Self-Employment Questions

[SuzieBK]

I'd love any advice on what I might need to come up with paperwork-wise since I'm self-employed. My biggest concern is that my bookkeeping consists of an Excel spreadsheet with the hours I spend on each project, the total price, and a column to check when I've invoiced the client. VERY low tech. Because the only expenses are portions of my mortgage, cable, and cell, and depreciation on my computer, there really aren't any receipts or anything.

Everything is tracked through 1099s, my husband has a higher than normal withholding, and we file a 1040 rather than filing quarterly. My business is three years old and in its best year didn't break $40K in earnings. Am I worrying needlessly?

[Tromploi]

I am also self employed and all I gave them was bank statements. I totaled up the deposits, then the checks (which for me is all payroll) and whatever was left each month is mine. Even MORE low tech.

Was perfectly fine.

[kathy4530050]

Suzie,

I'm self-employed too and keep all of my records in QuickBooks, which is pretty handy.

However, I've got to believe that you can come up with more expenses.

I know you have state, local and maybe city income taxes, social security, medicare, and self-employment taxes.

What about bank account fees?
License tabs for your car?
Letterhead, business cards, or the like?

How about office supplies? You've got to have paper and ink for your printer at the very least, right?
Postage/shipping?
Parking or meters?
Phone?

Mileage? (Applies to everything--if you drive to OfficeMax to buy your supplies you deduct the supplies and the mileage to the store, same with restaurants. The IRS mileage rate for the second half of '08 was .585/mile. That means that if you drove 60 miles for anything business-related, you have a $35 expense to deduct. If you go through your receipts, you can calculate mileage from them)

Accountant or bookkeeper?
Professional memberships?
Books, CDs, or DVDs? (deduct the mileage to the bookstore)
Professional Development?
Meals out (you can deduct 1/2 for any meal where business was on the agenda)
Do you have a home office? all kinds of expenses there

I'm sure your spreadsheet is fine, but now, more than ever, you really, really need to find those expenses! I think I have over 30 categories of expenses, and mileage is one of the most important ones.

If you need help finding expenses, I'd be happy to help!

Kathy

[SuzieBK]

I'll definitely go through and see if we can claim anything else, but my work is very self-contained. I'm a graphic designer and my clients are all over the country, so I never go anywhere for business, have to actual letterhead, rarely print things out, send everything virtually, so no postage, don't drive anywhere, etc, etc. I do have a professional membership I can claim and I'm sure we can come up with a few things, but I spend VERY little on the business. Time to get creative. ;-)

Suzie,

<snip>
What about bank account fees?
License tabs for your car?
Letterhead, business cards, or the like?
How about office supplies? You've got to have paper and ink for your printer at the very least, right?
Postage/shipping?
Parking or meters?
Phone?
Mileage? (Applies to everything--if you drive to OfficeMax to buy your supplies you deduct the supplies and the mileage to the store, same with restaurants. The IRS mileage rate for the second half of '08 was .585/mile. That means that if you drove 60 miles for anything business-related, you have a $35 expense to deduct. If you go through your receipts, you can calculate mileage from them)
Accountant or bookkeeper?
Professional memberships?
Books, CDs, or DVDs? (deduct the mileage to the bookstore)
Professional Development?
Meals out (you can deduct 1/2 for any meal where business was on the agenda)
Do you have a home office? all kinds of expenses there
<snip>

Kathy

[kathy4530050]

Suzie,

I see your dilemma. HOWEVER, did you go to any place that fueled your creativity? Seems to me that just about any beach would satisfy that . . .

Just a thought: I live in Michigan and the Chicago Art Institute is about 200 miles from me--400 miles round trip. If I were a graphic designer and frequenting art museums, galleries, shows, etc. was part of my on-going professional development, then I would go to Chicago, deduct $234 mileage, 1/2 of my meals, any admission fees, and hotel if I spent the night. Did you do anything like that?

Although she is works full-time at a regular job, my sister sews baby christening gowns from very old patterns and includes antique lace, antique buttons, and then does silk embroidery on them and sells them for a lot of money. Every trip she and her husband take, she makes sure they stop at a few second hand and antique stores, vintage clothing stores, and button shops and then she can write off big chunks of the trip. Seldom the whole thing, but a LOT of it. Sure seems to me like you could do something like that.

I remember that for my first two years in business, my accountant was very frustrated by my lack of expenses. But now I don't miss a one. If I'm in a coffee shop working on my laptop, my mileage to and from the coffee shop, and my coffee and cookie get deducted.

My mileage deduction is usually over $10,000 a year, and never will that come in handier than THIS year.

Good luck finding those expenses!!

Kathy

[SuzieBK]

You're definitely tickling my memory. Can you PM me your expense categories? I want to start looking back through everything. I drove to DC last summer for a combo personal/business trip, so that'll definitely get me some deductions.

[kathy4530050]

Sure! I can get to that in about 30 min.

[CatsInTrouble]

Oooh, you guys better be careful. I am a somewhat virtual business similar to graphics (copywriter) and my lawyer nixed many of those expenses. Example: went to a museum to do research on a story I did for a company's newsletter. He nixed the mielage, food, and even the entry fee into the museum.

He said it has to be direct, direct, direct: ink, paper, physical things, marketing things.

Get your lawyer to do a line by line audit of your expenses.

[CatsInTrouble]

he also nixed coffees and etc at starbucks even though I was MEETING WITH POTENTIAL CLIENTS!

I mean, you do want to keep track of these things for IRS. Just don't expect them to make it past a trustee in a BK.

[kathy4530050]

Hmmmmm . . . . interesting. I'm surprised that you can't used the IRS standards for business expenses. If you can't use the IRS standards, what is it then that guides us? I have a lot of indirect expenses--like professional conferences. They may be indirect, but I get a lot of my new business this way. Puzzling . . .

[caleb7mm]

they asked me for 6 months of bank statements and 2 years of corporate tax filings. that was it.

[SuzieBK]

I would think that a conference would be a direct item--you actually pay to attend and it's professional development in addition to marketing. It sounds like more amorphous items like mileage and meals--which are notorious for being abused in tax filings--are the issue. In a business budget, you'd have a line item for professional development but not one for mileage. Going out with clients for meals or coffee is an indirect expense that is made up for in your fees. I can see where they're drawing the line.

[kathy4530050]

I don't know about that. When I am working for a client that is out-of-state, I bill the client for my per-diem along with airfare, hotel, rental car, etc, and when I get paid, I have to pull all of those expense out. If I work for a client for two weeks, I can have thousands of dollars of expenses--not income!

When I am working in-state and drive 200 miles to a client's location, 400 miles round trip, there is no way I am not deducting that mileage, even for the bankruptcy. I'm working out of state more than in-state these days, but there were years when I put 40,000 on my car. That's an expense that I MUST claim.

These expenses seem 100% DIRECT to me, because they are totally necessary in order for me to perform the work that comes my way.

Professional development, while really important to me, is optional. Believe me, I'm including both, but question the basis for what's determined to be direct and what's indirect.