Either because they lost a job, or because they needed to make extra money, many people became self-employed for the first time in 2009. When the tax filing deadline rolled around in April of 2010, many of these first timers weren’t ready to file.

Filing your taxes can be complex enough when you just have a W-2 from a job to deal with. Throw in some 1099s, cash income, business expenses, and you really have a difficult tax return on your hands. Because of these complexities many filers chose to estimate their taxes due, pay them, and then extend the actual filing of the 2009 tax return using Form 4868.

Tax Extension Rules

The people who filed that extension gave themselves 6 more months, until October 15, 2010, to gather up their 2009 information and complete the tax return. Notice I didn’t say they could extend the payment. They should have still paid the 2009 tax bill when they filed the extension Form 4868.

If you haven’t yet made an estimated payment, then you are currently being charged interest and possibly penalties if your 2009 return ends up showing that you owed taxes. And hopefully your new small business did well enough to owe some taxes.

Keep in mind that even if you did make an estimated payment and underpaid by more than 10%, you could face interest and penalties. As a general rule, it’s good to get your 2009 return completed as soon as possible. Even if you extend you don’t have to wait until October 15th. You can file them now.

Forms Needed to File Your Extended Return

As long as you properly extended your return, there is not that much of a difference in filing your 2009 return in September or October of 2010 vs filing it back in April of 2010. You can still use many of the free or premium tax filing services that were available back in April. Break out a handy tax preparation checklist to make sure you have everything and then get started.

No special forms will be required when filing your extended return. However, when you are on page 2 of the Form 1040, you will see line 68 which says “Amount paid with request for extension to file”. This is where you will put the amount that you paid when you filed Form 4868. It’s very important to complete this so that you get credit for the payment you’ve already made.

If your new business is a simple sole proprietorship, you should be able to file everything on the Form 1040 using the Schedule C or C-EZ. Your business profit or loss gets passed from the Schedule C to the Form 1040 page 1 on line 12. If you took the steps to create a new tax entity (Partnership, “S” Corporation, or “C” Corporation) for your business in 2009, then you will have to consider additional returns beyond the Form 1040 to file your taxes. Generally speaking, partnerships will need to file a Form 1065, “S” Corporations a Form 1120-S, and “C” Corporations a Form 1120.

Here are some of the more important tax tips freelancers, bloggers who earn income, and anyone else earning money that’s not reported on a W-2 should consider.

You are required to report all your income. While you may receive 1099s to help you track the money you earn throughout the year, companies are not always required to distribute these forms. The IRS wants you to report a gross income that is equal to or higher than the total amount of income reported on 1099s sent to you. Therefore, it is helpful to track every dollar you are paid. Any income form that is sent to you must be included when you file your taxes, and that is just the minimum.

Whether you use Quicken, a spreadsheet in Excel, or an envelope containing check stubs and deposit receipts, make sure you know the source and amount of all income that you earn. This can be difficult when you are dealing with multiple modes of payment, including paper checks, electronic direct deposits, PayPal, and cash. Tracking your income and your important expenses and having the details ready when you sit down to complete your tax return will make your job so much easier.

Yes, tracking your expenses in addition to your income is just as important. As a freelancer, you are a  self-employed individual and entitled to take certain deductions for business expenses. My goal is to maximize these expenses, so I am careful to track everything in software, collect physical receipts in an envelope, and save emailed receipts in a printable format (like PDF) on my computer in an area designated for the current year’s taxes.

With your expenses fully enumerated and categorized, you will be well prepared for deducting as much as legally allowed on your Schedule C — the tax form where you describe your self-employment income and expenses. Here are a few examples: If you advertise your services, you can deduct the fees you pay. You can deduct the expenses paid to any subcontractors who work with you as long as they provide you an invoice for their services. You can deduct most costs of doing business, including business banking fees, tax software purchases and fees associated with accepting credit card payments.

About once every week or two, I drive to the studio where I record the Consumerism Commentary Podcast with my friend and subcontractor, Tom. That mileage is deductible on Schedule C, as well, at a rate per mile that is set by the IRS every year. To stick by the rules, log the miles you drive for business if you don’t have a vehicle that is used only for that business. You can do this with simple pen and pad, or, if you’ve got an iPhone, apps like Tap2Track help you automatically keep track on the go.

Self-employment also qualifies you for a number of options for saving for retirement. A Simplified Employee Pension (SEP) plan is a tax-deductible IRA available to anyone who works for himself or herself. The annual investment maximum for this IRA is higher than the maximum for a traditional or Roth IRA, so you have a chance to reduce your taxable self-employment income by the amount you invest in your SEP IRA. This is a deduction worth considering.

Here is a selection of the the possibilities for reducing the taxes you owe on your self-employment income, taken right from Schedule C. Any business expenses in these categories will help you reduce the amount of tax you owe.

