back parts of sparsely populated states for new residents' state income taxes) 

En169 - Is the professional development and training required for your business?  If so, you can take off fees associated with it as misc. expenses.  Remember that any expense that is legitimately a part of business and doesn't fit somewhere else can go in here.  Also, if the training required you to be away from your 'tax' home (your place of business home) overnight, you may be able to take amounts that you paid for lodgings and meals if you kept your receipts.  This will require that you fill out a worksheet because you can only take 30% or 50% of costs that apply. 

And Russ, you help me with a great deal.  My turn as a student will come soon enough when I start tackling these charts again.  We are all just trying to share the knowledge that we have to share.  That's what makes it such a great place to be!

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#32) On March 31, 2009 at 11:33 AM, RussWild (< 20) wrote:

Wahoo, I'm finished with the all the reciepts and income!! Time to meet up with the tax pro for the final touch!!

Thanks again Mary for your help. And I didn't tell you I finished it last night...hehe

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#33) On March 31, 2009 at 11:05 PM, davidruan7 (< 20) wrote:

Thanks, Mary, you have a big heart to give me your opinion, I love it. I hope I can finish mine by the end of this week.

 

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#34) On April 02, 2009 at 5:00 AM, focusingforward (< 20) wrote:

Mary!  You are a lifesaver!  Thank you so much for making this process clear.

I do have a question.  I got my LLC in Sept. of 2007.  I worked out of my home until Feb of 2008.  Then got an office in March of 2008. Would I be considered a new business?  Or is a new business considered new, until you make money?  Wondering if you knew.

Thanks again for the clear info!!!

Jen

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#35) On April 03, 2009 at 10:44 AM, Mary953 (72.90) wrote:

Jen,

Actually, you are not a new business.  Your business was considered new in 2007.  On the other hand, now that you have an office, you can deduct anything that you buy for that office, even stuff that would otherwise be home furnishings.  For instance, a chair is a business expense if it is for a waiting room.  Just be sure that you keep your business account and your home accounts totally separate.  That may even mean two orders at the grocery to make certain that the coffee supplies for your office are on a separate receipt.

Mary

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#36) On April 09, 2009 at 10:24 AM, isgedf (< 20) wrote:

Wow! So well explained...catching up with taxes, Sole Proprietor with home office only. Here are some expenses that leave me perplexed as to where they should be listed on Schedule C -

Domain names (some related to current bus and some for future wish list bus total = $600), website cost for current bus not yet up, DSL Connection ($400), Other Internet services such as
Gotomypc.com (at 19.95/m), uReach Fax service and Cell phone and accessory purchase (under $500)

I'm doing last years and this years so I'm not sure what changes.  Where do I list these expenses?  I searched everywhere for domain name placement and assume it should be listed as an "Other expense".  The info in my search speaks to those that buy and sell domain names which does not relate to my situation.

It took a while to find this useful blog but it was worth the many searches and pages reviewed to get here.

E

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#37) On April 11, 2009 at 2:01 PM, BigBillsBurgers (< 20) wrote:

Mary 1rst THANK YOU for your help with categories. This has been one of my biggest problems. I still have a question with one category. We started renting a building in October 2007  and opened a small restaurant in Feb 2008. We started cleaning, painting and decorating the building 2007. Would the paint for the walls and floor be Start Up expenses or Repairs or Or Office expenses for decorating? Also which category would the cost of tools to do the painting (rollers, scrapers, brushes) fall under? Again thank you, JJ

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#38) On April 11, 2009 at 6:31 PM, Mary953 (72.90) wrote:

Hi, guys!

I am glad you found this in time to help you.  Keep in mind that the main thing is to get your deductions into a number of slots rather than one or two only.  Also, when you start a business, be sure that you check the box that very first year to let the IRS know that it is a first year business.  This makes a huge difference in the type of costs you can expect.

JJ, If you have almost everything in Start Up, then put the cleaning, painting, and tools under repairs and the decorating under Office or misc.  If you don't have anything (or not much) under Start-up, that would be my first choice for all of this stuff.  When you redo something, then use Repairs.  Also, on the decorating, signs outside could be Advertising,  I would actually consider some types of decorating to be misc. and some might even go on Line 13 if part of your decorating includes display cases or really large ticket items like a juke box or a really expensive piece of furniture or piece of art (large oil or big neon sign) for the wall.  Without knowing the type of restaurant, it is hard to tell. (BigBillsBurgers does give me a clue though)

E, You have some fun ones here.  First, did you get help from anyone in setting up your websites and if so, list it according to whether it was a company that did a one shot sort of set up (Line 11) or do you have someone under contract (17-Prof. Services)?  Given the wild popularity of fax machines, I am going to guess that this is office expense, because most people don't use them anymore unless they have a business.  That will be line 18.  On line 25, Utilities, list 100% of anything that you have JUST for your business, like an extra phone line that is just the fax, or an extra that is Just the business.  On other utilities, you are going to be taking the % of the living space that is 100% office space on a 24/7 basis.  If it is 12.8%, then that is the amount of utilities that you can claim.  Also look back to iSusan's comment #18 (she is one of my favorites as is outoffocus for all of the wonderful aid I get from them).  I would use line 13 for the cell phone, accessories and possibly the fax if it was expensive.  You do not Have to take depreciation.  If each item is fairly inexpensive, your other options are misc or office expense.  I would put domain names under misc, website costs and dsl under utilities, and other Internet services under one of these two depending on which one looks most anemic.

