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Dammit. I got a tax bill!
Would the Kind Collective share tips for what can be deducted so that I don’t have to pay taxes next year? I remember somebody wrote about having a whopping sales year but still not having to pay taxes due to good tax deductions. I put in for SOHO deductions this year for the first time, but I must be missing something. Hints and tips gratefully received!
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Let’s start with what did you declare as expenses this year? We always pay taxes since we always make a profit. Expenses just help lower the tax bill.
You’d have to be pretty aggressive with your expenses to make money but claim a loss.
I believe (someone correct me) that a business cant always lose money. After a certain number of years, the IRS would take action.
https://mazumausa.com/how-many-years-can-i-take-a-loss-on-my-business/
How many years can I take a loss on my business?
The IRS will only allow you to claim losses on your business for three out of five tax years. If you don’t show that your business was profitable longer than that, then the IRS can prohibit you from claiming your business losses on your taxes.After you claim a loss for three of the five years, the IRS will classify your business as a hobby. Hobbies are not tax deductible so, you won’t be able to claim any of your expenses on your taxes. This declassification is called the Hobby Loss Rule.
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That’s interesting! Thanks Jay. I think I know a few folks who are going to get a surprise tax audit for their “hobbies” in that case!
I’m not aiming to show a loss, I’d just like to be sure I wrote off all I was allowed. For declared expenses I prorated mortgage interest, insurance, property taxes, and utilities between personal and business use of the home. I deducted COGS and vehicle expenses during the course of the year. I did not deduct internet or telephone because apparently you have to have a second telephone line in the house to claim a phone line, and our phone bill and internet service is one DSL line, and is not separated in the account, so I can’t identify which is phone cost. I charged office expenses, like pens, printer ink or paper, etc. as purchased. I think that’s it.
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Don’t forget business use of you vehicle, trips to post office UPS, etc as well as going to auctions and so on. It adds up. Keep a simple log. Date, start mileage, end mileage, miles driven, reason. Office supplies can add up over a year’s time, too.
A CPA friend of mine, who specializes in business taxes, gave me this advice: If a deduction is a gray area, and you have a logical reason for deducting it, go ahead but keep a note for yourself on why. If you get audited they might disallow the deduction, but you most likely will not be penalized unless you were obviously trying to commit tax fraud. You will just owe tax on the amount, same as if you hadn’t deducted it.
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In addition to all the other great advice, don’t forget deductions for storage.
These can be containers, bins, shelving and actual rent for storage lockers.
At tax time, I generally look over each credit card statement and bank statement, to be sure I haven’t missed anything.
If after all this, you’ve made a profit, congratulations, you are living the american dream!
Have you ordered the new Mercedes yet?
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Jay, I use Easy Auction Tracker which deducts shipping in its final breakdown. I wonder if the new Managed Payments is going to adjust for it?
Thanks Old Dad. I do keep my paperwork, but hadn’t thought to jot down reasons. That’s good advice.
So Cal Joe, how do you deduct for storage? I don’t rent storage, everything is in my cabin/shed on our ranch.
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I deduct a percentage for electricity, gas, and water/sewer. I keep my items in a controlled environment, use water to clean things, etc. I use my internet connection to access eBay, so I do a percentage of that as well.
I have an LLC that I pay for every year. If you belong to a professional organization that involves business in any way, you can probably come up with a reason to deduct it.
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Last year I built extensive shelving and a shipping station in my garage. Since I did all the labor, I only deducted the materials. Just the same it was over $600.
I also deducted the cost of storage containers, I bought on sale at Home depot.
Shipping supplies, bubble wrap, boxes, tape and dunnage need to be accounted for.
Have you gone through your Paypal statement to make sure you are getting proper credit for everything. I noticed today, that they are including sales tax (collected from buyers) as fees. Also are you backing out the refunds issued to buyers from your 1099 total?
Every little bit adds up.
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Timo, it was bought, paid for, and installed in 2020. While I have claimed for all the purchase costs involved in my 2020 paperwork, I have no idea how to claim for it going forward. As it isn’t part of the principle living building, I’m not sure how to write it off. I shall have to ask my CPA for help on that one.
So Cal Joe, I use Easy Auction Tracker and they do seem to pick up taxes, shipping, and refunds. I try to check my PayPal statements monthly, but hadn’t thought to cross check for refunds etc. against the EAT balances. I should probably do that.
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I am in no way an expert on taxes and haven’t done my own in years.
The storage shed may be considered “capital equipment” or a similar term. If this is the case, you may need to amortize it over several years. There should be a specific schedule for it.
Back when I was a trucker, I often did my own taxes. If I had a valid business expense and didn’t know where to put it, it would often end up on my schedule C as a miscellaneous expense. I’m not saying that this was the correct method to use, but It worked.
You may be at the point where it’s time to get a paid professional involved.
The tax person I use now is great. I’m such a numbers nerd, that I categorize and calculate everything ahead of time, so she only needs to fill in the blanks. After considering the cost of the tax software I’d have to purchase, It doesn’t cost me much at all to have her do my taxes.
As masochistic as it sounds, I actually miss doing my own taxes every year, but the piece of mind I get from knowing they were done correctly is worth it to me.
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I’ve done my own business/personal taxes since, well forever. Its always seemed rather easy to some degree. I just use turbo tax software every year, it seems to ask all the relevant questions and more. It makes it easy and basically just directs you as to what info it needs you to gather or tally up and it fills in all the blanks. And if you pay a few extra bucks its will even take responsibility and go to bat for you in the event of any future audits. As far as the shed he is right you should be able to still claim it and amortize it or something like that. It has to do with depreciation and claiming parts of the amount over several years. At the very least the square footage of all your storage space should be part of your home office deduction as well. Which I believe max’s out at 300 square feet anyway. (We all should be claiming that) and yes death piles can count as well in that figure. Turbo Tax asks all those questions and makes you enter info prior to moving to next sections and allows you to bounce around when you need to to add things or take away, as you figure things out. Its always seemed pretty cut and dry and hey if I ever get audited, I’ll just say They did it not me! LOL
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