Q: Do I have to report the money I was paid for some contract labor I performed even though I did not receive a 1099-MISC?

A: You must report your self-employment income using Form 1040 Schedule C or C-EZ whether you receive a 1099 or not.

Q: Can I deduct the cost of fruit baskets that I give as gifts to my business clients each year?

A: Your deduction for business gifts is limited to $25 per client. Use Part V of Schedule C to deduct this expense.

Q: How do I compute how much cellphone charges I can deduct for my business when I also used the phone for personal use?

A: You may use any reasonable method you choose to allocate your phone expenses between personal and business use, keeping in mind that your method must stand up to IRS scrutiny should you be audited.

Q: How can you distinguish whether you are self employed or just have rental income? I have mini storage units that I rent out and I'm not sure if it is rental or self employment income.

A: If you just rent space in the public storage facility your income and expense is reported on Form 1040 Schedule E as rental income. However, if you provide any services with your rentals then you have a business and all the income and expenses go on Schedule C. In other words, if you also are selling packing boxes, packing material, tape, equipment rental, etc., you are self-employed and must use Schedule C and Schedule SE if your net profit is at least $400.

Q: Can I get a tax deduction for fees being paid to an employment agency on an ongoing basis? Fees are being deducted from each paycheck.

A: If you are an employee of the firm that hires you, then you have unreimbursed employee business expense. This is deductible as an itemized deduction on Line 20 of Schedule A if you itemize your deductions.

If you are self-employed, then you may deduct the fee as a business expense on Schedule C or C-EZ depending upon which schedule you use to report your income and expense.

Q: Can I start taking depreciation deductions on rental property that I have owned and rented for the last 10 years?

A: Whether or not you actually took the depreciation in the past is not relevant as the IRS always treats depreciation on rental property as allowed or allowable. Therefore, you may start to depreciate the property now but you must also assume that 10 years of depreciation has already been taken. See Table 4-D on page 14 of IRS Pub 527, Rental Property for the 27.5 year depreciation schedule. And, remember that you can not depreciate the land that the property sits on.
http://www.irs.gov/publications/index.html

Q: Do I have to pay self-employment tax on the fee I received for helping my brother close the estate of our deceased mother?

A: If you are not a fiduciary in the business of administering estates, this is a one time event and you are not self-employed. Just report the income on Line 21 of the Form 1040 as "Other Income."

Q: Can I report as "Other Income" the $6000 my wife made from providing day care services?

A: No, your wife is self-employed and must use either Schedule C or C-EZ to report her income and expenses. If the net profit is at least $400, then she must also complete Schedule SE.

Q: Can I still file a Schedule C even if my business had no income, but just expenses? Is there a limit as to the amount of losses that I can offset against other income?

A: You may file a Schedule C with no income that reflects a loss. There is no limit on your losses. However, the IRS will expect that you start to show a profit eventually. Make sure you document all your expenses and the amount of effort you have expended to produce income and make a profit.

Q: What is the criteria for deducting some of my home expenses that I incur for my business?

A: To deduct expenses related to the business use of part of your home, you must show that the use of the business part of your home is exclusive (see exceptions below), regular, for your trade or business, AND the business part of your home must be either your principal place of business or a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, or a separate structure (not attached to your home) you use in connection with your trade or business.

To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. The area used for business can be a room or other separately identifiable space. The space does not need to be marked off by a permanent partition.

You do not have to meet the "exclusive" rule if you use part of your home for the storage of inventory or product samples or you use part of your home as a day-care facility.

To qualify under the regular use test, you must use a specific area of your home for business on a regular basis. Incidental or occasional business use is not regular use. You must consider all facts and circumstances in determining whether your use is on a regular basis.

Use IRS Form 8829 to compute your home expenses that may be posted to your Schedule C. Also see IRS Pub 587, Business Use of Your Home for more information. http://www.irs.gov/publications/index.html

Q: To deduct moving expenses there are two tests to meet. One is Distance and other is Time. One must complete 39 weeks of work in a year from the date of moving. How rigid is this requirement?

A: Moving expenses are usually deductible because a person changed job locations or started a new job. In most situations a person has obtained the new job before incurring the moving expenses. The "time test" is the rule and apparently its use is to restrict the deduction where it could be abused by persons who relocate and do not have a new job or who are not actively seeking a new job. The government has chosen 39 weeks as the rule.

