Set yourself up as an LLC or s-corp, get a federal tax ID number (FEIN), talk to an accountant, and make sure you’re all legal. All that might sound overwhelming, but trust me, it’s not. Before I started my consulting business, it seemed overwhelming, but as I went through the steps, it was actually really straightforward. Make yourself a checklist of start-up tasks, and work through them–you’ll be done it fairly short order.

As for the tax issue, I’ve seen that become a headache for other freelancers/consultants who didn’t plan correctly.

After discussing my situation with a CPA, I chose to form an s-corp, and have been very happy with the choice. With my s-corp, I’m the sole employee, and I pay myself a salary (and take distributions as well). As for health and retirement benefits, my s-corp pays 100% of my health insurance premiums (which is essentially like saying that I pay my health insurance with pre-tax dollars), and I have a SEP-IRA which provides equivalent retirement benefits as a 401(k), without the administrative costs and with unlimited investment choices. Paying myself a salary through the s-corp saves on income taxes, since any distributions from the corporation are taxed as regular income, and not subject to social security & FICA taxes.

Greg Miliates
http://www.StartMyConsultingBusiness.com

Then last year I became unemployed and did no freelance work because that would threaten my unemployment benefits. When I’m employed I’ll start freelancing again.

Any idea on how I handle the business stall in my tax return?

The IRS recommended I submit my schedule C just to confirm made no money. I plan to via Turbotax, unless I get confused enough to hand it to HR block.

I’m just not sure about if deductions or anything already in process still applies at all even with no income and unemployment limitations.

For example – I still have my office upstairs – does that count or does zip income mean zip business deductions at all? I don’t want to assume much of anything with tricky little tax laws abounding.

p.s. This might be a good topic for an article – there have to be plenty of people like me out there this year.

DH is a self-employed fitness professional. He has no employees, no inventories, no company insurance (except professional liability). We take the standard deduction. We file a 1040 with Schedule C and the form SE.

The most complicated part is the recordkeeping, and you have to do that regardless of who prepares your tax return. You also have to read the new forms and instructions every year.

Since having the right records is key to having a good solid return – again, regardless of who prepares the return – you definitely should familiarize yourself with all the forms and do a draft return yourself EVEN IF you are then planning to take it to a professional. You need to have a halfway decent understanding of what is right, before you can know if someone else is doing it right.

Also, once you get to understand all this crap, you are in a great position to start harassing your elected officials about simplifying our ridiculous U.S. tax code.

So, the advice to hire someone or use tax preparation software does not work for all people who are self-employed. And, ignorance to what the tax preparer does if you are a party to an audit or suit will not exonerate you of your responsibility.

Basically, if you cover last year’s tax you are safe from penalties. If your tax due with the return is under $1,000 the penalty doesn’t apply.

Another nice thing about the home office deduction is the mileage to and from the home office to clients/meeting/etc. are fully deductible rather than considered commuting.

Also, don’t forget you can still start a SEP or SIMPLE IRA and sock away money for retirement if your business is really humming.

Although I Reside North-Of-The-Border (In Canada) This Piece Further Assisted Me In Understanding Your Taxation System And Being Self-Employed, This Provides Me With Much ‘Food For Thought’ In Regards To My Own taxes.

As For My Fellow Canadians, Head On Over To:
http://www.cra-arc.gc.ca/menu-eng.html
The Official Canada Revenue Agency Website In Order To Find Out The Applicability Of Your Own Work-Related Deductions, Expenditures & How You Can Also Benefit From Many Of The Current And Upcoming Tax Credits.

Have A Pleasant Day, Everyone

Go to the local SBA and they will tell you who are your 4 basic support people: a lawyer, an accountant, an insurance agent and an IT person. In my case I can do without the IT person (I do the geek work myself, have over 10 years of experience), but I depend on the rest of those people not to get badly burned. Sure, it helps to have a basic knowledge of what they are talking about, but you can’t replace their expertise in serious matters.

http://www.youtube.com/watch?v=bq5WkfG1r3k

The self-employed lack the support structure of a big company and need to mind their own business with greater care than the average civilian.

Thanks…

You’re right that there are special Section 179 rules for 2010 and 2012, but they mostly just increase the total dollar limit on the amount of property that you can make the Section 179 election for. They don’t change the requirements for listed property, to the best of my knowledge.

IRS Publication 946 has more info on the topic of listed property: http://www.irs.gov/publications/p946/ch05.html

“If the property is not used predominantly (more than 50%) for qualified business use, you cannot claim the section 179 deduction or a special depreciation allowance.”

8. New Equipment
Some small businesses can write off the full cost of some assets in the year they buy them, rather than capitalizing them — deducting their cost over a number of years. (See Nolo’s article Current vs. Capital Expenses for information on expenses that must be capitalized.)
Section 179 of the Internal Revenue Code allows you to deduct up to $500,000 of the cost of new equipment or other assets in 2010 and 2011. This is subject to a phase-out if you place more than $2 million of equipment in service. Some assets don’t qualify for this Section 179 deduction, including real estate, inventory bought for resale, and property bought from a close relative. The annual deduction amount goes down to $125,000 in 2012.
There is also a first-year bonus depreciation deduction in effect for 2010 through 2012. This special deduction allows taxpayers to depreciate an additional 50% or 100% of the adjusted basis of qualified property during the first year the property is placed in service. This deduction can be taken in addition to the Section 179 deduction and offers tremendous tax savings. For January 1, 2010 through September 8, 2010 and for calendar year 2012, the first-year bonus depreciation amount is 50%. For September 9, 2010 through the end of calendar year 2011, the first-year bonus depreciation is 100%.

source

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PS- oh, i just checked out your blog & saw that you’re a tax accountant! i’ll shut up now

If you use it less than 50% of the time for business (such as the 40% mentioned above), you can’t deduct that entire 40% in the year of purchase via the Section 179 election. You have to depreciate it over time instead.

PS- I’ve always taken a home office deduction. I even take pictures, measurements & all., just in case. Not sure how much of a red flag is it, I’ve never had a problem with that.