How do you do your taxes?

14 replies
This year will be the first time I do taxes here in the US and I would love some help with a few questions I have.

Since I am am a sole proprietor as well as being employed how do I go about doing my taxes?

I have made money online but I also have spent a ton of money this year on education (WSO's) Software like Xsitepro, camtasia, snagit, adwords and the list goes on.

My plan is to buy Turbo tax business edition and claim all of these expenses. I also heard that I can claim some of my rent because I work from home and also money I paid to freelancers for articles ebook etc that they wrote for me.

Am I on the right track here or shall I just go see a CPA?

Cheers
#taxes
  • Profile picture of the author mormel
    Hi Jan,

    In such cases a good CPA pays for himself, because he can always do it better than you yourself can. And... the costs for a CPA are tax deductable themselves, for a businessman.

    Yours, warriorly, Ed
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    • Profile picture of the author taberdude2
      Hi Jan,

      I've used Turbo Tax Freedom (Google that phrase) for about 10 years.Depending on income level, deductions etc.It can be free.

      I have been a sole proprietor for at least 10 years and have had no problems with the software.

      It walks you through each step of the way.

      As a sole proprietor -you are the business.So it is like filing as a regular tax payer.In the software they will ask if you've had a business for 2008 and that's where you can input business info-deductions, home office, car miliage, etc.

      Hope this helps.

      Deanna
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    • Profile picture of the author Rachel Zaouche
      Hi Jan


      I would also strongly suggest you seek the advice of a tax specialist but then I am biased being a CFP myself..

      To sort out your taxes, you need a spreadsheet so that you can keep proper records. Tax offices the world over share a love of records!!!

      A spreadsheet is fairly easy to put together in excel - what is important is knowing which expenses you can claim or not as the case maybe.

      Whether you are self-employed or are an employee, you may be able to deduct certain expenses if part of your home is used regularly and exclusively as the principal place of business for your trade or business.


      It gets complicated though as the rules suggest that you cannot claim a deduction unless you use a specific room solely for your business. So for example, if you use a home office for your IM business and only your IM business then you can probably make a deduction. But if you use your kitchen table you might not be able to claim any deductions as you obviously use the kitchen for other purposes as well.


      Deductible expenses for business use of your home include the business portion of real estate taxes, deductible mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance and repairs. The amount you can deduct depends on the size of your home office relative to the rest of your house - can you see why the suggestion of a CPA is a good one?

      You should be able to write off most expenses such as ebooks (that you have bought or paid to be written), software purchases, paypal fees, anti virus software, adwords costs etc etc You should also be able to write off professional fees such as your CPA's fees.

      If you have attended any seminars, the cost of these seminars and the travel expenses may also be deductible.

      If you have a spreadsheet with your profits and expenses (make a list of all possible expenses) then it will cost you less money than handing your CPA a bunch of garbled records. He or She will then go through the list with you and ask you some questions to see what deductions you are entitled to claim. It helps if you could find a CPA with a knowledge of IM but it is not 100% necessary.

      Your CPA should also discuss 401k/IRA (employed/self employed) pension contributions as a way of reducing your overall tax bill.

      There are many ways of reducing your tax bill. The IRS site Tax Topics is a good place to start.

      Best of luck with them

      Rach

      ps I am not based in the US obviously but have applied our UK rules but they should be very similar in the US. Hence why I agreed with the other warrior about contacting a CPA - local knowledge and expertise is vital when it comes to taxes.
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      • Profile picture of the author jan roos
        Thanks for the help guys. Made things a bit clearer for me.

        Cheers
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        • Profile picture of the author JohnMcCabe
          Jan, I've been using TT for several years. I'll probably use it for several more.

          I've talked to tax advisers in the past, and what I found is that most of them are pretty timid when it comes to deductions. I tend to be pretty aggressive as far as deducting anything I can.

          Former IRS attorney Sandy Botkin has a great book on this called "Lower Your Taxes - Big Time".

          There's also a pretty good volume in the "Rich Dad" series.

          As a sole proprietor, you'll be filing a Schedule C for business income and deductions. You'll save yourself time by setting up your bookkeeping around the lines of that form.

          Remember, if you paid any of your contractors more than $600 and they are in the US, you need to file 1099s for them, and give them a copy...
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  • Profile picture of the author Michael Oksa
    I have to give a vote for getting a professional that understands online business to do them for you.

    They will understand what's deductible and what isn't. You may think you know, you may have people telling you what you can deduct - but that isn't the same.

    Even Rachel, our friendly CFP, used the phrase "may be deductible". That's because there are certain rules that determine what qualifies as a deduction.

    Home office space? Maybe, but ONLY if that area is used EXCLUSIVELY for business.

    That's just one example.

    Getting an accountant can save a lot of hassle, and I believe they do pay for themselves.