There are five exceptions to this "time test":

(1) Armed Forces permanent change of station.
(2) Retiring and moving to the U.S. after having a main job outside the U.S.
(3) The survivor of a person whose main job at time of death was outside the U.S.
(4) Your job at the new location ends because of death or disability.
(5) You are transferred for your employer's benefit, or were laid off.

This information comes from IRS Publication 521 "Moving Expenses". You can obtain a copy from www.irs.gov or by calling 1-800-829-3676.

Q: I am thinking of starting my own business. What kind of information is available from the IRS?

A: The IRS has created a website designed specifically for small business owners and the self-employed.
Everything you would need to know as a small business owner is available at the link below. This includes access to forms, publications, online tutorials, various resource guides, retirement planning and information on starting and running your business.
http://www.irs.gov/businesses/small/index.html

Q: Do I need an EIN number if I become self-employed or start my own sole proprietorship?

A: You will only require an EIN if you hire employees.

Q: What deductions can I take for residential rental property that I own and rent?

A: Your rental income is reported on the Form 1040 Schedule E. You can deduct the following expenses:
Depreciation, Insurance, Repairs & Maintenance, Mortgage Interest, Property Taxes, Utilities, etc.
For a more detailed list see the instructions for Schedule E and IRS Pub 527, Rental Property.
http://www.irs.gov/publications/index.html

If you actively participate in a passive rental activity, and you report a loss, you will only be able to deduct a loss of no more than $25,000 from your nonpassive income.

Q: How do I deduct the cost of software? I'm referring to both operating system software and applications. This is off-the-shelf software. It is for a home business. The total software value is $2600.

A: You have a choice. You can use the rule that allows the cost to be depreciated over 36 months or you can include the cost of off-the-shelf computer software as a Section 179 business deduction in the year placed in service.

See IRS Pub 946 for more details.

Q: Will my self-employment income affect the amount of income I receive as social security benefits? I am 68 years old.

A: As you have already reached full retirement age you may earn as much you want and not have to pay back any social security benefits (SSB) you receive.

If your net earnings from self-employment are high enough such that you are paying self-employment tax, the Social Security Administration (SSA) is notified of your contributions and income. If the additinal credits entitle you to a higher monthly benefit, the SSA will make the calculation for you.

Q: Do I report a payment I received in January of this year for work I performed last year, in the current year or in the year I performed the work?

A: If you are a cash basis taxpayer as almost all of us are, you report the income when you actually receive it or are in constructive receipt of it.

As your payment was in January, you would report the income in the year you received it unless you constructively received it by 12/31 of the prior year. The best example of this is wages that are paid for work you performed ending on 12/28. The company would make those funds available to you on 12/28 and include the amount in your W-2. If you asked that they send you a check and the check doesn't arrive until sometime in January, the payment is still income for December.

Q: Can I take a business deduction for the small cash donations my business makes to various qualified charities in the neighborhood? I am a sole proprietor.

A: If you itemize your deductions, you can include these gifts with your other charitable contributions on Schedule A as long as you have a receipt for each payment. You may not take a deduction for these gifts on your Schedule C.

Q: Can I deduct the cost of my supplemental medicare insurance as a business expense if I am self-employed?

A: As long as you include the purchase of supplemental insurance as part of your business plan for your sole proprietorship, the expense qualifies as self-employed health insurance and is deducted from Gross Income. The deduction can not exceed the net profit from your business. See the instructions for Form 1040 as well as IRS Pub 535, Business Expenses.
http://www.irs.gov/publications/index.html

Premiums you pay for Medicare Parts A, B, C and D are not deductible as business expenses. They are only deductible on Schedule A.

Q: DO YOU PROVIDE THE TIME FOR THE SELF EMPLOYED FILING A JOINT RETURN AT THE VOLUNTEER CENTERS ?

A: Thank you for your question.

Generally, the answer to your question is yes. We do prepare Schedule C-EZ returns for many self employed people, but we are limited in some cases by complexity issues. For example, we do not handle depreciation. We also do not do returns for partnerships or corporations.

We are a volunteer organization and cannot train our volunteers for all aspects of the tax code. Our mission is to provide free tax prep for low and middle income people with special attention to seniors. However, we do not have restrictions on age or income level.

Q: What is the standard mileage deduction for the use of a vehicle in a business?

A: The rate varies by year. In 2007 it was 48.5 cents. The rate for 2008 is 50.5 cents through June 30th. From July 1 through Dec. 31 it is 58.5 cents. In 2009, the rate is 55 cents.

You can find a table for the last 7 years at:
http://www.smbiz.com/sbrl003.html#smr