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Re: OT: going to contracting on 1099....any advise? Posted by Ari [Email]  (#2847) [Profile/Gallery]
(more from Ari) on Tue, 18 Sep 2007 11:30:54
In Reply to: OT: going to contracting on 1099....any advise?, Tarheel, Mon, 17 Sep 2007 12:50:18 Members do not see ads below this line. - Help Keep This Site Online - Signup |
For vehicle costs, you can go two ways-
One is to use the IRS mileage allowance. It is 48.5 cents a mile in 2007, and changes year to year. If you go this way, MAKE SURE that you keep a detailed mileage log, in order to differentiate between business and personal mileage. Details, details, details. And any support paperwork you can, such as a calendar of when and where you go for business.
Or, you can charge actual costs - again, ONLY business related. That's fuel, insurance, repairs, and depreciation. More on depreciation later. For this method, you'd need to keep the same detailed records, and at the end of the year determine what percentage (by miles) was business and what was personal. You can take the business portion of all the actual incurred costs.
A big part of those deductions is that you can take (the business portion of) depreciation. With a used car, not much value. With a new car, a huge value. BUT BE WARNED - when you sell the car, you will recover some value from it. If you recover more value than it has been depreciated to, the government is going to want its cut - it's called Depreciation Recovery. That can come as a great surprise. There are ways to deal with this - a good accountant can help (see below).
The usual, easiest method is to go with the cents per mile approach. You need to keep careful records either way, but you've got fewer records with straight cents/mile than actual costs. And it's probably fine with a car that has depreciated already.
And that's just the beginning. As others have said, you'll pay near double on Social Security taxes. You will probably need to pay quarterly estimated taxes. Your state may have a business tax - just because you don't know about it won't be a good excuse when they come knocking. And they have ways to come knocking.
Your first step is to hire yourself a good small business accountant. Hire them on an hourly basis - go in and ask what you need to do. Have him/her help you with your first year or two of tax forms - that's always fun. If you're in the mood, you can learn from them and start doing the paperwork yourself after the first year. But that first year can be tricky, and you don't want to get caught up in tax issues. No fun at all.
posted by 192.249....
, Tue, 18 Sep 2007 11:30:54 <-- Viewing This Message
, Mon, 17 Sep 2007 13:03:42
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