Consulting and Tax Write Offs 3

[jennuhw]

I just started programming on the side. What is common practice for filing taxes for a person that has a full time job and consults on the side?

Do you have to file seperate returns for your consulting?
Can anything listed below be counted as a deductible?
Computer
Software
Books
ISP
Mileage

Any input would be greatly appreciated! Thanks!

 

[mrdenny]

You'll want to check with your accountant to be sure.

If you are doing your consulting under a business name, then you'll want to file personal returns and the consulting under business returns. If you are consulting as person being hired by a company under an IRS 1099 form then you'll be submitting that income as personal income.

If it's all personal income then computers, software, books, isp, and mileage can all be deducted if used over 50% of the time for consulting. (If you choose to fudge this that's between you and the IRS, the accountant will put down what ever number you tell him.)

If your filling as a company and the company purchases these items, then they probably aren't deductible (your account will have to answer this one, I'm a DBA not a CPA).

I hope that helps.

I deduct my PC, software, books, ISP and cell phone as a business expense. So it can be done.

Denny
MCSA (2003) / MCDBA (SQL 2000)

--Anything is possible. All it takes is a little research. (Me)

http://www.mrdenny.com

(My very old site)

 

[johnwm]

We probably need to know which country you're in, and whose tax jurisdiction you are under. Any advice without that info could be perilous!

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[jennuhw]

USA, Iowa actually. Thanks!

 

[jennuhw]

Thanks for the info. I will talk to an accountant about some of these questions. I will be claiming it as personal income for now. It's good to know that some things can be counted as an expense. Thanks!

 

[lgarner]

You'll want to use a schedule C for the business portion. An extremely broad rule of thumb is that you can deduct what you spend in the course of making money. So, equipment, home office, mileage, books & education, etc. to the extent that they apply to your business.

A CPA would be the one to ask for specifics.

 

[technome]

You do not want to use schedule C, the unincorporated business tax is a killer. Chapters S or LTD

Some good tips and write off with a Chapter S....

SEP retirement plans allows you to save 25% max of you payroll income, tax deferred until you withdraw at retirement age, take full advantage of this. This has the other advantage of lowering your tax bracket. Another tax saving can be distributing "profits" at the end of the year; certain taxes are not levied on profits.

In NY, you can not collect workers comp or unemployment, so if you are a corp share holder you do not have to have workers comp insurance. This saves paper work and a small percent of payroll. Best to notify the state in writing (government form). Unemployment insurance is collected even though you can not apply for it.. no way out of it.

Have two phone lines, one line have a unlimited local (cheapest plan) for "personal use", the other line is the business line, unlimited. Make most of your calls on the business line. Write off your high speed INTERNET connection. You need the second line to write the business line off. A cell phone is considered a line

Setup an office, if you have a house or rent, maintain an office. The government allow you write off rent/mortgage, electric, heat, cleaning, repairs etc for the square footage you use. You are supposed to only use the area for business.

Write off ANYTHING you use for business. Car, Craftsman tool set, coffee makers, microwave, VOMS, test equipment, servers, laptops, desktops, fire extinguishers, furniture, anything which touches your business; one can be creative in this area, legally.

I use Quick book payroll service, there are cheaper services. The monthly fee are a bit much but they guarantee all forms get to the government. This is a necessity, if you screw up a quarterly or yearly report, or have a late tax payment expect the penalties to be in the hundreds, also expect an audit. Quickbooks pays for an fines and interest, due to any mistakes or forms not received by the local and Feds; payroll services are like insurance. Having an outside firm do the payroll also increases the protection of the corporate vail. Maintain the minutes, and corporate meetings.

Audits.. I had a client mark a W2 for non-employee services, as an "award" instead of non employee compensation. A simple check mark mistake, which did not affect the taxes. It took me 5 trips to Manhattan to straighten this out, basically a good part of 5 days. It took three trips to find out what was wrong, as the IRS could not find out any info on problem, absolute nonsense. Another reason for an accountant. Avoid accounts which are too creative.

