Tax Deductions

Self Employment Blog #5

Important details #2

Tax Deductions

The reason you need a bookkeeping system is so that you can deduct all the expenses possible to minimize the taxes you will be paying.

There are a couple of expenses that you will not collect in your bookkeeping system.

The first is your automobile expense. You have two choices in calculating your deduction for your automobile. With either choice you need to keep a log of your business miles and know the total miles you drive your car during the year.

You could record every expense, (gas, insurance, repairs etc.) you incur using your automobile. Once you get a total cost you multiply it by your business-use percentage. (Business-use percentage is your business miles divided by your total miles.) Alternately, you use the IRS automobile mileage rate of $0.55 per mile for 2009, times the business miles. The vast majority of my clients use the IRS standard mileage rate. It’s simpler to work with and the IRS adjusts it every year.

The second one is the deduction for a home office. To legally deduct the cost to maintain an office in your home, you must use the area exclusively for business. Thus you cannot deduct the expense if you work at your kitchen table. You are allowed to deduct the business-use percentage of all the expenses to run the house. This would include mortgage interest, real estate taxes, utilities, heat, insurance, and general repairs. You cannot deduct repairs to the non-business use portion of the house, like your kitchen. As this is a complex deduction, it would benefit you to hire a tax professional to help you figure it out.

Here is a partial list of the other categories you should use to collect your expenses together:
• Advertising
• Insurance
• Interest
• Professional Fees
• Office Expenses
• Rent
• Repairs
• Supplies
• Taxes
• Licenses
• Travel
• Meals
• Entertainment
• Utilities
• Telephone
• Bank Charges
• Dues
• Subscriptions
• Computers
• Cleaning