• http://www.carcheckup.com/businessmileage Travis

    For 2011 the standard mileage rate is .51 per mile for business miles traveled.

    • Kira Botkin

      Thanks, we’ll keep it in mind for next year!

  • Ken

    I was unemployed last year and used 1 bedroom exclusively to search for work and practice my computer skills, networking, building, and disassembling to stay sharp for a job I found in November. Can I deduct the room from my rent?

  • Kira Botkin

    Nope, sorry – in order to deduct a home office, you need to turn a profit in a business you ran out of that room. So if you picked up any freelance jobs while you were unemployed, you might be able to take the home office deduction. But just using it for work-related activities isn’t enough.

  • Timothy

    I live abroad and qualify for the foreign-earned income exemption. Is additional freelance money that I earn during the year included in that exemption (the net total of my foreign-earned salary plus freelance earnings is much less than $90K. Much less.) or are the freelance earnings taxable? And if the foreign-earned freelance is taxable, what is the percentage I owe on the freelance total?

    Hypothetically, let’s say I owe $2,000 in taxes on freelance earned abroad. My deductable expenses last year are more than that, so I shouldn’t owe anything, right?

  • Kira Botkin

    Hi Timothy, according to this article – http://www.irs.gov/businesses/article/0,,id=182017,00.html – you won’t have to pay regular income tax on your freelance income, as long as you’re still under the limit, but you will still need to pay the 15.4% self-employment tax on it.

    “Self-employment income: A qualifying individual may claim the foreign earned income exclusion on foreign earned self-employment income. The excluded amount will reduce the individual’s regular income tax, but will not reduce the individual’s self-employment tax. ”

    So as far as I can tell, you would take your total freelance income, subtract your expenses, and that would give you your taxable freelance income. You would then owe 15.4% of that

    However your hypothetical situation is missing a step. You will still owe taxes unless you have a LOT more expenses than tax owed! Keep in mind that deductions reduce your taxable income, which does reduce your tax liability, but not dollar for dollar. In this case, every dollar of expenses (anything that can be claimed on a Schedule C) would reduce your tax liability by 15.4 cents.

  • Timothy

    Ok, thanks. So the self-employment tax applies even if I don’t own a small business?

  • Kira Botkin

    Yes, we will have an article up on this topic in coming weeks, but under American tax law earning money for yourself basically means you have a business. You don’t have to get a license or apply anywhere to start a sole proprietor unincorporated business – all you have to do is intend to use your skills to earn some money.

  • Jmcclennon

    When u file schedule c .. of small business Ger return

  • SIE

    Our business is in Texas we service the engines for the oil rigs. usually we only bill for labor and mileage since the customer provides their own parts. However sometimes we have to supply parts and charge sales tax for the parts only. Is this right? Or are we supposed to tax the entire subtotal for parts and labor.

    • Kira Botkin

      In most places you do not charge sales tax on labor, but I have no idea what your local regulations might be. I would call your local chamber of commerce and see if you can find a local accountant who can tell you.

  • SLH

    Hi – My husband’s small business (an LLC) failed 2 years ago, after never showing a profit. We’re still paying off a business line of credit loan to the tune of $10k a year. Any way to deduct that expense? Thanks!

    • Kira Botkin

      I would check with an accountant, but my understanding is that if it was incurred for business purposes, you should continue to file the schedule C and report the interest as an expense even if the business is no longer running. However, there may be some statute of limitations on how long you can do that. Keep good records in case the IRS has questions (often years after you file.)

  • Willsolve

    I’m starting a Home Based business with Legal Shield, and I’ve been told I can deduct all the costs of my membership, the business supplies, travel, and three months of prior expenses as “exploratory business expenses” do you agree with this. If I keep careful records can I deduct this against my taxes and get a big refund?

    • Kira Botkin

      1. This looks like a scam and I would advise you to invest your money elsewhere.

      2. You can only deduct expenses that are directly related to the business. I don’t know why they would tell you that you can deduct expenses that you incurred before you started the business. What the heck kind of expenses do you think you could legitimately rack up while researching a business opportunity that has information all over the internet? Scamming you is legal, but scamming the government isn’t.

      • Boncher

        Not a scam. Endorsed by US Chamber of Commerce President Tom Donahue, four former American Bar Association Presidents. Listed as one of the top 200 small businesses in America for 9 years in a row by Forbes Magazine. Not sure abut the exploratory expenses but the others are legit.

  • BC

    what if my employer went into receivership in August and I worked ( self employed acting sales mgr ) to June with expenses…… I did not receive any compensation at all in 2012 from that employer. ( only Soc Security ). Can I still use Schedule C and deduct my expenses.

    • Kira Botkin

      Yes, but I’d still file something with your state’s labor board to try to get paid.

  • Osha

    Kira, you seem to be extremely knowledgeable on this, so maybe you can help my confusion: I started a dba to make a film in 2011. People donated to the film account. From that I used monies for travel, accommodation, equipment etc etc,; we shot some of the film, no one was paid including myself (as agreed). In 2012 I got us fiscally sponsored and more people donated through a social media site. But not much (under $5000).
    In 2012 my accountant told me that I couldn’t deduct my film dba expenses from 2011 as the film was not finished and had not earned an income.
    However, in 2012, now fiscally sponsored I received an ‘earnings’ slip from the fiscal sponsor at the beginning of 2013.
    My understanding is I need to file a schedule C with all the film business deductions; however as the film is still in the works and still incomplete, the business at this point is running at a loss.
    Should I wait until the film is complete and file as a complete entity over the 3 years it will have taken to make it? Or should count the fiscal sponsor money as ‘income’ for the business and still deduct all film expenses……..?????
    Any ideas on this would be very helpful. Thanks Kira.

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