 Tax
basics for independent contractor
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 Dear
Tax Talk,
I have recently starting doing freelance bookkeeping for an attorney.
He will pay me once a month for all of my time but will not take
out any taxes, etc. I know that I will be responsible for the taxes
when I file next year, but I wanted to know if I could deduct any
of the materials that I use for this job. For example: computer,
software, paper, mileage to office to pick up information. Thank
you for any advice that you could give me on this matter.
-- Chrystal
 Dear
Chrystal,
Now that you're in the wonderful world of self-employment,
it's important to set up your business properly so that you don't
have to hire an attorney later. First, you should find a good bookkeeper,
but for that you don't need to look too far, I'm sure. You probably
should consider opening a separate bank account to keep track of
your business income and expenses and not mingle them with your
personal expenditures. You will need to file Schedule C with your
Form 1040 for the first year that you have self-employment earnings.
Expenditures associated with
the business such as software, telephone and supplies are deductible
in the year paid or charged to your credit card. All major asset
purchases (such as furniture and equipment costing more than $300
to $500) are depreciable over their useful life as determined by
Internal Revenue Service. If you purchased a new computer for the
business you can claim depreciation expenses on Form 4562 where
you can also elect to write off the cost of the equipment through
Section 179 expense. If you are using an existing computer, you
can claim depreciation deductions based on its value at the time
you put it to use (You cannot Section 179 its cost.).
Automobile expenses are deductible
at actual cost or the standard mileage allowance. Actual costs would
include lease payments or depreciation deductions, plus gas, insurance,
washes, tires and repairs, and maintenance. If the car is financed,
you can deduct the business portion of the interest. The business
portion of the auto is the miles used for business compared to total
miles the car is used in the year.
If you work from home, business
use of the car starts when you leave your home to visit clients,
go to the bank or the office supply store, plus all your trips in
between. If you don't want to keep track of your actual expenses,
you can claim the standard allowance of 44.5 cents per business
mile in 2006.
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