Tax Write-offs

V

vertigoanton

Active member
Hey everyone -

So I'm trying to figure out if I need to register for a sole-proprietorship in order to write-off business expenses. I have heard that as long as you receive a 1099 form, you can technically write-off expenses. But I've also heard that you need a Federal Tax ID number (that is not your SSN) to do so - and you can't get one without being a licensed business.

Can anyone shed a bit more light on this issue?

Also, would you be able to get away with writing off movie tickets and DVDs since it's "research" (and I'm only half-joking about that)

Thanks!
 
As my CPA always reminds me "hogs get slaughtered"
I'm generally pretty careful about what is deducted and what is not.
There actually are legitimate DVD purchases that are part of my work... but most are not.
It's really all up to you how much you want to blur the line.

As far as the IRS is concerned - you need to be able to justify that this was a business purchase and not a personal purchase. Basically you will only watch your DVD for research - and never for personal enjoyment.
Tough to justify most of the time.


As far as business structure - it's going to depend on what state you're in.
My advice woudl be to find your Secretary of States site and start reading there.
 
Hire a CPA and listen to his/her advice - the savings in write off's will pay for itself.
Plus, in the unfortunate event that you are auditied you have the benefit of a CPA that's more knowledgable about the tax code than the IRS agent sitting across the table.

There are a lot of ways to set up your company: sole proprietorship, S-corp, LLC, etc.
This is where the CPA comes in to point you in the right direction given your business model.

Did I mention that you should hire a CPA?
 
Milksac is ABSOLUTELY right.
Hire a CPA - find one through a friend, ask for recommendations....

A good CPA pays for him/herself very quickly - both literally, and through the piece of mind (and lower stress) you have.
I can't imagine not having someone to go to to help me with all my business finances.
 
vertigoanton said:
Hey everyone -

So I'm trying to figure out if I need to register for a sole-proprietorship in order to write-off business expenses. I have heard that as long as you receive a 1099 form, you can technically write-off expenses. But I've also heard that you need a Federal Tax ID number (that is not your SSN) to do so - and you can't get one without being a licensed business.

Can anyone shed a bit more light on this issue?

Also, would you be able to get away with writing off movie tickets and DVDs since it's "research" (and I'm only half-joking about that)

Thanks!
Click to expand...

Obtaining a DBA (Doing Business As) from your official jurisdictional authority (County) is always a good idea, although it's nothing magic from a tax perspective.

No, you don't need a Federal Taxi ID number to do business - it's a great idea to have one from a (SSN) privacy perspective but irrespective of your company tax situation.

Without knowing more, it would be a real stretch trying to write off movie tickets and DVDs as research - reminds me of folks trying to writeoff dogfood claiming their dog is an organic burglar alarm! Of course, if your business was actually reviewing movies then sure, you could expense appropriate costs against your company profits - otherwise forget it. Anyway, if you have a legitimate business, you'll probably have far more expenses than profits the first few years so don't worry about writing off bogus expenses.

Good luck, Michael
 
My business is under an LLC. I use my ss# and I write off everything I have a reciept for. My edit suite is now in my home and it represents 100% of my income. I write off half the house and it's bills, a good percentage of the cars, gas, paper, chewing gum... everything that has to do with the business. There isn't a meal I eat where it's not discussed. Even things I get for the yard are to enhance the business. I wont get to write off the avid till I make it's last payment. I'll then get to write off the entire value of it that year.
now, that said, I should say these are what I write off. These are part of the pile I hand my cpa once a year. I literally submit my invoices, my reciepts and some money. It's like a tie-wearing vending machine. It keeps the audits away or at least allows you to relax when one shows up.
and it will.
in a nutshell, let the pros do it. We artist types will always mess that stuff up.
 
You should also be aware of "use" tax...If you are deducting business purchases that you have made out of state(such as online) that have not been taxed and that would have been taxed had they been purchased in your state then you are responsible for paying use tax which is equivalent to your states sales tax. Each state has their own specific rules so you have to check that...i.e. some states do not charge sales tax. This also applies to personal purchases...although here in minnesota you can purchase 770.00 worth of goods before being responsible for use tax.

For example if I would have purchased my hvx200 from bhphoto I would have to pay use tax equivalent to my states sales tax which is 7%.

Its based on the honor system but if you get audited you will be paying...

RJS
 
All these things are going to vary from state to state - in Texas, for example, the vast majority of film and video related purchases are exempt from sales tax (which would extend to 'use' tax).

But RJS brings up a good point, which is KNOW what you need to pay.
It's easy to get lazy doing this...but unfortunately ignorance of the law isn't an excuse that flies with the IRS.
 
Yup, it is definitely worth having a tax person/cpa...the first few years I was in business I did my own taxes...I'm a smart guy...I went to college...then my mom(type a/hardcore businesswoman) suggested I get a tax person just in case I'm missing something...so I got one. He went over my previous 3 years of taxes and found around 3,000 bucks I missed...so he redid the taxes and I got back 3,000 and have had a tax person ever since.

The best part is that I do not have to keep up with the complex rules from year to year...you just need a tax person/cpa that you trust.

Also, if you are deducting a portion of your home as a home office(and you own the home)...be sure you know the rules especially if you will be selling it within the same year that you are deducting it!

RJS
 
Just wanted to echo the great sentiments here. Hiring an attorney / cpa will pay for itself the first year. My guy knows re-structuring things that never even would've occurred to me. Of all the places to skimp, don't do it with your business in this regard.
 
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I wont get to write off the avid till I make it's last payment. I'll then get to write off the entire value of it that year.
Click to expand...

Is this true for all states? Do you have to pay your purchases off before you are able to deduct them?
This makes me very nervous.

Thanks,
Mike
 
With the Section 179 deduction you can write off a lot of purchases in full, the year that you buy them. But not everything. Again, a CPA is key.
 
Thats a relief, thanks!

Do most people who freelance use a CPA or is it more common to use one of the tax prep. companies..like HR block, etc...? What's everyone using out there?

Also, is the expense that much different between the two?

I really miss the stability of working for one company...benefits, insurance, taxes and such. I guess thats pretty common in the world of freelancers.
 
We're about to start looking for a CPA ourselves... all my work is freelance now and we've been investing heavily in starting up our own business. 2008 is the year we'll become a certified LLC but for the time being, it'll be good to save some money here and there.
 
I guess its time to put the word out to family and friends for recommendations. Its a daunting ask to find one on your own - at least one that's any good.
 
We use a bookeeper for doing the day to day entries and an accountant for advice on taxes, generating financial statements, and other significant issues.
Accountant rates are generally much higher than a bookeeper. Its great when your accountant has recommendations for bookeeper's they like as it means usually the bookeeper already knows just how the accountant likes things. Our audit level for financials is still at the basic "Notice to Reader" stage.
 
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