Home-Based Business Tax Mistakes?!

This is the first time that I will be filing a tax return with earnings and business expenses for a home-based business. Any advice on what NOT to do or say? Have any of you had any bad experiences or learned something when claiming a home based business on your tax forms?

Hey Denise,
I do know that if you want to claim a home office, you Have to have a separate office space (not a computer in the bedroom), maintained as such.
Joe

Hey Denise,

you need to get with an accountant. The government may not do much in terms of satisfying the citizens, but they always get their money. It should cost you less than $100. Better safe than sorry.

I have one small bit of advice to offer, since a friend of mine is taking a college course in accounting.

Apparently claiming a the office space of your home as a portion of its expenses makes you at least 3 times as likely to be audited.

I've heard this confirmed elsewhere also, although I can't remember where.

Has anyone else heard the same warning?

_matt

Quoting: MattathomeI have one small bit of advice to offer, since a friend of mine is taking a college course in accounting.

Apparently claiming a the office space of your home as a portion of its expenses makes you at least 3 times as likely to be audited.

I've heard this confirmed elsewhere also, although I can't remember where.

Has anyone else heard the same warning?

_matt

I have heard the very same thing, Matt. This will be the first year that I will file as a home business owner and I am a little edgy about even trying to claim a portion of my house as office space!

Okay, so it may be better not to claim office space. But surely you can still claim your expenses!? Supplies, etc.?

And as for your friend's accounting course, I believe you can write off schooling expenses as long as they go over a certain amount? I also have school costs that I will accrue this year...?

Hey Denise,

Yes, you can write off expenses, supplies, just don't mix Apples (household) and Oranges (business).

You can write off a percent of what is used, ie 10% of house/office space = 10% writeoff, as long as the % is exclusive.

I think the new law allows that with no problem, unless you want to sell the house. Then any depreciation from the business expenses will be deducted as capital gain upon sale of the house.

So, as Brian said, get an accountant... it can get really complicated.

Joe

Yeah, it's sounding like it... thanks for the advice. Taxes and calculations and percentages were definitely NOT my strong point in school -

that said, are you allowed to depreciate 'office' equipment? Computers, fax/copiers/laptops... etc?

Hey Denise,

Yes, any equipment that is used for your business can be depreciated.

Be sure to keep records of purchases, etc just in case...

Don't forget you only have 'til Monday.

Joe

Yeah, I know - I am a champion procrastinator... sometimes. Again, thank you for all the help - I'm almost done! (Now I just have to get to the post office and hope I didn't make any mistakes!)

I plan on getting an accountant or tax guy to do my taxes for next year - this is too stressful!

Hello! I'm an accounting major, and one of the things that my professor said to us is be aggressive with your tax deductions, but remember that the burden of proof lies within you. As long as you have valid proof that what you are deducting is used 100% in your business you should have no problems. Just think if you ever got audited, would you be confident that you were right in deducting certain expenses? As long as you can prove them wrong, you should be able to deduct it!

Oh I had another question for the people that auto-surf. If you surf with Alertpay or E-gold, do they send you a tax form saying how much you earned a certain year? Or do you just estimate?

And I have one too, for this year... is it true that if you freelance or earn income with someone else and they offer 1099 forms, if the amount is under $600 a year, they don't have to submit one for you?

And that being said, if you earn money from home, is every penny you earn taxed, or is their a cap where Uncle Sam starts dipping into your till?

Yes, it is true that they generally don't have to submit a tax form for you if the amount is less than $600, but if you are self employed you must report any income that is over $450. So, even if they don't file that form for you, if you have 10 jobs that are $500 then you are still required to report that. Remember, the burden is upon you to prove anything. When it comes to the IRS, it is guilty until proven innocent.

So, if, for example, what happens if someone pays me money and write it off an an expense on their taxes and I don't claim it. I will claim what I earn, because it also shows that my growing business is viable, but if I chose to be dishonest and not claim it, what would happen?

I'm sure that if you got into the habit of doing such things, the good ol' IRS would catch you sooner or later, but I'm curious, as it coudl almost work both ways.

In Canada "beautifying the home" is also an acceptable expense.

flowers, topsoil, Mr. clean, etc.

Again, it's percentage. If your office space is 10% of your square footage, then you can deduct 10% of all those expenses.

Wow, a CPA that costs $100. I've never paid less than $400. Last year I spent $1000. You get what you pay for Denise. Don't get ripped off, but ask around. A good CPA can save you far more than money.

White Phoenix,
Turbo Tax has you enter your home's square footage, and then your office's square footage. Then you put in your utilities total for your whole house and it automatically calculates the proportion of that number to your home office.

My office is small (56 squ. ft.) and I tried it with the home office and without, and it was only a difference of $100, so I did it. I didn't think such a small allowance would be a red flag.

You get to deduct all your advertising expenses, leads you buy are supplies. The only thing I got caught on was it asks you if you meet with clients in your office; I do, but on the telephone! And we have team meetings via conference calls....I wish that were clearer.

You get to deduct your starter kit too.

I have just recently started my own home based business. I've been wanting to do it for years now, but my one hesitancy has been fear of being audited for some reason. My fear is not because I'm dishonest, I'm just afraid I'm going to miss something, or not be filing correctly, etc. Has anyone out there had any issues with this, or am I just being paranoid?

I mean, I'm pretty nervous about this whole thing and yet I'm doing it anyway, I feel like I'm going against my instincts, but I've read and heard of so many people doing well at online/home based business and I just have to try it for myself. Anyway, if you have any advice on things I may miss in regards to tax, or what to sit aside for taxes, that'd be great!

My advice when looking for a tax accountant is to make sure they know how to do a home based business right offs. Interview them and if they have a home based business themselves that is a plus.

Good thing is, if you have a tax accountant who does your taxes and didn't give you the write offs you should have, you have 3 years to redo the taxes. I had to do that one year.