Tax question and expenses

[SAWYER]

I do side jobs all the time but it is always cash but I am going to start pressure washing a local car lot after hours a twice a week and they will be doing it official where I get a tax form. Do I need to start saving receipts for gas and other supplies?

 

[Humpy]

Yes. The expenses are effectively reducing your income which will reduce income tax.

It should be realistic though. It would be dumb to spend $99 to earn $100.

 

[bbhaag]

Depending on how far away the dealership is it might a good idea to keep track of your mileage and log it on a spread sheet. Like Humpy mentioned keep your spending under control. Just because you can use your expenses as a tax write off don't go and buy a new pressure washer.

 

[SAWYER]

Yeah I am only talking about stuff that is essential like gas, cleaning supplies ect. For example I bought some chamois on amazon today, could I print off a receipt from my order?

 

[bbhaag]

Yes you should be able too. Under your orders there should be an option to print an invoice.

 

[BoomerD]

Yes. Keep track of every dime you spend to make a buck.

https://www.irs.gov/businesses/small-businesses-self-employed/deducting-business-expenses

If you make enough that it will seriously impact your personal taxes, a good CPA will be the expense.

 

[RLGL]

Run your side business through a separate bank account. Keep track of all income and expenses with an app like quicken or Quickbooks using a chart of accounts. When tax time comes around your CPA needs a simple printout of one page to prepare the taxes. Depending on the income you may need to file a quarterly IRS Payment, both state and federal.

 

[gill77]

Run your side business through a separate bank account. Keep track of all income and expenses with an app like quicken or Quickbooks using a chart of accounts. When tax time comes around your CPA needs a simple printout of one page to prepare the taxes. Depending on the income you may need to file a quarterly IRS Payment, both state and federal.

RLGL has provided some good advice. Deposit all your receipts into this bank account and pay all your expenses from it. Hand it to the tax guy at the end of the year and you are good to go. Inputting into quicken or an excel spreadsheet would a great additional step.

You will inevitably be asked, "Is this everything?". The problem is that it hardly ever is. Most likely there will be cash or credit card purchases that are outside of that account. Periodically reimburse yourself through an expense report. Nothing fancy needed. Staple the receipts to the report and cut yourself a check for the total. You would, of course, list these as separate line items when you record that check.

 

[dullard]

You do not need to save receipts, but you would be ill-advised to ignore the tax savings for doing so.

I highly recommend getting a CPA to help you start this properly. Once you see what the CPA does, you can copy that work and update the numbers accordingly yourself. The learning curve to doing it correctly can be steep for some people.

What you do need to do is start doing this legally. The cash under the table stuff needs to end. You'll find the taxes you pay doing it properly are minimal but now you qualify for so many government benefits that it is well worth it.

 

[gill77]

Speaking of taxes..........

Since you have no employer "taking out" fica and medicare, you will have the pleasure of paying self employment tax, about 15%. Since this is a side job, and the 15% bracket starts at $10K of total taxable income, you will most likely be paying a minimum of 30% on the profit you make from your side business.

That self employment tax sort of doubles the importance of deducting every business related expense.

 

[SAWYER]

Thanks