Maintain your tax folders for many years. Forget the required 3 years. If the government thinks your cheating them, and you do not have the tax tax returns for many years, you are guilty; they proceed to make up arbitrary amounts, compound the interest and penalties. Interest runs around 18%. The agencies will wait for 3 years to send the bill. Does this sound like loan sharking ?

Leave very little in the corp or LTD at the end of the year. I have never been sued, but in this day of ligation mania, leave nothing for the lawyers. This could also stop an impending law suit, as lawyers will not pursue and empty entity. If you become rich doing this, secondary incorporations are useful to shield assets; an example of this would be if you purchased a house or office building, you would do so by forming another corp, and placing the purchase in the secondary corp.

Get a cheap corporate tax software package. Necessary to know your approximate taxes before the tax year ends. Get an accounting package, I use Quickbooks. I am not an account and can not stand using all the feature, I only enter the invoices and payments, I would go crazy if I entered everything I purchase daily, I do not have the time or energy. Twice a year I sort all the receipts, and tally them up for the accountant. I use an Excel spread sheet for the tallies. Before the year ends, I know within a small amount, my tax liability.


In the third quarter of the year, you can chose to not bill until the next year. This can have a definite advantage if you want to push income from a high income year into a year which income may be less.




“I know being an Admin, that there are certain things I WILL NOT do because I did not appreciate it when it happened to me. "

Listen to your gut feelings, they are almost always correct....
When I first jumped ship to go out on my own, a recession hit about 5 minutes after leaving my very secure job. Well, I would try to accommodate any client requests ( spend the least), poor move. If you run into situations which will jeopardize your reputation or cause lost time in the future, refuse the work. Do not let clients build networks due to their money concerns, and lack of knowledge... they generally dig graves large enough, for themselves and you. Resist the temptation

Do not let the bill grow exponentially before collecting. Though I have been beat of only a few hundred dollars in 20 years, I came extremely close to losing $ 40,000. a couple of times. Allowing a bill to grow empowers possible dead beats and clients. On Staten Island, a few techs get together, and we formed a list of people who's purpose in life is to not pay for services. Dead beats are very rare, but they exist.

Maintain your power. In my years in business I needed to walk away from a couple of clients; large outstanding billing is not conducive to a necessary “walk away”. Never let the bill grow to the point where you can not walk away ,or cause you to have sleep problems. For the most part my clients are great, rarely do I worry about being paid.

Get ready for respect, and moments of being placed at God level reverence. Nothing like resurrecting data or getting the accounting department back on line, for being raised to superman status.

Incorporate, or LTD it. In the US, incorporation has some really nice tax breaks and protection. If you own anything of value or have savings, you need an entity for protection.

Get a good accountant. I did my corporation taxes for years, but if the Irish government is anything like ours, any form mistakes become a field day for penalties and interest. Photocopy everything you send to the government, pay your taxes with money orders. With New York State, if you do not send all correspondences by certified mail, and paid by money order, the forms and payments disappear. Three years later they send a bill with big fines and compounded interest. Accountant are also great at fielding government audits, often they can cut an audit down to 15 minutes versus 5 days. Never cheat on taxes.. if your tax people are like ours, they bring mobile crosses with them to crucify you on the spot...they use rusty nails.

Take full advantage of any write off you get, another good reason for getting the right accountant. Choose the accountant carefully. Some are useless.

When really busy, it is better to work late then have work build up ahead of you. Emergencies have a habit of occurring in multiples; keep your plate clear for those times.
Expect to work a couple of 36 hour days a year in emergency situations, your reputation rides on your client's uptime.

Try your utmost to build the best quality networks, with the most reliable hardware… your sleep and love life my depend upon it.

Train yourself no to react to "clients in panic". The pressure is somewhat different than when you work as an employee, as new clients do not know you well.

