Forum Moderators: martinibuster
What do Adsenser's use to offset income?
Obviously, there are hosting fees and any PPC costs but in my case this amount to very little, any other ideas?
1/8th of the electricity costs
phone costs if you make phone calls or have a seperate business line
1/8th of the heating costs (eg gas etc)
1/8th of the water costs
1/8th of the rent/maintenance costs
transport associated with work
depreciation of your fixed business assets (ie how much less your computer is worth than last year)
The list is pretty endless!
Oh, advertising on other websites to bring traffic to yours.
Bank charges
I could go on..... but over a year these might wipe out your profits altogether. Remember you will need some proof of all these. ;) AFAIK (well at least here anyway) you get taxed on profits not turnover.
Disclaimer: we don't do legal, financial, or accounting advice here - feel free to get some ideas, but be sure to consult a professional who can review your precise situation and who knows the applicable laws and regulations.
[edited by: rogerd at 3:38 am (utc) on Jan. 4, 2006]
Leaving money in the business for "contingencies" - eg you want a certain amount in a business account to make sure it doesn't incur overdraft penalties - NSF fees etc. Course I suppose you have to account for this amount in some tax year.
One way people do here is use years they had losses to mitigate their tax bill for future years. However that's getting complicated. Basically I suggest you go see an accountant and ask them. I suppose your business could invest in something - eg new equipment, tools etc - however now the American tax year has finished I would've thought it was too late.
You do realise by the way you have to account on an accruals and not cash basis?
Course if you're really successful it then becomes better to employ people and take the profits out of it as a corporation... but you're probably not at that stage yet......
What do Adsenser's use to offset income?
If you live in the U.S., you'll probably file Schedule C with your Form 1040. With Schedule C, you add up your business income, then subtract your business deductions and transfer the resulting profit or loss to Form 1040. what you can deduct legitimately will depend, to some extent, on the nature of your business.
For more information on U.S. taxes for self-employed business people (both full- and part-timers), search Google for things like "Schedule C" and download relevant publications from the IRS Web site. Also, if you don't want to hire a tax accountant, use a program like TurboTax. (I only wish TurboTax had existed when I began earning freelance income 40 years ago, before the advent of personal tax software or even pocket calculators!)
All the above advice is excellent but at the end of the day it is down to cost efficiency. Is it worth paying an accountant to save you money?
As with so many things, it depends. There's no one-size-fits-all answer.
What I am really looking for are some ideas for deductions that I may have missed. I.E. is my time spent building the sites worth anything.
I spoke to my bookkeeper, she advised strongly against deducting any "home office" expenses now that I have a "real" job, she says this is a real red flag raiser with the IRS.
The 401K/IRA is a good idea, unfortunately I spent the money as it came in. Won't make that mistake this year...
Another red flag is when you declare high Schedule C losses from a part-time business. They may reclassify your business from "for profit" to "hobby" unless you prove to them that you are spending significant time and intend to make it for profit.
Grab a JK Lasser 2006 tax book for a complete list of deductions you can find. It's a very thick book, so if you start now you may be able to find a lot before April 15 :o)
I.E. is my time spent building the sites worth anything.
Not in terms of deductions.
I spoke to my bookkeeper, she advised strongly against deducting any "home office" expenses now that I have a "real" job, she says this is a real red flag raiser with the IRS.
I've been deducting home-office expenses since the late 1960s and have never had a problem with the IRS (even during periods of employment). But then, the expenses have been more than offset by freelance or self-employment income, and the space in my home has been dedicated to business use, so the expenses have obviously been legitimate. I've read that the real "red flag" is deducting expenses for a home office that's used for work brought home from a day job--something that's obviously wide open to abuse.
Mind you, I'm not an attorney or a tax accountant; I'm merely speaking from long personal experience as a freelance writer.
On the other hand, the less that I can give the IRS while remaining legitimate, the happier I will be...
My accountant always goes to a tax seminar each year to keep up on some things and she first thought this idea was crazy but then saw the logic. A guy wanted to deduct his dog. They thought he was crazy until they thought it out. The best thing is to take just a partial deduction say maybe 20% of the expenses (food, vet....) That way you are letting the IRS know that you realize it is a pet and not trying to scam them. Why a dog?.......A watch dog to protect your home office. Sounds legitamate.
Other expenses...we have to keep up with what is popular and what is going on. So...newspaper and magazine subscriptions, cable tv bills
With 401K, I can contribute max of $20K this year (am in the senior age group) and up to 25% of my earned income. That in itself can be a sizeable deduction. The good thing for me is because of my age, I can access the funds without penalties - the benefits of being a senior citizen LOL
Is it worth paying an accountant to save you money?
As a decent accountant/tax preparer will be up to date on all the new tax laws and a good one will ask the right questions to determine which deductions can apply to you, you can probably save more in taxes than you pay to the accountant, especially if you have a business. Also, if you do it yourself and use some "creative accounting" that the IRS later decides is wrong, you could be liable for penalties, whereas a reputable accountant will usually (or at least should) cover the costs of his mistakes.
In regards to some other messages posted:
1) While the IRA deduction can help lower your overall taxes, it does nothing to lower your self-employment taxes. On the plus side, you have until April 15, 2006, to contribute to one and be able to deduct the amount from your *2005* taxes.
2) The home office deduction is somewhat of a red flag (yes, there are people who argue otherwise), but if you can show the office space is used EXCLUSIVELY for your business, then you have a leg or 2 to stand on.
3) Any purchases of work related equipment (computers, monitors, office furnitue, etc.) must be depreciated over its useful life, not deducted in full in the year of purchase. Of course, as with most tax rules, there are exceptions, and you can often Section 179 most or all of the amount in the year purchased.
4) You don't have to be a corp. to pay employees.
is my time spent building the sites worth anything.
