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Old 12-13-2011, 04:12 PM
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What can I deduct, Please Help.

Hello and Thank you tax Gurus,

I need to know what I can deduct. I am a contractor for a cleaning company. I have to purchase my own supplies, sometimes I pay people to help me on big accounts, and I have to drive to different locations on certain days. How is travel deducted? Is it the distance from my home to each location or the distance in between locations? Are meals deductable? I just would like to know what I can deduct. Also, at what rate will I be paying taxes since it's not being deducted from my monthly pay, I believe this is considered self employment. Thank you so much.



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Old 12-14-2011, 02:24 AM
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“I need to know what I can deduct. I am a contractor for a cleaning company. I have to purchase my own supplies, sometimes I pay people to help me on big accounts, and I have to drive to different locations on certain days.”---->You, as an independent contractor, a self-employer, can deduct your business related expenses; to be deductible, your business expense must be directly connected with your trade or business; ordinary (customary or accepted in the business), and necessary (appropriate and helpful to the business; it doesn't have to be indispensable or essential. You can ALSO deduct repairs to business property (repairs need to be designed to keep your business property in an ordinarily efficient operating condition, but do not add to its value or appreciably prolong its useful life).You, as an IC, are required to provide your own materials to complete a project. You do not have computers, software, or other materials provided by your employer. Any item purchased for the sole use of business may be deducted. Items such as (office)supplies and computers fall into this category. Internet, telephone and cell phone bills may also be deducted on lines that are used strictly for business only. Normally whenyou buy assets, i.e., equipment, the expense is not fully tax deductible in the year of purchase. Instead, you claim a deduction called depreciation over several years (the length of time is set by the IRS and depends on the type of asset). But Section 179 and bonus depreciation are two ways the expense can be deducted in the year of purchase:Section 179 deductions allow you to deduct the full cost of asset purchases (up to $500,000 in 2011). Bonus depreciation is an additional deduction allowed beyond the Section 179 deduction. Bonus depreciation can only be taken on brand-new assets. For 2011, the amount of bonus depreciation that can be taken is 100% of the cost of the asset.You can deduct compensation that you pay to your subcontractors on Sch C of 1040 line 11
“ How is travel deducted?”----->Of course, you can deduct your business related travel costs; You, as an IC, are more likely than traditional employees to useyour vehicles for employment/business purposes. Any travel expenses such as repairs, fuel and maintenance can be deducted from income taxes as long as the expenses were incurred during a work-related activity. Day-to-day errand running or fuel costs are not considered business expenses and cannot be deducted. You can claim the standard mileage allowance for your car expenses or, if greater, you can claim actual automobile expenses. In 2011, the standard mileage rate is 51 cents a mile. Actual expenses would include maintenance, insurance, gas and lease payments or depreciation and interest. In addition, you may be allowed to claim home office expenses and other business expenses. You should check IRS Publication 463, Travel, Entertainment, Gift and Car Expenses, and IRS Publication 587, Business Use of Your Home, for more tax break possibilities. ALSO,if you pay interest on your business use car, then interest on the car used for business purposes is subject to different rules: the portion attributable to personal use or employment use by an employee is not deductible. The portion of interest attributable to business use is fully deductible.
“ Is it the distance from my home to each location or the distance in between locations?”----> In order for the meeting trip to be deductible, you have to determine your principal place of business for conducting your cleaning business. If you do not have an office space when you travel for the meetings, then your principal place of business is probably your home. All travel from your home to visit clients and conduct your cleaning business activity would be deductible. For example, trips to the bank and office-supply store would also be deductible business travel expenses.
“ Are meals deductable?”----->Yes; to be deductible as business related meals, they must be either directly related to the active conduct of business, which business is the primary purpose of the entertainment (i.e. you have to talk business during the entertainment) OR associated with business ,i.e. entertainment directly precedes or follows a substantial business discussion (which business discussion is part of an active effort to obtain a specific business benefit.However, even if you meet all of these tests, generally, you can deduct only 50 percent of your business meals, NOT 100%.
“ Also, at what rate will I be paying taxes since it's not being deducted from my monthly pay, I believe this is considered self employment. “----->I guess it is hard to tell;it depends on your taxable self employer income;however, REMEMEBER:asyou can see, as long as the amount on Sch C of 1040 line 29 or 31 I $400 or exceeds $400, then youmust file Sch C of 1040 and also as long as the amount on Sch SE line 4 is $400 or exceeds $400, you MUST pay SECA, self employer’s Soc Sec Taxes, to the IRS on 1040ES; as you are filing as a sole proprietor, and/or a self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return;however, you do not have to pay estimated tax for the current year if you had no tax liability for the prior year :you were a U.S. citizen or resident for the whole year:your prior tax year covered a 12 month period. Self-employment tax is a tax consisting of Social Security and Medicare taxes primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. The 2010 Tax Relief Act reduced the self-employment tax by 2% for self-employment income earned in calendar year 2011. The self-employment tax rate for self-employment income earned in calendar year 2011 is 13.3%, NOT 15.3%, (10.4% for Social Security and 2.9% for Medicare). For self-employment income earned in 2010, the self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance). For both 2010 and 2011, the first $106,800 of your combined wages, tips, and net earnings are subject to any combination of the Social Security part of self-employment tax, Social Security tax, or railroad retirement (tier 1) tax. Income you make after $106,800 will not be subject to the Social Security tax.
All of the above rules are pointless if you cannot prove that you complied. Proper recordkeeping is vital to substantiate auto deductions; in order to claim items, you must keep records of all expense over $75. Invoices, receipts and bank statements are acceptable forms of expense records and should be kept by the individual for at least 7 years.
I guess you can visit the IRS websites: Self-Employment Tax (Social Security and Medicare Taxes)
Estimated Taxes
http://www.irs.gov/pub/irs-pdf/f1040sc.pdf
http://www.irs.gov/pub/irs-pdf/f1040sse.pdf



