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View Full Version : New Business....Tax Righ-Offs??


rutwad
09-30-2006, 08:26 AM
Being a new business owner, I am constantly running across situations, expenses, and questions that I never thought of. Is it right that if someone pays me $600 or more that I have to get a 1099, and the same true if I pay someone that same amount? This will lead to a question later depending on it's answer.

Also, what about security? I am a home based sole prop., so many expenses are dually personal and business. Such as the one room in the house that is my office. Doesn't this allow me to take a percentage of utilities as a right-off for my office? Would the same be true about security protection, a partieal right-off since I keep my equipment outside at home. Can I count of some of the expenses of my outdoor security system? Equipment is EXPENSIVE and I need to build a garage for it soon, but until then....

Thanks

Az Gardener
09-30-2006, 05:23 PM
You need a good tax guy and I emphasize good because like any trade there are those who just barely passed the test and have not learned a thing since. Then there are those that live to get over on the government by finding every deduction and loophole. They read the new tax code cover to cover every year, network with other tax professionals and are on top of their game.

As far as the 1099 if you subcontract someone to do work for you and pay them you have to get them to fill out a 1099 for you. If you don't it will just show up as pure profit on your bottom line so you want the expense to go against the income. You will also need their insurance info and license number as well but some of that may vary from state to state. If you are subcontracted by another company they will most likely have you fill out a 1099.

DBL
09-30-2006, 05:49 PM
in addition to a good tax guy or accountant KEEP EVERY SINGLE RECIEPT FOR ANYTHING..a pack of gum counts

rutwad
09-30-2006, 08:34 PM
gum, what about my security system that monitors and protecs my equipment that is kept outside at my house?

Josh.S
09-30-2006, 09:32 PM
gum, what about my security system that monitors and protecs my equipment that is kept outside at my house?

your best bet would be to hire a accountant or whatever.. but if your cheap like me.. then here is my advice..

the rule of thumb is, would you have this expence if you DIDN'T own the business? if the anwser is yes, then it is definatly a write off

as for your security system write the whole thing off...

IMHO if i were you, i would write everything off that i could possibly connect to the business... the government is a rip off anyhow...

RyanD
10-10-2006, 10:26 PM
Is it right that if someone pays me $600 or more that I have to get a 1099

NO



Such as the one room in the house that is my office

Sorry, it has to be used exclusively for the business. If you go in the room to use the internet to search for a gift for your wife, the use is no longer exclusively for the business. Teh IRS site says
Business Use of Your Home:
If you use part of your home for business, you may be able to deduct expenses for the business use of your home. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. Refer to Publication 587, Business Use of Your Home, and Standard Mileage Rates.

As far as the security system goes, the IRS web site says
Personal Expenses:
Generally, you cannot deduct personal, living, or family expenses. However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. You can deduct as a business expense only the business part.

Go to the site. http://www.irs.gov/businesses/index.html

rutwad
10-10-2006, 10:55 PM
NO





Sorry, it has to be used exclusively for the business. If you go in the room to use the internet to search for a gift for your wife, the use is no longer exclusively for the business. Teh IRS site says


As far as the security system goes, the IRS web site says


Go to the site. http://www.irs.gov/businesses/index.html

I'll have to check out that site. Our office is just that, an office. And the security system deduction was sorta a joke I had with my wife, telling her I was going to count our "watchdog" expenses off on taxes.

MarkintheGarden
10-12-2006, 10:46 AM
Rutwad,
I suggest you look into the Small Business Association, they give cheap seminars that answer these kind of questions. Business use of the home is deductable but you can loose your one time capital gains tax exemption from sale of your first home by claiming a business use of the home deduction.

My accountant has me set a percentage for personal use vs. business use and claims a deduction accordingly. For example my computer is a 50/50, I use it half for personal use and half for business use, so he claims half the cost as a business expense.