    EDIT:
    Remember, if you paid any of your contractors more than $600 and they are in the US, you need to file 1099s for them, and give them a copy
    And, it should be done by January 31st.

    All the best,
    Michael
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    • Profile picture of the author webpromotions
      The quote about having to file a 1099 for ANY contractors who you paid more than $600 to in a year isn't quite accurate from what I've been told. (and this is from my tax attorney who is also a CPA)
      I was required to file a 1099 for any individual or sole proprietor whom I paid more than 600 to last year for 'rents or services' - but it does not apply to other corporations or LLC's.
      For example, I pay my webhost 175 a month for hosting services..because they are an LLC, I did not have to file this. If this would have been just some reseller acting as a DBA, I would have had to file a 1099.
      I found this a bit strange, because even many affiliate companies I am registered with under my corporate name still want to file a 1099, so I even asked about this twice. Was even told the same applies for my affiliates. If they are a 'real' business, I'm not required to file the 1099.

      Of course, 1099 filings do vary by state to state and it'd be crazy for anyone not to consult a professionial in their state on something like this.

      The guy I got this info from has been a tax attorney AND cpa in Florida for about 30 years now, so I tend to listen to what he says.
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      • Profile picture of the author JohnMcCabe
        Thanks for the clarification. I moved to Florida at the end of 2005, and this is the first time I've heard it mentioned...

        It makes sense, though. As I understand it, the 1099 system was developed to fight the 'under the table' cash economy where often substantial incomes went unreported - and thus untaxed. Legal entities like LLCs and corporations already have pretty strict reporting rules, so wouldn't necessarily need outside verification of income.

        Originally Posted by Doug English View Post

        The quote about having to file a 1099 for ANY contractors who you paid more than $600 to in a year isn't quite accurate from what I've been told. (and this is from my tax attorney who is also a CPA)
        I was required to file a 1099 for any individual or sole proprietor whom I paid more than 600 to last year for 'rents or services' - but it does not apply to other corporations or LLC's.
        For example, I pay my webhost 175 a month for hosting services..because they are an LLC, I did not have to file this. If this would have been just some reseller acting as a DBA, I would have had to file a 1099.
        I found this a bit strange, because even many affiliate companies I am registered with under my corporate name still want to file a 1099, so I even asked about this twice. Was even told the same applies for my affiliates. If they are a 'real' business, I'm not required to file the 1099.

        Of course, 1099 filings do vary by state to state and it'd be crazy for anyone not to consult a professionial in their state on something like this.

        The guy I got this info from has been a tax attorney AND cpa in Florida for about 30 years now, so I tend to listen to what he says.
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        • Profile picture of the author jan roos
          Ok so because I am a sole proprietor I have to file taxes every quarter? If thats the case I didn't know that and didn't do that this year. Looks like I might have to go see a CPA then.

          I didn't make a lot of money this year so thats why I was leaning towards turbo tax.

          Cheers
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  • Profile picture of the author nancyp
    I have used both. While our business was small and we wanted to save money we used turbo tax. I think it did an OK job. As we have grown, the advice of a CPA has definitely saved us money... and I do not have to worry about getting it done myself.
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  • Profile picture of the author artwebster
    Do American tax officials enjoy paying tax?

    One of the things I loved about the tax officials I have dealt with is that they hated paying tax as much as the next man.

    Not only do tax officials hate it, they know ALL the ways to avoid it (legal) even though they spend a lot of their time to stop people evading it (illegal).

    Another thing I love about tax officials is that they really do like to help and get so few opportunities that, when faced with one, grab it with both hands. It must be really frustrating for them to sit in their offices and hear all the moaning about taxation from their visitors/clients/customers while knowing that they could, probably save the moaners a lot of money if they would only ask! (they aren't allowed to simply volunteer information)
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  • Profile picture of the author ohgworld
    Jan,
    if you made decent money online, my suggestions to you is to go to a CPA and let him prepare your taxes for you ... especially if you get an IRS audit (I am just experience one myself), you will be thankful if you took the servies of an CPA and not 'TurboTax'!!!

    You are self-employed, and you have to file your taxes every Quarter, and not once at the end of the year - trust me, the IRS will audit you if you don't do that!

    Again, my advice to you is, that you seek professional CPZ assistance, and not do it by yourself!

    Giselle
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  • Profile picture of the author bat55w
    I echo the general sentiment here, SEEK PROFESSIONAL ADVICE. The tax laws in this country are very complex for new people to understand, especially when you are both employed and making money online. Besides, is it the best use of your time to learn the tax laws or focus on making more money online. Get help from a pro, its worth it.
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  • Profile picture of the author lburrell
    Hey Guys,

    As a future CPA who knows alot about online tax issues, I'm thinking about having a WSO that explains the ins and outs of online tax issues and how to save as much as possible.

    Informal poll, would anyone be interested in this type of thing??
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