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Old 12-28-2011, 12:27 AM
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OMG!! Thank you so much. I dont think I'm going to be able to do my taxes on my own like I would usually do them. I forgot to mention that I also have a full time regular job. Thank you again.



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Old 01-27-2012, 06:06 PM
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Follow up question:

I work full time as well. I work for a corporation, with tax being deducted and the whole nine. Also, I pay for all sorts of benefits (medical, dental, vision, short term, etc.). Are these items tax deductable?



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Old 01-27-2012, 06:23 PM
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“Also, I pay for all sorts of benefits (medical, dental, vision, short term, etc.). Are these items tax deductable?”-----> You may deduct on your tax return qualified medical expenses you pay for yourself, your spouse, and your dependents. Generally, unreimbursed medical expenses that exceed 7.5% of Adjusted Gross Income (AGI) are tax deductible on your tax return. But, if you are self-employed and your spouse is covered by a company in which you would be eligible for coverage, you cannot deduct your own medical insurance premiums. Other occasional medical expenses, like doctor visits and prescriptions are available as itemized deductions if they exceed 7.5 percent of your adjusted gross income. As long as you have self-employment income, then you can take a deduction for health insurance expenses incurred for yourself, your spouse, and your dependents.You need to take your self-employment income, and subtract the 50% deduction for self-employment taxes, and subtract any retirement contributions you make to SEP-IRA, SIMPLE-IRA, or Keogh plan. The remainder is your allowable deduction for health insurance expenses. If you are reporting a loss from your self-employed activity, then you are not eligible to deduct your health insurance costs since this particular deduction is limited by your self-employment income. You can however still claim the health insurance expenses as an itemized medical deduction on your Schedule A.



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Old 02-02-2012, 03:07 PM
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Question about Dependents

I have two children ages 19 and 22, both are FT college students that live a home or in college dorm for the entire year. Both earned >$3,700 in 2011 via PT jobs, yet I cover +80% of their living expenses and 100% of their tuition expense. My Turbo Tax software is telling me I cannot claim either child nor write-off any of their tuition I spent in 2011. Is this correct? I understand neither child can claim themselves if claimed on their parents return.

Thanks



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Old 02-02-2012, 03:39 PM
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I have two children ages 19 and 22, both are FT college students that live a home or in college dorm for the entire year. Both earned >$3,700 in 2011 via PT jobs, yet I cover +80% of their living expenses and 100% of their tuition expense. My Turbo Tax software is telling me I cannot claim either child nor write-off any of their tuition I spent in 2011. Is this correct?”---->Incorrect; you can claim BOTH of the kids as your dependents as qualifying children; TO BE QUALIFIED CHILDREN(so to be your dependents),the children must be your children; the child must be UNDER age 19 at the end of the year and younger than you (or your spouse, if filing jointly), OR UNDER age 24 at the end of the year, a full-time student, and younger than you (or your spouse, if filing jointly), as you two kids;the children must have lived with you for more than half of the year;the children must NOT have provided more than half of their own support for the year;the children are NOT filing a joint return for the year (unless that return is filed only as a claim for refund).Even though the other kid that lived in college dorm for entire year(NOT TEMPORARY ABSENCE), he can be claimed as your dependent.AS LONG AS the other kid live in the college dorm temporarily, then he can be claimed as a dependent by you. For example, your child is considered to have lived with you during periods of time when he is temporarily absent due to special circumstances such as Illness, Education, or ETC.HOWEVER, there is no hard and fast rule as IRS usually makes people so confuse, but the IRS doesn't put a time limit on what counts as a temporary absence. Legally, you can still claim the child in the college dorm if the facts and circumstances still show that the child did not provide 1/2 his own support.
Please visit the IRS Website here: Publication 17 (2011), Your Federal Income Tax
“ I understand neither child can claim themselves if claimed on their parents return.”---->Correct; as long as you are claimed as a dependent by another person, you can NEVER claim your own personal exemption. The other kid, if he files his return as a depednet, then he can NEVER claim his own personal exemption, $3,700, on his 2011 return. I guess due to lower gross income, he doesn’t have to file his 2011 return.



