Answers to your small office/home office questions
By: Eva Rosenberg
Question #1
SOHO America Member: Are there any special exemptions I can claim for
household equipment I use in my small business?
Eva Rosenberg: Anything that you legitimately use 100 percent for
business, keep the receipts, and take a full deduction on your Schedule C.
If you are talking about home items, like a vacuum cleaner, you can
deduct the percentage of business use, similar to the office space in home expenses.
Let's say you use the vacuum cleaner half of the time for business (half
your house has linoleum and the business only takes up half
of the rest of the house), use one-half the cost of the vacuum cleaner and
supplies.
Question #2
SOHO America Member: What are the extra forms I need to fill out
on April 15, because I am self-employed?
Eva Rosenberg: The primary forms you will be using are:
Schedule C (a business
profit and loss report); Schedule SE (self-employment tax on your Schedule C
profit); Form 4562 (depreciation of business equipment); possibly Form 8829
(office in home); possibly Form 4797 (sale of
business equipment).
Question #3
SOHO America Member: If I am the only employee in my business, how do I
figure out how
much of my profits and income go to FICA, Social Security, etc. I'm
used to having that done for me automatically.
Eva Rosenberg: Unless your business is a corporation, you cannot be
on the payroll. There
can be no payroll for owner-employees of sole proprietorships or
partnerships. However, you will have to pay self-employment tax on your
profits -- not your draws.
Assuming that you are, in fact, a corporation, use Circular E from the IRS
to look up the federal income tax (FIT) to withhold. Deduct FICA as 7.65 percent of
your compensation. You have to be well over $60,000 before you stop taking
that deduction. Contact your state employment office for the booklet to
use for state payroll withholding tables.
Remember, you will have to send the money to the IRS and the state on a
specific schedule, which will be determined by the ammount of your withholding.
You have to send in the employer's portion of FICA (another 7.65 percent)
when you send in the FIT and the FICA withheld.
Personally, I use a payroll service like Paychex or Continental Business
Systems to take care of the headaches. If there are any errors, late
payments, etc., they'll deal with it for as little as $25 to $50 a month.
Question #4
SOHO America Member: I bought a car that I use in my business. However,
I occasionally
take my family for trips in this car. Is the car still totally deductible
as an expense?
Eva Rosenberg: No. If you are using the car primarily for business,
but not exclusively, an easy way to
determine how much is not deductible is: track the total mileage for the
year (odometer on Jan. 1 and Dec. 31). Log the personal trips and deduct them
from the total. Divide the resulting miles by your total miles and that's
your business use percentage.
Question #5
SOHO America Member: Is it worth it for me to learn how to fill out my
own tax forms, or should I leave that job up to an accountant?
Eva Rosenberg: I can only paraphrase the modest comments of the
great science and
science fiction writer, Isaac Asimov (who met his goal to
complete at least 500 fact and fiction books before he died). He said he was at
least as smart as his tax professional. But to learn everything he need to
know to prepare his own tax return, he would have to devote so much time to
this research, the world would be deprived of many of his great works. You decide.
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