Hopefully you have been keeping track of all your bills for the year, and that will make your task easier. Gather up everything that you have and take it with you to whoever does your taxes, or if you do your own, it will help as well.
Organize your paperwork by type – expenses together, sales together, etc – and add each one up. You may also have categories such as advertising, supplies, giveaways and others.
Mileage – Figure out how many miles you drove, and what how many are business and how many are personal
Household Bills – If you can use any of your household bills, take these as well
House Costs – Depending on where you live, you may be able to deduct a portion of your house. If so, you need to figure out what portion of your home is used for business.
Remember, January 1 is a new year, so you need to start a new box of paperwork.
- Note: I am not a tax accountant, so make sure to talk to your tax preparer for advice.
You have embarked on the journey of self employment. The time flew by. You meant to keep track of all your income and deductions but you just did not know where to start. Now, it’s tax time and you are worried about the 1099’s that are starting to appear in your mailbox.
Stop worrying. It is not as hard as it looks.
With your Federal Income Tax Form 1040 you are going to need to file a Schedule C – Profit and Loss from a Business.
First, you will want to gather your bank statement, credit card statements and cash receipts that are related to the business. Using excel you can make lists of each of the categories I am about to discuss here. These totals will be places on the various sections on the tax form.
Next, gather all your 1099s and statement of accounts from clients/companies you received money from but did not receive a 1099 from. All income has to be reported.
The actual instructions on how to enter a 1099 will vary according to what tax program you are using. There will be a section, usually “Income” where you enter W-2’s. A 1099 will work in the same manner. The tax program should have a special section to enter the 1099. You will fill in all the information.
It will then take you to the Schedule C and it will go line by line. You will fill in these blanks from the totals you calculated on your excel sheet.
So what exactly can you deduct?
- Advertising expense, including business cards
- Auto expense if you use your car for your business
- Commissions and fees you pay to others for work
- Depreciation of office equipment
- Self employment medical insurance coverage
- Business insurance such as fire, theft, flood or other casualty.
- Legal and professional fees
- Office expense
- Rent or lease of office space
- Business related meals, entertainment and travel
Keeping good records will help you keep track of these deductible expenses. Making tax time much less stressful and who doesn’t like that idea?
Chrystal Mahan – Selfemployedwriter.com thetaxqueen.com
There are different opinions in regards to this question. The easiest answer is that you should use whatever system works for you. That being said, here are some ideas to get you started.
I personally like using envelopes, so you will want to invest in many envelopes which will hold 8 ½ x 11 paper. I bought a large box at Costco for around 10 dollars.
If your business is relatively small, you can likely bundle everything up by month.
Create an envelope/folder per month; put everything in it –sales receipts, purchases, bills
Label and set aside at the end of the month
If your business is bigger, and you generate more paperwork then you need to do a bit more filing
Create an envelope for each event/party you do – sales slips, purchases
Create an envelope for your expenses for the month
Put both into a folder for the month, or file somewhere by month
One tip, any receipt you get on thermal paper, photocopy or scan as they will fade over time.
Do you have a method that works better? If so, please share or send it to me for posting!