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Old 02-02-2012, 03:50 PM
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Quote:
Originally Posted by Wnhough View Post
I have two children ages 19 and 22, both are FT college students that live a home or in college dorm for the entire year. Both earned >$3,700 in 2011 via PT jobs, yet I cover +80% of their living expenses and 100% of their tuition expense. My Turbo Tax software is telling me I cannot claim either child nor write-off any of their tuition I spent in 2011. Is this correct?”---->Incorrect; you can claim BOTH of the kids as your dependents as qualifying children; TO BE QUALIFIED CHILDREN(so to be your dependents),the children must be your children; the child must be UNDER age 19 at the end of the year and younger than you (or your spouse, if filing jointly), OR UNDER age 24 at the end of the year, a full-time student, and younger than you (or your spouse, if filing jointly), as you two kids;the children must have lived with you for more than half of the year;the children must NOT have provided more than half of their own support for the year;the children are NOT filing a joint return for the year (unless that return is filed only as a claim for refund).Even though the other kid that lived in college dorm for entire year(NOT TEMPORARY ABSENCE), he can be claimed as your dependent.AS LONG AS the other kid live in the college dorm temporarily, then he can be claimed as a dependent by you. For example, your child is considered to have lived with you during periods of time when he is temporarily absent due to special circumstances such as Illness, Education, or ETC.HOWEVER, there is no hard and fast rule as IRS usually makes people so confuse, but the IRS doesn't put a time limit on what counts as a temporary absence. Legally, you can still claim the child in the college dorm if the facts and circumstances still show that the child did not provide 1/2 his own support.
Please visit the IRS Website here: Publication 17 (2011), Your Federal Income Tax
“ I understand neither child can claim themselves if claimed on their parents return.”---->Correct; as long as you are claimed as a dependent by another person, you can NEVER claim your own personal exemption. The other kid, if he files his return as a depednet, then he can NEVER claim his own personal exemption, $3,700, on his 2011 return. I guess due to lower gross income, he doesn’t have to file his 2011 return.
Thanks, I must have entered something wrong in the software, willd double check. I'm filing joint return with my wife, we live in the same house, any possibilty that our MAGI might impact our dependent outcome? Also, if we claim both children can we write-off any of the $13K in tuition we spent in 2011?



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Old 02-03-2012, 09:52 AM
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tax deduction list for contractors

Here is a list of 1099 tax deductions for independent contractors:

Inventory
* eBay fees
* PayPal fees or shopping cart fees
* Shipping fees and supplies
* Postage
* Office supplies
* Advertising
* Mileage - use your car for business purposes
* Phone - cell phone or second line
* Bank charges - business checking account
* Accounting and legal fees
* Computer and software
* Internet, website and faxing services
* Contract labor - VA, coaches, web designer
* Furniture and office equipment
* Membership fees and dues
* Continuing education
* Home office expenses

Few names have been provided above. To find out the complete list or 1099 tax deductions which you are eligible for; kindly contact your tax professional or IRS.

Source:

1099online.com – Innovators of advanced and secure efiling of 1099 forms
1099online



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Old 02-03-2012, 01:29 PM
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“I'm filing joint return with my wife, we live in the same house, any possibilty that our MAGI might impact our dependent outcome?”--->Correct;personal and dependency exemptions currently are pahsed out for high income taxpayers when your AGI exceeds the ceiling amounts, the deduction for personal /dependency exemption is reduced by 2% for each $2,500 or fraction thereof, by which AGI exceeds the threshold amounts.For example, say, in 2011 your agi was $260,000, then your personal exmeption,$14,600 as single($3650*4) for 2011, is $13,721, NOT the whole $3,650;$260,000-$254,350=$5,650/$2,500=2.26=3*0.02=*$14,600=$876. So, $14,600-$879$13,721 deductible personal exemption for 2011.
“Also, if we claim both children can we write-off any of the $13K in tuition we spent in 2011?”--->You can take a tax deduction for college tuition and other mandatory school fees. This is called the Tuition and Fees Deduction, and is reported directly on Form 1040 or Form 1040A. This tuition deduction is temporary: 2011 is scheduled to be the last year that taxpayers can take this deduction.
If you paid college tuition, you might also be eligible for the Lifetime Learning tax credit or the American Opportunity credit. These tax credits have different income ranges than the Tuition & Fees Deduction. My suggestion is to see which tax break you qualify for, and if you qualify for both the deduction and the tax credits, to go with the tax break that provides the largest benefit. You can take deductions as high as $4,500, depending on your income. Married couples with incomes up to $130,000 and single parents up to $65,000 can qualify for the deduction related to college education expenses. You don't have to itemize your taxes to claim the deduction, however, it cannot be claimed in the same year you use the Hope and Lifetime Learning Credit on the same student. You can claim HOPE on one kid and AOC on the other kid.
I guess NOT the whole $13,000 in tuition spent in 2011.



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