TAX, ACCOUNTING & CONSULTING
contact: lrust@nathans-rust.com
February 20, 2012
Income tax rules affect your Web business
Did you start an online business in 2011? If so, you might have income and expenses that affect your federal income tax return.
Here are three items to consider.
- Home office deduction. Do you use part of your home or apartment on a regular or exclusive basis for conducting your web business? Do you have a separate studio or other freestanding building where you work exclusively in your business? Do you store your business inventory in a specific place in your home?
Answer yes to any of those questions and you may be able to deduct part of the cost of utilities, insurance, and repairs made to your home.
- Payments to independent contractors. Paying a vendor to create your web site or handle administrative tasks means you may need to file information returns — generally Form 1099 — to support your deduction.
You're required to send copies to the vendor as well as to the IRS.
- Documentation of expenses. Though your business is online, you probably use your vehicle for work-related errands or sales calls. Track your mileage to determine whether you should calculate a deduction based on actual expenses or the standard mileage rate.
For 2011, the standard rate for business miles was 51¢ from January 1 through June 30. The rate increased to 55.5¢ from July 1 through December 31.
Another expense to document: Telephone use. For a land line, you can deduct the cost of long distance business calls. The regular monthly charge is not deductible unless you have a dedicated business line.
For your cell phone, keep records of business usage so you can deduct that portion of your bill or plan.
Give us a call for rules on claiming other expenses related to your online business, including merchant fees, start up costs, and website development.
