IRS — Follow-Up

Posted on February 8, 2011

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Yesterday I posted cursory information about filing your 2010 U.S. federal income taxes. Today, I will get more specific.

Personal Tax-Filing Experience

My husband owned an asphalt company for 25 years until he sold it in 2006. I always did his taxes and didn’t start using tax software until around 1996. Prior to that, I learned every tax law by annually combing through the instruction booklets and filled out every tax form by hand.

Although, tax laws continue to change dramatically, you could say I know a thing or two about filing taxes for small businesses.

Found an IRS Glitch

You might be surprised to find out that I found a glitch in the IRS’s 2009 tax filing process. In 2008, many taxpayers were eligible for a stimulus of $600 for singles and $1200 for married filing jointly. The government allowed this benefit to flow over into 2009 if a taxpayer was originally ineligible in 2008, but became eligible in 2009.

That was our situation. The IRS instructions forms stated that the IRS based income on W-2 receipts AND self-employment wages. The IRS calculation made, however, did not consider the self-employment income. I had to fill out a manual addendum in paper form for 2009 taxes to claim it. I can’t imagine the thousands, if not more, of taxpayers who missed out on that credit, because the IRS glitch! You may want to go back and see if you are eligible to take the stimulus payment in an amended return.

Free File

In regards to 2010 taxes, you may be qualified for some hefty deductions. You also may be able to use certain tax software to file for free if your adjusted gross income is under $58,000. Free File is what the IRS calls the program. It allows eligible taxpayers to file their taxes and e-file their federal return for free.

If you don’t qualify to use tax software for free, you can populate free fillable forms online and e-file for free. Know the law, whatever you do.

2010 Eligible Deductions

Keep in mind that as a small business with a dedicated home office, you have an abundance of potential write-offs. For instance, furniture, pictures, ancillary supplies, decorations, repair or improvements you do to your home office are all items you can deduct on your taxes. Don’t forget to amortize your new laptop or printer. Did you buy a new phone for your office, or do you have a dedicated telephone line that you use only for your office? Those are qualified deductions, too.

Keep in mind, you can also deduct a portion of your utilities, homeowners insurance and real estate taxes based on the portion of square footage your office takes up compared to the home’s entire living area. If your office has utility meters separate from your home’s meters, you can deduct the full cost of utilities related to your home office.

Keep It Simple

I use the KISS method when doing my taxes — Keep It Simple Silly. Because one of my writing jobs is to report on my area’s events and activities for the local Fox News station, I keep a record of all mileage driven for work-related activities. I also keep all receipts for repairs and maintenance, including engine oil.

If my mileage works out to be less than the cost to repair and maintain my car that I use for the work-related activities, I use that deduction. Don’t forget to include car insurance, property taxes and fees when calculating transportation expenses.

Although I probably should, I don’t keep a running monthly expense sheet. I simply keep all my receipt for expenses in a small file I bought at Wal-Mart. All my writing jobs, except one pays me via PayPal, so I print off the bulk of my monthly income from there and take a copy of the checks I receive from the one company.

File All Necessary Forms

When filing your taxes, include all necessary forms. Different forms address different expenses. The most critical to remember for small business owners are 1040Schedule A (if you will itemize, instead of take the standard deduction), Schedule C and Form 8829. Remember to reference Publication 587 and Form 8829 Instructions so as not to miss any deductions related to your home office. Also, Publication 946 will help with Section 179 deductions, and Publication 550 explains amortization for certain business property.

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