The SBA is a lot of help, but a good accountant is also worth his fees.

rutwad
10-28-2006, 09:39 AM
But if I were to pay John Doe $220 for a detailed equipment cleanup, then is that a write-off?

indy2tall
10-28-2006, 10:50 AM
For all you youngsters (not a slam, I wish I were young again) who haven't paid taxes that many years and now that you have your own business think you will screw over the government by taking every possible deduction no matter how flimsy it might be, I just have two words for you. TAX AUDIT.

By all means take every legitimate write off your allowed but just remember the IRS has a mighty big computer system and certain deductions (historically known to be abused) automatically throw up red flags and once you reach a certain threshold on these red flags you get audited. A tax audit is a big negative even if you don't owe additional money because it will last anywhere from a few hours (if you are extremely organized) to several days if your record keeping is shoddy. This doesn't count the lost time driving to the nearest IRS office. To top it all off this will likely happen in April or May during your busiest season. Of course there is also the fact that you are now under their microscope and if you are doing something like hiding cash payments you stand a much greater chance of being caught. :nono: Not that any LawnSite members would do that. :laugh:

Now for the disclaimer! :laugh:

I am not an IRS agent, I am just one of the many who have been unfortunate enough to have been audited.
For the record they ended up owing me more money on my refund. Would I have traded that in return for not being audited? In a HEARTBEAT.

rutwad
10-28-2006, 11:42 AM
I am definitely not trying to beat the system. I am just trying to work the system. And usually that can be done with a goog accountant. Knowing what is legitimate and what is not is the biggest difference. I would never want to claim ANYTHING that isn't legitimate. That is the start for HUGE problems.

MarkintheGarden
10-28-2006, 11:43 AM
For all you youngsters (not a slam, I wish I were young again) who haven't paid taxes that many years and now that you have your own business think you will screw over the government by taking every possible deduction no matter how flimsy it might be, I just have two words for you. TAX AUDIT.

By all means take every legitimate write off your allowed but just remember the IRS has a mighty big computer system and certain deductions (historically known to be abused) automatically throw up red flags and once you reach a certain threshold on these red flags you get audited. A tax audit is a big negative even if you don't owe additional money because it will last anywhere from a few hours (if you are extremely organized) to several days if your record keeping is shoddy. This doesn't count the lost time driving to the nearest IRS office. To top it all off this will likely happen in April or May during your busiest season. Of course there is also the fact that you are now under their microscope and if you are doing something like hiding cash payments you stand a much greater chance of being caught. :nono: Not that any LawnSite members would do that. :laugh:

Now for the disclaimer! :laugh:

I am not an IRS agent, I am just one of the many who have been unfortunate enough to have been audited.
For the record they ended up owing me more money on my refund. Would I have traded that in return for not being audited? In a HEARTBEAT.


Good point, if what you are saying is be prepared to be scrutinized!!!

I have no idea what you mean by "screw over the government by taking every possible deduction no matter how flimsy it might be" The government does not get screwed over by tax evasion, the citizens of the country are the ones who get short changed! What does Flimsy mean in this context a deduction is a deduction or it is not, there is no grey area here.

Why is being audited an unfortunate experience, a pita I am sure, but if the IRS wants to see the books, what do I care if I am on the up and up, it's there time they are wasting.

MarkintheGarden
10-28-2006, 12:00 PM
But if I were to pay John Doe $220 for a detailed equipment cleanup, then is that a write-off?


Yes, if J. Doe, is cleaning business equipment. And this is an area where many tax evaders get caught, they use business funds to get services and improvements on personal property. That is exactly what put Leona Helmsley in Jail. Get security for your personal and business property, deduct only the costs of security for your business property.

Again, consult the SBA, they give free and/or low cost reliable advice.
Consult an accountant! If you get a good one, and most are, they are worth every penny.

Get advice here, but do not base your personal and business future on advice you get in a forum on the internet.

As Indy says audits are no fun, imagine how fines, fees, penalties, Jail time, feels???

