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Surviving the Taxman - Deductions for the Webmaster
By Dyanna S. Culp (Temos)
You can deduct all costs associated with running a business or attempting to obtain new clients, whether your endeavors were successful or not. That includes mileage, gas, phone calls, and even air fare. Everything related to running a business is tax deductible, either in full, or as a percentage over time using depreciation or amortization tax rules. Being a home based business opens up even more possibilities, allowing a percentage of rent or home payments, utilities and home repairs to be deducted.
Save all records and receipts for the following categories to fully utilize all options for reducing your tax bill. Add up all costs by category- Then GO SEE A GOOD ACCOUNTANT. If you are well organized in advance, you'll only pay for a few hours of their time.
Accounting fees: including the cost of preparing your 2002 return.
Advertising: For a webmaster the cost associated with hosting, maintaining a website, and search engine marketing definitely qualify as advertising.
Automobile: If the car is "strictly" used for business, all actual expenses can be deducted (including insurance), but if your auto serves both business and pleasure purposes, keep a log and deduct business mileage.
Banking charges
Business Licenses
Charities: Cash contributions are 50% deductible. Property and time donations have different rules- see your accountant.
Cleaning: Deduct both the cost of cleaning business clothing (make sure that's all it's used for) and housekeeping services.
Commissions: The cost of supporting all of your affiliates.
Consultants: If you pay an individual more than $1300 per year, you must supply them and the IRS with a 1099.
Delivery: Federal Express, postal charges, etc.
Dues and subscriptions: For any professional services or business related subscription, including: subscriptions to professional magazines and newsletters, online job sites, and local newspapers.
Education: Classes in Dreamweaver or Flash.
Entertainment and Meals: Typically only 50% is deductible.
Healthcare: Medical, dental, vision, and prescription expenses.
Home office Special rules exist for home office deductions. See the Home Office section below.
Job Hunting: The expenses must exceed 2% of your adjusted gross income to be deductible. You can only claim these deductions if you're hunting for jobs in your current line of work. If you're a former steel worker, you can't deduct the costs of looking for new clients as a webmaster. If your new job requires moving to a new city, you can deduct the cost of relocating if the distance between your new job and old home is at least 50 miles more than the distance between your old job and home.
Insurance: Business liability, equipment, etc., but not health.
Interest: On equipment and supplies.
Internet service: Web service- high speed, and your travel dial up account.
Legal Services: Hopefully you didn't need any.
Office supplies and expenses: Save every receipt for supplies such as stamps, staples, CDs, tape, paper, print cartridges and the Ozarka water cooler.
Printing: Brochures, business cards, flyers, etc.
Repairs: This is a tricky one, and applies to the cost of keeping equipment in repair, not extending its lifespan.
Retirement Plans: Traditional and Roth IRA contributions. 2002-2004 have a $3,000 annual limit for tax deductible purposes. This will rise to $4,000 for 2005-2007 and go to $5,000 in 2008.
Salaries and wages: For the 'Net slaves you keep chained under your desk.
Software: Both hard copies and online paid access software.
Taxes: State income taxes and property taxes on the business, or if a home office, a percentage of the home property taxes. To deduct for the past tax year you must prepay any state taxes before the end of the 4th quarter, and pay property taxes before December 31st.
Telephones: Office and cell phones monthly expenses, long distance and fax charges.
Tradeshows: Booth expenses for tradeshows, banners, and everything it took to get it there, set up and get it home again. Models who handed out your fliers, giveaways…check with your accountant…
Travel: By car, bus, sea or air.
Utilities: Gas, Electric, water, sewer, etc.
Depreciation: Some expenses must be capitalized and depreciated as the items lose value over the years:
Equipment such as computers, printers, cameras and scanners
Furniture - Don't forgot to include the cost of that beautiful new framed picture and the oriental rug under your desk.
Buildings and improvements- such as a new driveway for client parking or a waiting room.
Repairs that extend the life of the property, covering everything from the roof to the plumbing.
Amortization: Some expenses, such as business start-up costs, can't be deducted, but must be capitalized and amortized over a period of years to obtain the full deduction:
Purchase costs of e-mail marketing or direct mail customer lists.
Business Start-up costs.
Licenses which remain in effect for more than one year.
The Home Office
Don't push the envelope; you only want to take advantage of "legal" and "legitimate" deductions for the home based office. Venturing into these deductions can be a dangerous path unless you engage a qualified accountant.
Home office deductions can include a portion of utility bills, home repairs, lawn work, anything that affects your office or its appearance to visiting clients.
For instance, if your office space is 20% of your home, you can deduct 20% of all utilities and home repairs such as roofing or plumbing jobs. The key term is "repair" not upgrade. Percentages of maintenance cost for lawn care or housekeeping may also be deductible.
When in doubt, don't claim a deduction, and always obtain the services of a top notch accountant to compile your paperwork into a cost-cutting return. A fee of a few hundred dollars is well worth the reductions they can make to your IRS bill. A good tax accountant saves you money far beyond the cost of their fees, and keeps you on the safe side of the IRS.
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