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If you are self-employed as a single proprietor you usually file a Schedule C on your 1040 Tax Return.
The number one problem I found preparing tax returns for the self-employed is sloppy bookkeeping or no records at all. It’s amazing how many individuals that operate a small business guess at their expenses incurred over any given tax year.
When it comes to your automobile used in your business you may elect to either declare actual operating expenses such as gas, repairs, maintenance, auto insurance and depreciation or take “mileage”. In the year, you place the vehicle in service you make the election one or the other not both. If the year placed into service, you decide on” mileage” you may change to” actual” in a future year however the reverse is not true.
In many cases, you will come out with far more expenses if you take “mileage” instead of “actual” especially if you drive significant miles on business. You must keep a mileage log showing all business mileage driven and how many total miles drove including non-business mileage.
The most overlooked business expense is not funding a business retirement plan which not only provides an operating expense but allows a greater contribution than an individual IRA or Roth. More important you are providing the opportunity for a better retirement.
There are several options available with the SEP being the most common and easiest to setup. Another option is Keogh Plan which allows even greater amounts to be contributed each year.
You can be as conservative or aggressive as you choose when it comes to types of investments you buy. You can place into these plans, money market funds, mutual funds, stocks, bonds, etc.
In a future post, I will cover Schedule C in more detail.
Dan
