Just some clarifications. . . .
I've been doing this for years because I owned my own side business for a while. If I remember correctly, start with lines 21 through 27 on your schedule A deductions, and you'll have to file a form 2106.
This is the appropriate way to claim business expenses if you are paid on a W-2. I'm guessing most of the authors here would be considered self-employed so wouldn't use the 2106 for those expenses.
If you have an office in the house, it must be a seperate room, then you can deduct the percentage of your mortgage that's comparable to the percentage of space that room occupies in your house (i.e., the bigger room you use in your haome as the office, the more you deduct.) If the office is 300 square feet, and your house is 3000 square feet, you deduct 10% of your mortgage.
Not exactly. . . it must be a clearly marked area but does not have to be a whole separate room. And to address something someone else said, you do not have to own the home -- the deduction is potentially available for a rented home as well. In addition to your mortgage interest/property taxes or rent, you can deduct the percentage of your power and heat.
Phone bills are iffy, you really need to use the phone predominantly for work if you're going to deduct it.
In fact you can pretty much never deduct the cost of the first line into your home as it's considered a normal personal expense even if you use it a lot for business. You can, generally, deduct the cost of extra services that you pay for because you have the business -- like a second line or an answering service. And of course any separately billed long distance business calls.
If you're incorporated or an LLC then you'll file a return on the business, and there's a line on the 1040 where you claim your distributions and a form you fill out on which you tally up your expenses. You'll have to do a little spread sheet showing revenue and expenses. We just used Microsoft Word to do ours on and attached it and never had a problem.
Not exactly. An LLC may be a single-member LLC which would be treated the same as any other sole proprietor -- you file a Schedule C, which details income and expenses, along with your 1040 form. If you are incorporated, that's a different thing and reporting requirements depend on what type of corporation you have. This DEFINITELY calls for a professional consult!
I'd go to IRS.gov and look at the instructions. The instructions are pretty clear, regardless of what people say. Once you read through the stuff and do this yourself a couple times, it's easy. It's just the fear of the unknown. You're a writer, you'll figure out what the words mean. I did this for five or six years myself, then handed it over to a CPA one year and he did exactly the same thing I did.
I agree that it is a good idea for anyone to be familiar with the instructions for the forms they file. I also know, as someone who does taxes for a lot of very smart people, that it's often not something even extremely bright people want to deal with every year. I have a lot of clients who absolutely could do their own return. . . but they realize that, in the same way they wouldn't change the oil in their car on their own, they don't want to prepare their own return. They're perfectly willing to keep the records that are needed, but as to the actual preparation, they'd rather spend the two or 3 Saturdays it would take playing with their kids and not being yelled at by their spouses.
If you've got the time to study up and figure it all out, that's great. Still, in most cases I would advise people to have at least ONE consultation with an experienced tax professional, especially if you are going to be reporting a new 'category' of income in a given year. . . (e.g. you suddenly have income as an author!
) The money it will cost you is well worth it; it may even pay for itself if it helps you to NOT miss out on some benefit to which you may be entitled. The laws are complex; ask lots of questions and, by all means, UNDERSTAND the basics.
And if you
are able to do it yourself -- well, hey, you might be able to pick up some extra money during tax season doing it for other folks too!
If not, just be sure you find someone you are comfortable working with -- it's YOUR tax return; while you may be relying on advice from a professional, you are ultimately responsible.
To summarize: if you've not done this before, it's a good idea to do research and/or consult a tax professional in your area who has experience with your type of situation. The commentary above is meant to be general information and not specific advice. Further, if you're going to consult a professional, I'd strongly suggest you reach out to them NOW rather than waiting until next March when they may be too busy to be willing to take on new clients. But this summer and fall they'll have time to sit down and talk with you, let you ask questions, and you'll get a good feel for whether it's a person you'll be able to work with long term -- a Very Important consideration.