• Advertising
• Subcontractors
• Depreciation of equipment (such as computers used for your

  business)

• Interest you pay on business loans
• Legal and professional services
• Office expenses
• Supplies
• Travel, meals, and entertainment
• Utilities
• Other business expenses

As a blogger, if you earn enough money from your writing that your endeavor is more than a hobby, these are some specific expenses you can likely deduct:

• Web hosting and management fees
• Photography costs if your website includes self-created images or

  stock photography fees

• Software necessary for producing your content
• PayPal fees
• Books, e-books, seminars, and subscriptions that help you improve

  your business

• If your blog is focused on a certain topic, any expenses related to

  research pertaining to that topic

• Telephone or Skype expenses if used for your website

The key for freelancers and bloggers who earn money is as I mentioned at the start of this article: get organized and stay organized. If you remain reasonable in your assumptions and deductions it’s unlikely you will be audited, but it doesn’t hurt to have your supporting documentation ready to go at a moment’s notice. Plus, when you sit down to complete your taxes, having your materials available will reduce your stress. According to doctors, less stress will extend your life, which will allow you to earn more money and, as a result, pay more taxes.

Home Office

Have a Home Office?

If you use part of your home for business, you may be able to deduct expenses for the business use of your home. These expenses may include mortgage interest, insurance, utilities, home repairs, and depreciation. They may also include improvements you have made to your home. The home office deduction is available for homeowners and renters, and applies to all types of homes, from apartments to mobile homes.

Home Office Use

The deductions for a home office are based on the percentage of your home devoted to business use. So, if you use a whole room or part of a room for conducting your business, you need to figure out the percentage of your home devoted to your business activities.

Day Care Use

If you use your entire home in your day care, then your square footage is 100%. However, from here, as you then must reduce this by the non-business hours that you did not work. There were 8,760 hours in 2008. Let’s assume you had children in your home an average of 50 hours per week. You would have actually provided child care services for 2,600 hours. You then divide this by the total hours in a year. In this example, your net result is about 30%. Thus, square footage usage (100%) x time usage (30%) gives you 30% business use of home percentage for last year. If your square footage usage was only 75%, you would then take 75% x 30%, and you would have 22.5% business use of home allocation. So, unless you are open 24/7 365 days per year, your business usage of home can never be 100%

Determine The Business Use Percent

The IRS says you can use square feet or any other reasonable method if it accurately figures your business use percentage. While TurboTax asks for square feet of the home and the office to calculate your home office percent on the IRS form this info is only identified as the area of your home and home office so you can use any unit of measurement you prefer, as long as it meets the IRS requirement of accurately reflecting your business use percentage. Some people choose other methods that is fine as long as you follow the IRS requirements

In Turbo Tax Home and Biz

In Home and Biz, the home office is under the screen your business then select Expenses.

Under enter your expenses select Home Office at the top of the screen.

The first screen will ask you if you have an office in home answer Yes. You then enter the home office.

The next screen will ask Tell Us More. If you own the home mark I owned the home.

Mark do all my business at home (if you have more than one office mark more than one office).

These questions help determine what screens to show. If you do not mark that you own the home then the mortgage screens will not show.

Continue to the next screen and enter the square footage of the entire home and the square footage of the office so the program can calculate your business use percent of your home. The next screen will ask what percent of the time you conduct business in the home. If you have another office outside the home then this will be less than 100%. You will then be asked to enter expenses for the entire home. You can enter the property tax, Mortgage interest, insurance and mortgage points and home office only. If you only had the home office for part of the year; enter the amount for part of the year as the total.

When you get to the end of the expenses there will be an expense summary screen. Continue past this screen if you are taking depreciation on your home. There will be a screen to enter the asset for depreciation including your home. This is also where you would add in any home improvements to depreciate. There will then be an asset summary screen where you can add another asset. The last screen is a Home Office Summary where you can add another Home office or Edit or delete the current one.

If you have two home offices, here’s how to put in the home mortgage interest under each office.

First home where the office was located: when it asks for the home mortgage, enter the two that you had for that home. Only enter the interest you paid for the months it was a home office and you were living in the home. The rest of the months of interest will be entered as a rental expense. (The amount of mortgage interest for the months that you lived in the home that is not used as a business expense, will flow automatically to the schedule A for itemized expenses.)

Second home office: when you enter this home office you will see that the first two lenders you entered are on the Mortgage Lender screen.  Do NOT edit these two lenders. Editing the lenders attaches them to the second home office paperwork. Select the Add button in the right hand corner to add the lender for the new home. If this is a new home purchase and you started the home office right away, enter the entire amount of interest paid. The rest of the interest will go automatically to the Schedule A for itemized deductions.

For additional information here is a link to the IRS site

http://www.irs.gov/businesses/small/article/0,,id=204169,00.html

———————————-

As a small business owner you probably spend lots of time collecting and categorizing receipts from your business expenses so you can do your taxes.  The makers of TurboTax and QuickBooks are working on a solution that may make this process a snap for you.

We want honest, candid customer feedback during our beta test our new TurboTax product, “ExpensePro.”

What is ExpensePro?

www.ExpensePro.com is a new website we’ve built that automatically tracks and categorizes your business income and expenses to make tax time easy.

The first time you log in to ExpensePro.com, you’ll enter your online account information for your bank accounts and credit cards. After that, ExpensePro will import all your income and expense transactions and auto-categorize them for the IRS so you don’t have to. At the end of the year, you’ll have an easy-to-read Tax Report ready with little effort to help either you or your accountant complete your taxes. ExpensePro will also give you a snapshot of how much you’re making and spending all in one place.

Ready to try it out?  Go here: www.expensepro.com

Let us help you track your business expense and income tracking for FREE!