[olug] Part-time Self Employment (Side Jobs)

[Jacobs, Robert A.]

My wife runs a small business from our home (Pampered Chef) and 
I used to do some IT Consulting on the side (been awhile since
I did that, though).   

Here's my experience and what we've been told:

>I talked to the one in my family and we talked for over an 
>hour about the various and sundry implications.  Basically you 
>need to keep track of income, and money spent.  

Keep track of mileage driving to and from jobs as well.  You 
can deduct mileage at a rate of $0.36 per mile (might be $0.39) -
your tax accountant will know (while we are at it, do yourself
a favor:  use an accountant -- I think it cost us about $50.00
and we can deduct that cost as an expense on next years taxes).

Basically, ANY money you spend while going to, in the course of,
or coming from a job should be recorded.  Obviously, if you 
complete a job and stop off at Baker's on the way home to go
grocery shopping, you can't deduct the groceries (but you can
deduct the mileage).

Here's a good one:  My parents live in Chicago.  Last fall, my
mother purchased a Pampered Chef product from my wife.  We 
delivered it when we visited them and were able to deduct the
mileage from the trip (that's about 1000 miles).  We were told
not to do this too often or it would look suspicious but it
was otherwise legal.

Professional Development:  periodicals, books, etc. that you 
purchase to enhance your skills are deductable 
(Linux Journal, O'Reilly Books, etc.).

If you have a home office that supports your business, 
you can deduct part of your property taxes, utilities, 
home improvements, etc.

Now for the part that hurts:

As an independent contractor, you'll receive a 1099 from each of 
the companies you work for...that means you get taxed at a higher
rate and are responsible for tracking not only how much tax you
owe, but how much social security as well.  Stick 50% of every 
paycheck into a bank account and do not touch it! If you are real 
lucky, you'll only need about 40% or so.

Definitely open a separate checking account for your business and
do yourself a favor and keep the funds separate.  Money paid to you
for services rendered, goes in as "Revenue", money transferred to 
your family checking account goes out as "Expense: Salary".  This
seems anal, but it will save you headaches later.  

Keep track of what businesses you work for so you know who owes you
a 1099.

>deduct your expenses.  You have something like 7 years to turn 
>a profit at
>your "business" or the IRS reclassifies it as a "hobby" rather than a
>business.

Actually, its more restrictive than that:  you have to show a profit 3 out
of
5 years.

robert.a.jacobs