The main rule is start with your list of things to deduct.  When you put it down somewhere, put the line number beside the entry.  That way you only enter each number in ONE PLACE.  Some of these categories overlap and some of that is intentional.  Chances are that within a year or two, Internet and domain names will have a totally new category all their own.

Good Luck.

I have this blog on a follow tab so if you need to add another question, it will pop up when I come up for air after the next tax return.

Mary

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#39) On March 26, 2011 at 5:00 PM, Mary953 (72.90) wrote:

2011 UPDATE -

Thanks to outoffocus for pulling this up again.  Again I would warn you to use your own due diligence and remind you that the nice folks at the IRS are there to help you if you call with a question -- and I find them very nice and very, very helpful!  These are the pros at this stuff.  Use them and remember that they are trying to help.  Treat them accordingly.  (as in Play nice, kids!)  ;-)

Something wonderful has happened since I wrote this.  If you got the 1099-Misc with Box 7 as described above and it was a one time thing (example - you took a job cutting grass for a local business or doing construction over the summer), THE RULES MAY HAVE CHANGED!  Follow the instructions carefully.  Answer the questions truthfully.  If this was a one time or a summer job, it may be treated as a single instance with no Social Security or Medicare fees needed. 

I also need to point out that I no longer do taxes thanks to the new ruling that requires a fee for a professional license.  I have not had any advanced training in the last couple of years so I am no longer the right person to ask.  In fact, I am about to do my own taxes for my genealogy business and I truly hope that there is an easy way to break out the domain name, the websites, the software, etc that are essential to a home-based business.

 

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#40) On March 11, 2012 at 12:36 PM, needshelp0606 (< 20) wrote:

Hi! Mary..On your 2011 Updates about 1099 as a one time or summer job that may be treated as a single instance with no Social Security or Medicare fees needed, can you explain it more coz my husband is a plumber and he had a one time contract in a apartment complex doing grass cutting for 3 months last 2011, and he doesn't do it now, its only a one time thing. They sent us a 1099, do we need to include it in Sel-Employment tax? Is that one time job subject to social security and medicare tax? please, we badly need help? thank you

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#41) On March 11, 2012 at 12:36 PM, needshelp0606 (< 20) wrote:

Hi! Mary..On your 2011 Updates about 1099 as a one time or summer job that may be treated as a single instance with no Social Security or Medicare fees needed, can you explain it more coz my husband is a plumber and he had a one time contract in a apartment complex doing grass cutting for 3 months last 2011, and he doesn't do it now, its only a one time thing. They sent us a 1099, do we need to include it in Sel-Employment tax? Is that one time job subject to social security and medicare tax? please, we badly need help? thank you

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#42) On February 17, 2013 at 6:21 PM, Mary953 (72.90) wrote:

I signed on to tell you that since I no longer do taxes, consider that this list is now possibly incorrect, but it is certainly outdated.  Be very careful using something that is now 4 years old.  (http://caps.fool.com/Blogs/taxes-a-request-and-a/798295)

Oh, and having said that, a comment to needshelp0606 - I am sorry that this no longer comes up under my following heading.  I would not have left your question unanswered.  The IRS has some really clear rules on the situation you put down.  I had occasion to check this yesterday.  The situation you described was actually the exact sort of thing that the rule is intended for.  If your husband had spent 3 months fixing plumbing, it would have been a business.  Since cutting grass has nothing to do with plumbing, it was considered a one time job.   And he could have deducted his gas (for the mower) and his mileage from the commute to and from the job!  I hope you got it right. 

Okay, I'll stop now. 

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#43) On December 03, 2013 at 3:45 PM, georgie624 (< 20) wrote:

Great article!  As a certified tax preparer I appreciate your understanding and input in helping business owners keep accurate records.  Keep up the good work!

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#44) On February 10, 2014 at 12:32 PM, molly13 (< 20) wrote:

Hi Mary,

I am new to the world of self-employment. I have been keeping records of everything.Now that it is time to do my taxes I am having trouble filling out the deduction part. My business requires I by their product for supplies and I use these products to hold tasting parties at customers homes. I was wondering do I put this deduction of products I buy and use under advertising or supplies. Also, I have to purchase certain items to give away as prizes. I  also purchased ingredients to add to these samples to make them taste good. Example: One product is a Chocolate Martini, I have to buy milk to make it. Any help you can give would be most appreciative. I so enjoyed reading all the advice you have given. Thanks.

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