Tax Help

[eek]

Wondering if any seasoned freelancers can pass on resources for the U.S. tax season. Free resources would be super. In particular, does anyone here take tax exemptions for their home office, and what are the rules for doing that?
Thanks all,
E. E. Kane

[Celeste Stewart]

Hi,
It's that time of year, huh?

I don't have any freebies to point you to though you might check SCORE.org and even the AARP website (apparently seniors with AARP volunteer their tax expertise each year). The IRS.gov site, being the authority and all, is also a good place to look.

I use H & R Block's TaxCut software each year and it makes it really easy and provides extensive help and videos. THe software automatically calculates all the self-employment taxes too and transfers all of your data from federal to state, plus it recognizes your earlier tax returns and automatically loads your previous information each year. I also pay quarterly estimated taxes to both the state and the IRS, and the software has forms for that. It costs about 50 bucks or so for the premium version which includes federal, state and a free e-file voucher, plus this year they offer a free one-on-one question with an expert session. No, I don't work for H & R Block :) I just have had good luck with their software and plan on continuing with it.

As far as the home office deduction, I don't take it. It seems like too much long-term hassle for what little I'd be able to deduct and they have a bunch of rules that make it a bit of a pain. My old tax guy said it would raise red flags, but I believe that advice is dated and is no longer relevent. Just my opinion.

[BarryDavidson]

If you're going to claim a home office, and it's losses, you also have to show some income. Remember, you can only claim a loss for like two of three years or some such.

I use TurboTax, and it has a section for adding home office expenses.

1. Try not to claim anything which you don't have receipts for.

2. Don't claim everything you bought (as far as computer equipment, desk, paper, etc.). Some will have been used for personal matters.

The first year my wife and I claimed a home office we made about six thousand, and paid about fifteen-hundred for the new computers and various other supplies. The next year, we made about four hundred, but had to replace a couple of monitors and one of the computers. What helps me is that I have eight internet-ready, working computers in the house. A few are used for work/writing purposes only.

Honestly though, don't go overboard with the expenses/deductions. Again, you have to show some income even if you took a loss for the year. If you don't itemize your tax return, I'd definitely check with a tax professional. (See about getting 1099's from your income sources too. They do help sometimes.)

[Elizabeth Ann West]

I would look for my local business center (like the state of SC has one, and they offer free tax classes). Also, irs.gov is the final authority. As far as 1099 MISC forms go, you are required to have them if you earned over a certain threshold from a single U.S. customer. I believe the amount is $600 but you should double check that. We are in the clear as far as C-C goes, because they aren't based in the U.S.

The home office deduction requires the space is used for work and only work. In other words, if your nephew gets on and plays games etc. it's not purely business use. There are really complex formulas for those who run like daycare in their homes etc to determine the percentage a space is used etc. Also, check with your local state laws. I will not deduct anything I bought furniture wise because the state of SC appropriates a 10% tax on all business office equipment and furnishings (for older items, it includes a depreciated value). So the printer we bought for "the business" but also home that was $200, if I claimed it as a deduction on my federal income tax return, I would have to turn around and pay the state of SC $20 and so on each year.

[Elizabeth Ann West]

For me it's too much of a hassle. I have a laptop that is as much business as it is for pleasure, but I do have other deductions. My membership fees for a few other websites, office supplies (pens notebooks), the mileage to and from the library when I do research, mileage to and from local coffee and deli places when I would work outside the home with my business cards and chat up people about my business and what I do (as long as you talk to one person about your business, and the location is considered normal activity done by others in your field, you can write it off as a business expense, so I wouldn't recommend writing off a trip to Boca because you talked to one person that your are a writer (unless you are working on a series of pieces about the vacation spot... ) but a normal trip up to B&N where you talk to someone else about starting to write and give them your affiliate link and get their contact info, that's a legitimate business contact.

Overall, talk to a tax professional. And remember you need to make a profit 3 of 5 years to be considered a business and not a hobby.

[eek]

Thank you Celeste, Barry and Elizabeth Ann, for your helpful input. I suppose we can't complain about the lack of tax breaks, since the freelance writing business doesn't require much in the way of startup expenses. Still, the government could be a little more helpful. Oh well.

E & E