Waterscapes By Design
10-28-2006, 01:22 PM
man, you can take lessons from everyone on here and still possibly get it wrong, the only thing you can do is invest the money in an accountant, at least for the first year or 2 until you learn how that side of your business works.

People on here will tell you that you can write off GUM.....That is complete B.S.....You try to write off gum and see how quick they deny that and turn around and audit you.

An accountant really isnt that expensive, plus you can go each month and turn in all your receipts and payroll and have them organize it for you, once you see how they do that, and ask a few questions you can start doing that yourself and just going to them once or twice a year to check your work and help you out here or there.....Its worth it, I cant stress that enough to you....

WRITE OFF GUM.......sheeesh

indy2tall
10-28-2006, 03:46 PM
Good point, if what you are saying is be prepared to be scrutinized!!!

I have no idea what you mean by "screw over the government by taking every possible deduction no matter how flimsy it might be" The government does not get screwed over by tax evasion, the citizens of the country are the ones who get short changed!

I agree with you but most people think they are screwing the IRS.


What does Flimsy mean in this context a deduction is a deduction or it is not, there is no grey area here.

By flimsy I mean questionable or grey as you put it. There most certainly is a grey area and the aggressive tax preparers live there. They deduct anything that even remotely contains a sniff of a deduction. What do you think is one of the purposes of an audit? You have your list of deductions and IRS agent tells you what they won't allow. Then you or your accountant explains why it should be a deduction and the two sides argue about it. Sometimes the IRS will agree with your reasoning, most of the time it won't.

Why is being audited an unfortunate experience, a pita I am sure, but if the IRS wants to see the books, what do I care if I am on the up and up, it's there time they are wasting.

Hello? It is also YOUR TIME they are wasting. Your not being paid to come in and get an audit and you are not working so you are losing money that you would normally be making.

Tax audits are so miserable that I wouldn't even wish one on a liberal! :laugh: :laugh:

MarkintheGarden
10-28-2006, 06:35 PM
Never been audited so I will take your word that it is miserable. I sure don't want to waste my time, how much of your time did they get?
What kind of deductions did you end up getting allowed, not being allowed?

indy2tall
10-28-2006, 07:52 PM
Never been audited so I will take your word that it is miserable. I sure don't want to waste my time, how much of your time did they get?
What kind of deductions did you end up getting allowed, not being allowed?

Mine took several days of my time because I did not have everything they wanted at the first meeting and I had to spend a lot of time going to my bank and a couple of businesses to obtain receipt copies and canceled checks. I had moved and in the process lost a months worth of canceled checks in the mail.

As for your second question all of my deductions were allowed mainly because I never attempted to push the envelope and deduct something that was questionable.

My only audit was almost 20 years ago when I was in a different line of work but after that ordeal I never did my own taxes again and I make sure my accountant makes copies of every single receipt that I have.

TJLANDS
10-28-2006, 08:35 PM
. I make sure my accountant makes copies of every single receipt that I have.
Copies of receipts, I wouldn't go that far. Nowadays probably 95% of all business expenses have a paper trail. Most likely a check or electronic payment.
As far as whats deductible rutwad, every penny you spend on business related items period. Other than that get an accountant to explain the other important deductions, depreciation for example. It sounds from the questions you ask that you do need an accountant.

indy2tall
10-29-2006, 07:57 AM
Copies of receipts, I wouldn't go that far. Nowadays probably 95% of all business expenses have a paper trail. Most likely a check or electronic payment.

The receipt copies are done mostly as a safety factor (like if your house burned down and all your records burned up). She (my accountant) does the copying so I don't mind.

6'7 330
10-29-2006, 08:42 AM
If you're plans are being a serious business entity, get an accountant ASAP.Another tid-bit is if you chose to use a sole-proprietor business structure,they will be no distinction between you're personal and business assets.If the business is sued,fined etc. the parties can come after any and all of you're personal assets,incorporation protects against any of these type situations.A good accountant or lawyer can advise you on the all the aspects of incorporation as you're business grows. In any business structure at the very least a good accountant is a must.