Translate this page

Self-employed? Donít forget these tax-filing tips


Friday, March 7th, 2014
Issue 10, Volume 18.
Jason Alderman
Special to the Valley News


Calculating income taxes is a royal pain, even when your situation is uncomplicated enough that you can file a 1040EZ Form. And if youíre self-employed, be prepared for extra layers of complexity. Not only must you file an annual return with numerous additional forms and schedules, youíre also responsible for paying quarterly estimated taxes, which can mean having to write a pretty hefty check while waiting for your clients to pay their overdue bills.

Add in that youíre also responsible for funding your own health insurance and retirement and you may start to miss having an employer manage a portion of your financial affairs. (Although many people go into business for themselves precisely to call their own shots.)

Here are a few things to remember when calculating your 2013 taxes.

First, some potentially good news for taxpayers who claim a home office deduction: You now may choose between the traditional method of calculating the business use of your home (which involves numerous calculations, filling out the onerous IRS Form 8829 and maintaining back-up records for years) and a new simplified option.

Under the new, so-called "safe harbor" method, you can simply claim a standard deduction of $5 per square foot for the portion of your home used regularly and exclusively for business, up to a maximum of 300 square feet – a $1,500 limit.

Contrast that with the traditional method where you must calculate actual expenses of your home office expressed as a percentage of the square footage your home office consumes. For example, if your office takes up 12 percent of your house, you can deduct 12 percent of your electricity bill.

A few additional details:

* You can choose either method from year to year; however, once youíve elected a Advertisement
Advertisement for Mason Real Estate
[ Mason Real Estate ]
method for a given tax year itís irrevocable.

* Under the safe-harbor method you cannot depreciate the portion of your home used for business in that particular year.

* With the new method you can still claim allowable mortgage interest, real estate taxes and insurance losses as itemized deductions on Schedule A. These deductions donít have to be allocated between personal and business use, as under the traditional method.

Youíll need to weigh whether the recordkeeping hours you save justify the potentially smaller deduction – especially if you have a large home office or considerable deductions. Suggestion: Look at last yearís deduction and compare what it would have been using the $5 per square foot calculation, factoring in time spent doing the math.

A few other self-employment tax-filing considerations:

* In addition to the home office deduction, you generally can deduct many other business-related expenses, including: legal and accounting fees; professional dues and subscriptions; business insurance and licenses; professional training and education; professional equipment and software; maintenance/repairs; and business-related mileage, travel and entertainment.

* You can also deduct the full cost of medical, dental, vision and long-term care insurance premiums for you, your spouse and dependents, even if you donít itemize deductions.

* For more details on business expenses and deductions, see IRS Publication 535 (www.irs.gov). Also visit the IRSí Self-Employed Individuals Tax Center.

Bottom line: Income taxes are often more complicated for self-employed people and good recordkeeping is essential. Unless youíre an accounting whiz, consider hiring a tax professional or financial planner who specializes in self-employment issues. The penalties and fees they can help you avoid – and hidden deductions they can uncover – will probably more than pay for their fees.

Jason Alderman directs Visaís financial education programs.


 

0 comments


arrow Be the first to share your opinion on this article!
 

Add your Comment


Name

Images, Formatting, or HTML is not allowed : plain text only. You may post up to 5 website addresses within your comment.




Disclaimer

The Valley News has tightened its' policy regarding comments.
While we invite you to contribute your opinions and thoughts, we request that you refrain from using vulgar or obscene words and post only comments that directly pertain to the specific topic of the story or article.
Comments that are derogatory in nature have a high likelihood for editing or non-approval if they carry the possibility of being libelous.
The comment system is not intended as a forum for individuals or groups to air personal grievances against other individuals or groups.
Please, no advertising or trolling.
In posting a comment for consideration, users understand that their posts may be edited as necessary to meet system parameters, or the post may not be approved at all. By submitting a comment, you agree to all the rules and guidelines described here.
Most comments are approved or disregarded within one business day.

RSS FeedFacebookTwitter



Advertisement for Dan's Got Crabs





Subscribe


Most Commented


Reach Local Customers



The Valley News The Valley News
760-723-7319 - 1588 S. Mission Rd. Suite 200, Fallbrook CA 92028
All contents copyright ©2014
About Us
Earthquake Information
Business Listings
Contact Us
Letter to the Editor
Report a website error
Sitemap
Online Digital Edition
RSS Feeds
Login