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Old 09-26-2007, 11:23 AM
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Help With 1099 Sole Proprietor Tax Deductions and Record Keeping

I’ve been self-employed for about a year now and I have recently started keeping more detailed expense records. Because I use my home and personal automobile for business related purposes a lot of my ‘personal’ and business expenses are crossing and I’m having a hard time figuring out how to keep my records. As I understand it, my Internet, Cell Phone, Rent, Electricity, and Mileage are all or partially deductible on some level. My problem is that currently I am using my personal checking account to make payments for all of these things. I do have a Business checking account that I recently opened as a Sole Proprietor under my SSN but haven’t started using it just yet. My question is should I use my business account to pay my Internet, Cell Phone, Rent, and Electric bills in addition to my fixed operating expenses and other standard business related payments? The only conflict I could see is that in some cases only a portion of those expenses are deductible. Will that be an issue?

On another note, is my entire internet usage expenses deductible at home since I have a home-office? Do I have to get itemized statements from my cellular providers and literally add up minutes used for business? What if I can’t get those records?

Any help is appreciated!

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Old 09-28-2007, 09:22 AM
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The need to separate Business and Personal Expenses!

First of all, the idea behind separating business expenses from personal expenses is that it provides adequate tracking as to how much monies have been spent on business expenses.

You should run all direct business expenses (that is all items of expenses that are directly related to business) through the business account. Further, in your case, perhaps at this time you should consider paying all your cell phone, internet subsription dues and items of expenses that are also partially business from your business account.

At the end of the year, you can discuss with your CPA that these were partial expenses for business, and let him determine the non-deductibility of these expenses. My point is that it is better to have captured these partial business expenses into your business disbursement checks or bank statement, because you wont forget to claim these expenses.

In short, the CPA might determine the entire amount of these is really business and so it might be 100% deductible for business.

Really, in most cases, most small businesses deduct all the internet and cell phone expenses in their entirety except for the auto, which is based strictly on percentage of business use.

I hope this helps you!

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Ask TaxGuru Please refer to the legal disclaimer.

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