Self-Employed Tax Tips

1. Self-Employed Tax Tips JeanMarie Hinds October 29, 2009

2. Your Own Business • Getting Started • Start-Up Costs • Hiring Employees • Business Use of Home • Use of personal vehicle & Travel expenses • Estimated Tax Planning • Retirement Plan and other benefits • Additional Tips

3. Getting Started • Business Structure • Employer Identification Number (EIN) • Banking • Keeping the records & accounting • Equipment versus Supplies

4. Start-Up Costs • A cost you could deduct if you were already operating an active business; and • A cost you incur before the day your active business begins. • Will be amortized over 180 months* • May elect to deduct up to $5,000 in the first year of business • May be able to recover any remaining costs upon disposition of the business

5. Examples of Start-Up costs • Analysis or survey of potential markets, products, labor supply, transportation, etc. • Advertisements for the opening • Wages for employees being trained and their instructors • Travel and other necessary costs for securing distributors, suppliers, or customers • Consulting or executive fees for professional services • If purchasing a business, only the costs for a general search or preliminary investigation

6. Hiring Employees • Employee or contractor? • Set up accounts with the state • WDOR for withholding • DWD for unemployment • Workers compensation coverage • Employee Benefits

7. Business Use of Home • 1. Your use of the business part of your home must be: • Exclusive • Regular • For your trade or business, AND • 2. The business part of your home must be: • Principal place of business, OR • Where you meet with customers in the course of your business, OR • A separate structure

8. Home Business Use Expenses • Indirect Expenses: • Utilities • Real estate taxes • Property Insurance • Depreciation • Direct Expenses: • Furnishings • Repairs to office • Improvements to office • Depreciation

9. Use of Personal Vehicle: Written Log Required • Actual Expenses: • Fuel • License • Repairs & maintenance • Depreciation • Insurance • Plus Parking & Tolls • Standard Mileage Rate: • For 2009, 55 cents per mile • Plus Parking & Tolls

10. Estimated Tax Planning • Based on projection of income for the year • “Self-employment tax” is like FICA for employees and it is due on net profit • Add to income tax to get projected tax liability • Law says 90% of estimated or 100% of prior year amount must be paid in by year end. • Dates are April 15, June 15, Sept. 14 and Jan. 15 • Underpayment Penalty will be assessed • Both federal and state estimated tax

11. Retirement & Benefit Plans • Depends on the biz structure • If sole-proprietor, start with IRA • Health Savings Accounts • Medical insurance • Life insurance • Disability insurance

12. Additional Tips • Time is money: Add up your own receipts • Do not assume that tax documents you receive are correct, check them! (W-2s and 1099’s) • Bring along ALL business expense and income records • Get tax planning advice from a tax professional BEFORE the year ends • Consult with your tax preparer BEFORE responding to any tax penalty notices