| Tax Mistakes 90% of Self-Employed People Make |
Let me share a short story with you... A self-employed
friend of mine came into may office the other day to have me
do his taxes. He has been doing his taxes using a software
program for years. In the past, he did his own return for 2
reasons: one it is cheaper and 2) he likes to spend a
weekend going through his information.
Every year he usually asks me a few questions about his
taxes and I usually can tell he is fairly confused but since
he is a friend I am not going to preach to him about having
a professional do his returns.
So back to the story, when he came into my office, he no
longer wanted to waste his weekend going through his
information and was feeling a little less confident as the
IRS has sent him a letter about something he did wrong on
his tax returns.
Well, I did a review of his previous years returns and after
spending 15 minutes with him discovered several deductions
he had missed. Consequently, he was overpaying his taxes for
years. To add salt to the wounds, the missed deductions by
far outweighted the cost of my preparation.
I wish I could say this is a unique story but it is not. In
fact, most new clients that come into my office typically
have missed deductions. The reasons vary and in some cases
it is not just the software prepared returns -- sometimes
people have paid tax professionals to help them miss
deductions.
The point of this article is to highlight common deductions
that self-employed people miss. This article obviously can
not include everything but hopefully it will cover the
deductions that are easy to miss. This article is not a
substitute for professional guidance.
I have compiled the following list of deductions
self-employed people typically miss. Now keep in mind, there
are various rules involved with taking these deductions so
make sure you understand the rules before you start
deducting.
Advertising and Promotion - this includes media, internet
and any other advertising that promotes your business. This
wold also include novelty items such as coffee cups,
t-shirts and pens with your company name on them.
Dues and Subscriptions - This would includes magazines and
periodicals that are necessary for your business.
Licenses and Permits - If your city requires a business
license this would be deductible here.
Internet Fees - If you use the internet for your business or
have a web page, there is a good chance some or all of the
internet costs are deductible.
Cellular and Telephone Expense - The calls for business
purposes are all deductible.
Office Supplies - Office supplies used for your business are
dedutible.
Meals and Entertainment - Do you take clients out to lunch
or dinner and discuss business with them? If so, 50% of this
cost is dedutible.
Travel - Business related travel is deductible.
Auto Expenses - There are couple of ways you can deduct your
auto expenses. The details are beyond the scope of this
article but business related auto expenses are deductible.
Computer Equipment - Equipment such as computers, cellular
phones and palm pilots all can be partially or fully
deductible.
Outside Services - Costs related to your business such as
tax and accounting help or any other guidnace is typcially
deductible.
Let me add one more item, if you are newly self-employed
person, you may not be aware that you will be responsible
for a new tax. It is called self-employment tax. It can add
to your tax bill quickly, so make sure you understand how
the tax is computed and plan your cash flow accordingly. In
closing, next time you think about your taxes, make sure you
feel comfortable doing them or hire a qualified professional
to help you since there is no reason to overpay your taxes.
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Tyler Martin is a Certified Public Accountant with a
practice in San Jose, California. He provides tax and
QuickBooks guidance to individuals and business owners. For
more information about Tyler and his practice go to:
http://www.4cpa.biz.
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