New at this!...Work out of my home....?

Question

I work from my home in Michigan for a company in Texas. They do not take taxes out of my check. They will send me a 1099. What do I do to not have to pay taxes? What can I claim? This is the first year it has been like this, so I am not sure what to do and my husband is freaking out because he is afraid we will have to pay a TON in taxes? I am Really not sure what to do in this situation?

Answer 1

If you are an independent contractor, you can deduct all your expenses attributed to your earning that income. Since you are working from home, you can claim a home office deduction.

Answer 2

As an independent contractor, you’ll fill out a schedule C or C-EZ showing your income (from the 1099) and your related expenses. If you have a part of your home that you use EXCLUSIVELY for your work, you can take a home office deduction. If you also use that same space to surf the net for personal interests, and sit at the same desk to pay your personal bills, then you can’t. See http://www.irs.gov/newsroom/article/0,,id=163079,00.html for detail – that’s the IRS website so has the true information. The IRS has gotten pretty picky on home office deduction, since it’s frequently abused, so excessive claims could trigger an audit.

Sam’s suggestion that you can claim your clothing expenses as “uniform” expenses is not correct unless you really are required to wear uniforms that aren’t something you would wear in your normal life, which doesn’t sound like the case from your description.

Computer, software, phone bills, and Internet bill can be claimed, but would have to be allocated between business and personal use, deducting only the business use.

You’ll also owe self-employment tax on your net business income (1099 amount less deductible expenses). That’s 15.3%, in addition to the income taxes, and is for social security and medicare. You'll fill out a schedule SE to calculate this. The numbers from schedules C and SE will transfer to your 1040.

It would be a good idea to see a CPA this first year to get a good idea on what you can deduct, how to report everything, and what records you need to keep. Don’t take this to H&R Block or someplace like that – you’ll get better info from a CPA, and it won’t cost you much more, maybe cost less.

If you're making a significant amount from your home business, you should file quarterly estimated tax payments so you don't owe a lot at the end of the year.

Answer 3

There's a lot of half-baked advice above - and some that's downright wrong or at the very least, dangerous.

First off, the home office deduction. While you can deduct the costs of maintaining a home office the rules are VERY strict. First and foremost, the area you use MUST be used EXCLUSIVELY for business purposes. Any personal use of that area -- even only on rare occasions -- disqualifies the home office deduction. Claiming a deduction for a home office is probaby the quickest way to trigger an IRS audit -- one that will be conducted IN YOUR HOME, by the way.

OK, other resonable and necessary business expenses related to the production of the income can be deducted on Schedule C. That's pretty straight forward. However, once you finish that you must complete Schedule SE, Self Employment Tax and figure out your SE tax. That's 15.3% of your net profits from the business and replaces the Social Security and Medicare taxes that would normally be split between you and your employer if you were an employee.

You also need to add the net income from Schedule C to your husband's income when you file your 1040 form, assuming that you're filing a joint return.

So much for procedures, now for some bad news -- in addition to that 15.3% hit on SE taxes. If you're talking about any significant amount of money, you SHOULD have been making quarterly estimated tax payments during the year. When you file your return if you did not make these payments you will likely owe a fairly significant amount of tax. If you didn't make those estimated payments you may well be looking at penalties and interest for underpayment of your estimated taxes. To avoid those penalties in the future you need to either start making those estimated payments or have additional tax withheld form any W2 wages that you or your husband receive.

At least for this year I would recommend consulting with a CPA to get this sorted out properly. Once you're up and running properly with your estimated taxes and self employment taxes you might be able to roll back to one of the tax prep mills though I would recommend staying with a good CPA. It's deductible as a business expense whereas the tax prep mill fees are only deductible as itemized deductions for the most part.

Answer 4

because you work from home, you can claim just about everything and anything under the sun. Seriously. If you rent or pay a mortgage, you can deduct the room that you use as a business expense, you can deduct portions of your electric, your water, your heating. If you have a seperate phone and internet line you can deduct those expenses in full, if not, you can deduct a portion of those expenses. Travel expenses are deductable, office equipment not provided by the company. Ie, your computer, the software, pencils, pens, paper, ink for a printer, your computer chair, staples, tape, post it's garbage bags for your office, pretty much anything that you use you can deduct. If it's something the rest of the house uses, then you can deduct a portion of it for business reasons (like electricity and things of that nature) - every thing else needs to be exclusively purchased for the business - ie pens pencils, computers, ect. You are going to need reciepts in case the IRS questions your deductions - so make sure you have them and keep them on hand.

Your best bet - have a tax preparer do your taxes this year and explain how they do them and how to get the most out of your situation, and then if you feel comfortable doing it yourself from there on out - go for it.....

Answer 5

You have to pay your state taxes. So you are probably going to owe money. You should have contacted your state department of revenue. They would have told you what to do. If you have children that might save you because you would normally get back a descent check so they will just take the taxes out of the refund check and give you the rest. If you don't have children then you may have to pay some money out. It can be worked out if you owe taxes. When ever you work for any company make sure that you find out the tax guidelines no matter what so you don't face this situation again.

Answer 6

wow, there is a lot of things to deduct.

business related car usage.
mortgage, electricity bill, water...etc.
business related food
your clothes (considered uniform)
your books (business related)
your computer
your software
cell phone
Internet bill
any business relater furniture, desk, chair

my recommendation is have someone do your taxes for the first year, it'll cost about 2-300 . or you can get HR block software , what you need is a schedule C