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Keep up with your records--especially if you are
self-employed or have rental income. |
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A cash receipt lost can be a deduction lost. |
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| 2- |
Report all of your income--the first thing an auditor will want to see is your bank statements. |
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They can also find out how much you spend on bills, entertainment, etc.,
and do a "cost-of-living" audit. |
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| 3- |
Keep Mileage Logs--the
government will allow you approximately 55 cents per mile for 2009 and 50 cents
per mile for 2010. |
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Along with business mileage, mileage to go to the post office, bank, and other business locations are
deductible, round-trip from your home or business location. However, an auditor will want to see your log; this can be as simple
as a notebook, calendar (that had large blocks you can write in), etc. You are asked
on your tax return if you have written proof of your mileage. Therefore, make
sure you do. |
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| 4- |
Office in the Home
Deductions - as more and more people are becoming self-employed after being laid
off and/or cannot afford strip mall rent, this deduction is becoming even more
popular. |
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You need to have an "exclusive and regular" office-no
beds, etc. Kitchen tables do not count. If you have a net profit after
deductions and have this type of office, you can deduct a percentage of your
household utilities, insurance, taxes, interest, house depreciation, and some
types of repairs. If you have a loss, this deduction is either limited or has to
be carried forward to the following year(s). However, if you sell this house,
then you may have to recapture as income some of the depreciation deductions
taken. |
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| 5- |
If you have hired or are
thinking of hiring, please consider these IRS rules concerning employees vs.
contract laborers: |
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Do you (as the employer) have the right to direct or control
how the work is done through instructions, training, or
other means?
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Do you have the right to direct or control the financial and
business aspects of the worker’s job?
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Do you have the right to control or direct not only what is
to be done, but also how it is to be done?
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If you answer these questions "YES", then your worker is probably
an employee, and needs to be given a W-2, along with the
appropriate taxes withheld and paid in to the government. |
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If you answer these questions "NO", then your worker is
probably an independent contractor, and needs to be given a
1099 MISC by Jan 31 if you have paid him/her $600.00 or more
during the year. You will need to obtain their Social
Security Number and Address to complete this form. |
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Workers misclassified as independent contractors can
cause you to end up
with substantial tax bills- you can be forced to not only pay
your part of the Social Security/Medicare bill, but theirs as well.
Penalties will also be assessed. You may have an "agreement"
with your worker, but that "agreement" can be null and void
when your worker discovers he/she has to pay social security
tax for being "self-employed". All they have to do is get
their tax preparer to file an SS-8 form. The IRS will then determine
if they are an employee or not based on THEIR answers to the
above questions. Then, the IRS will contact YOU if you have
misclassified them. Please do not subject yourself to this-if
they are employees, then treat them as such. |
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Note: Memphis Tax Lady can prepare W-2’s and/or 1099 MISC’s if
requested. Both need to be filed by Jan 31. |