Tis better to charge a bit less then full fledged shops, as you have little overhead… better for repeat clients. Find out the going rates

Once your established you will find a financial security you do not have as an employee. After awhile you will not worry about money coming in..one of the reasons client invoicing is not taken care of..

Remember to write off your camera equipment.
In the U.S, we can hire the wife and kids.


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Chernobyl disaster..a must see pictorial

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[swertel]

Setup an office, if you have a house or rent, maintain an office. The government allow you write off rent/mortgage, electric, heat, cleaning, repairs etc for the square footage you use. You are supposed to only use the area for business.

But, when you do this that area is not considered in your residential taxes so when you sell your house, that area all of a sudden comes back (a much bigger house) and you get taxed on capital gains for that area. Either way, the tax man is going to get you.

 

[technome]

Very good point, I rent so I never thought of this.



........................................
Chernobyl disaster..a must see pictorial

http://www.kiddofspeed.com/default.htm

 

[aarenot]

These are some of the very same reasons why you have to be leary of employers, especialy small businessmen who take every advantage of the tax system.
I worked for one guy who took advantage of using multiple corporations to hide his profits, so he could not give anyone raises because he was not making any money. The tech company rented the building from another shell corporation that he owned, he paid himself one of the highest rents in the county, meanwhile the tech business did all the repairs, maint, and improvements for the rented space as well as the rest of the building.
Another corporation owned the vehicles, which the tech business rented, including maint and upkeep, while the tech business paid for all the maint and upkeep for the vehicles.
His wife and two of his minor kids drew pay from the company, and did nothing except organize the company Christmas party and the company picnic. The wife also drove a rented company vehicle, and drove the 12 passenger van to haul around their 8 kids.
He was a real winner this guy, and I do not blame him for giving the business to uncle Sam, but it is not fair to then act liek your employees are not making you any money. I left this company for obvious reasons, but have always been tempted to tell my former co-workers what he is doing. If he had not given and still gives me a shining business and personal letter of recomendation, I probably would turn him in.
He also paid tech employees to do work for his other corps but billed them to the tech commpany.
So remember, screw uncle Sam, but do not screw your employess, or they can screw you in the end.

Be very careful, with what you write off.




You do not always get what you pay for, but you never get what you do not pay for.

 

[Mike2287]

Tecknome: Good info. I have a S-corp here on long Island for side work and didn't know that if I got laid off from my regular job i couldn't collect Unemployment. Guess I may have to shift the shares to my wifes name if things get bad here.

Side note about the Biz in the home remember it's a red flag at the irs. Document it. Take pictures. Don't get greedy and think you can right off half your house.

 

[technome]

Guess I may have to shift the shares to my wifes name if things get bad here."
Sounds doable.

As pointed out in post above, some employers get greedy and stupid. Personally, every last thing I deduct is on the up and up. Uncle Sam or NYS does not penalize you for falsification or down right fraud, they crucify you. The penalties and interest are roughly the principle owed plus the penalty and 18% interest on both..generally they wait 3 years to deliver the bill. Trust me, I been through an audit, they question the square footage of a home office. Auditors are out there to make money.

Not sure if I mentioned this...
Everything mailed to the government need to be sent certified or registered. All money payments, I use money orders. Amazing how corresponence to the government gets lost, especially if it is a payment sent regular mail. Send it regular mail, and expect a tax bill 3 years later with interest and penalties... one such incident nearly cost me $9,500.00



........................................
Chernobyl disaster..a must see pictorial

http://www.kiddofspeed.com/default.htm

 

[chiph]

Side note about the Biz in the home remember it's a red flag at the irs. Document it. Take pictures. Don't get greedy and think you can right off half your house.

A friend of a friend went so far as to buy some used cubicle furniture and set it up in his home office. Fabric-covered panels, overhead storage bin, the works. He also has pics in case the IRS is curious.

Chip H.


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If you want to get the best response to a question, please read FAQ222-2244 first