6 Popular Tax Questions By Our Clients

1. When Do You Have to File Form 1099?

One of the best ways to expand your business as a work-at-home mom is to hire independent contractors. The contractors benefit from the flexibility of working from home as well. The IRS expects you to report payments you make to them that exceed $600 during the tax year. You’ll have to file Form 1099 with the IRS, and send it to the independent contractor as well.

2. Are Partners Taxed as Employees?

If you and another work-at-home mom or other business owner are partners, you’ll both have to pay self-employment taxes. The IRS doesn’t not consider you as an employee of the partnership. You’ll have to file Schedule K-1, reporting your net earnings and paying any taxes owed. You may be able to skip paying self-employment taxes quarterly, if a combination of your credits, business losses and deductions will result in you owing less than $1,000 in taxes. Get the help from a small business tax attorney or accountant to assess your personal situation, if you’re not sure how to figure out what you’ll owe.

3. Is the Money You Use from Your Business Bank Account for Personal Use Considered Business Income?

Co-mingling your personal and business funds and expenses is not a good idea. There are times though, where you may forget your personal debit card and charge expenses to your business bank account. You have to count that money as business income. You don’t get to write it off, or deduct them when filing taxes. If you do this a lot, it can be problematic for you because that’s more business income you have to pay taxes on.

4. Can You Take a Business Deduction for Using Your House or Apartment?

A major tax benefit you have as a work-at-home mom is the ability to take deductions for the business use of your house or apartment. You meet the “principal place of business” requirement because you work from home. You also have to prove “exclusive and regular use” of your home for business. If you store inventory at your home, then you don’t have to prove exclusive use.

5. Do You Need to Collect Sales Tax?

It depends on your state laws as to whether and when you have to collect sales tax. The department of revenue in your state is the best place to get answers. It’s important to find this out before selling product, because you’ll have to pay the sales tax you should have collected, if you didn’t.

6. Do I need receipts for all my deductible expenses or can I use credit card statements as proof?

Keeping receipts are important because you may need them in case of an audit. What if you didn’t keep a good collection of business receipts? The burden of proof on any business expense deduction will be the “Four Ws”: Who, What, Where and Why. If you can prove this with various other means, like a car log and credit card statement the IRS may accept it. But it is all up to the IRS. The most bullet proof way of proving an expense is with a receipt and a note detailing the Who, What, Where and Why.