Starting Online Business Working From Home

[I Find This Humerus]

I am starting an online business part-time where I will be working out of a home office.

 

What can I deduct for tax purposes? I will be using an entirely separate room as my home office. I need to buy a desk, new computer, chair, shelves etc. as this room is currently empty to use for my business.

 

I know I can deduct the size of the room but what about internet, electricity, heating/cooling, etc? Should I open a business credit card to keep all my business expenses together and easy to organize? Any tips/suggestions?

[jfoxcpacfp]

You will be able to take a proportionate amount of utilities, property insurance, property taxes, mortgage interest, internet, and any other expense that applies to the whole house. The deduction is based on the square feet in the office compared to the size of the house. You will also be able to take a proportionate amount of depreciation on your house (minus an allocation for land).

Not necessary to open a business cc but i would recommend a separate bank account. Keep track of any business expenses you pay personally or they can slip through the cracks.

And, unless you have a really low-cost house, do not use the IRS “simplified method”. You will probably get shafted on the deduction and it is an irrevocable election.

Naturally, you’ll want to at least consider opening a solo-k.

Finally, a CPA with a history of experience with the home office deduction and with experience advising small businesses will easily overcome the cost of hiring him/her. The CPA will also provide guidance on good record-keeping so you don’t miss other relevant expenses.

[I Find This Humerus]

What is a solo-k? And why? I Should clarify I do not own the business but will be an employee.

When you say proportionate you mean if I work 10 days out of 30 a month then I can deduct a third of my internet bill for example?

i am a full time w2 employee and the home job will be 1099 income.

How owe do you suggest keeping track of expenses? An excel sheet and keeping receipts?

[spiritrider]

If you have 1099 income you are a business. You will be both employer and employee.

[jfoxcpacfp]

I Find This Humerus wrote:

What is a solo-k? And why? Jfoxcpacfp: Has been discussed ad nauseum on the forum.

I Should clarify I do not own the business but will be an employee. jfoxcpacfp: I’m not sure what you mean. Who will own the business?

When you say proportionate you mean if I work 10 days out of 30 a month then I can deduct a third of my internet bill for example? jfoxcpacfp: see above response where I clarified about square footage.

i am a full time w2 employee and the home job will be 1099 income.

How owe do you suggest keeping track of expenses? An excel sheet and keeping receipts? Jfoxcpacfp: that is one way

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See above answers.

[I Find This Humerus]

spiritrider wrote:

If you have 1099 income you are a business. You will be both employer and employee.

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No no. Someone else owns an online business and I will be working from home for them.

[CordMcNally]

If you're their employee, you'll receive a W2. If you are a contractor, you'll get a 1099. If you get a 1099, you'll technically be your own employer as mentioned above. You need to figure out what you are before you start spending money.

[jfoxcpacfp]

I Find This Humerus wrote:

spiritrider wrote:

If you have 1099 income you are a business. You will be both employer and employee.

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No no. Someone else owns an online business and I will be working from home for them.

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Ok. I think the confusion was from your original post saying "I am starting an online business..." - sounds like you are working for someone else who has started a business, yes? If that is the case, you are much more limited in what you can deduct. The employee business expense deduction was eliminated in the new tax bill. You may be able to work out an arrangement with your new employer to have an "accountable plan". To do so, your employer would agree to reimburse you for money you spend OOP related to your employment, such as for a home office and mileage.

[I Find This Humerus]

jfoxcpacfp wrote:

I Find This Humerus wrote:

spiritrider wrote:

If you have 1099 income you are a business. You will be both employer and employee.

Click to expand…

No no. Someone else owns an online business and I will be working from home for them.

Click to expand…

Ok. I think the confusion was from your original post saying “I am starting an online business…” – sounds like you are working for someone else who has started a business, yes? If that is the case, you are much more limited in what you can deduct. The employee business expense deduction was eliminated in the new tax bill. You may be able to work out an arrangement with your new employer to have an “accountable plan”. To do so, your employer would agree to reimburse you for money you spend OOP related to your employment, such as for a home office and mileage.

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Sorry for the confusion. I will be a 1099 contractor for them.