2016 Tax Preparation Guide For The Self

2016 Tax Preparation Guide For The Self-Employed

Working as a freelancer can be a dream for those who don’t like to punch a time clock. There’s no one to answer too and it’s a schedule where a person can set their own hours. However, all of the glitz and glamor of owning a business goes away when it comes to the yearly tax report. Regardless of whether the taxes are self-prepared or done by an accountant, it’s still important to know what deductions a business qualifies for so that proper measures can be taken throughout the year.

Schedule C

To avoid paying a ton to Uncle Sam, most people use a Form 1040 and use a Schedule C. One of the biggest goals of the self-employed is to write off as much as possible. The form starts allowing deductions on Line 8. Here, a write off for advertising is allocated. This will include anything that is done to promote the business. It can be business cards, printed brochures, and even a sponsorship to local community events. Anything used to promote the business should be listed here.

Car Expenses

Car and truck expenses are often a big write-off, and the filer has two basic options. On line 9 of the schedule C, the number of miles driven for business can be entered. The IRS will times those miles by 57.5 cents and in 2016 it’s .54 cents In addition, any money paid for parking fees and other tolls can be added too. This amount goes on line 9. In section B of form 4562, the other option is to itemize expenses verses mileage. This would be the costs of gas, insurance, repairs and other car-related costs. It is usually much more advantageous to the bottom line to claim the mileage over actual expenses.

Employees/Contract Labor

As a self-employed business professional, it is often necessary to hire other freelancers to help out. It could be a college student who is helping to do some filing or computer work. Hiring contractors goes line 11  or employees line 26 of the Schedule C and is known as Contract Labor. Any labor that the freelancer paid for, but didn’t treat as a regular employee, would go on this line. Don’t include fees for accountants and lawyers on this line, those go on Line 17. Repairs for business equipment would go on Line 21, so it too doesn’t go in this lot. It is reserved for just the people paid to do a job for the business. See the IRS guidelines for more information in Independent Contractors.


If a business has any sort of equipment, then depreciation is going to play a big role in reducing the amount owed. This could be computers, camera, machinery and anything else that the company bought to utilize. The IRS allows you to claim the items depreciation over five years. There is an exception that will allow a business to write off the total amount up front, or they can split it up over the next five years. Line 13 is pretty self-explanatory.


As a freelance business, it is important to have insurance. All sorts of insurance premiums from auto to malpractice can be written off on Line 15. If the company pays for workers’ compensation, storm, accident and even office insurance, write it off here.

Interest Expense

Any loans that were taken out for the business can be reported on Line 16. If there were any interest paid in the loans, it’s also recorded here. This can be for credit card debt, or mortgage interest used if taking the home office deduction. Only a small percentage of mortgage interest will apply to this deduction for home offices.

Professional Services

On Line 17, any legal or professional services can be written off. If there was a lawyer that did some work for the company or an accountant; their fees would be included here. It can be hard sometimes to determine between contract labor and professional services. Typically, anything other than legal or accounting goes under contract labor.

Office Expenses

One of the ways to get some money back is office supplies. Ever pen, paper-clip, stamp, and other professional instruments can be written off on Line 18. Keep all those recipes from the year, as it can really add up to a great deal. Ink for the printer and printer paper are big expenses. Be sure to tally all that up and include it here.

Professional Equipment/Business Property

If the company leases any gear, like cars or professional equipment, then they can write it off on Line 20a. If a property is being rented for the business, then it can go under 20b, which is for other business property.


This is not typically a huge category for the freelancer. Line 21 is for those who pay for equipment to be repaired, or something of that nature. If the computer broke down and an IT professional had to come and fix it, then it would be categorized here. If something needed to be repaired in the home office, it would also go here. This category is not a big deduction area for the self-employed of a small home based business.

Supplies for Physical Products

If a freelance business produces things to sell, then they can write off the supplies on Line 22. This can be copy paper, leather or whatever else is needed to make the goods sold. The cost of the inventory doesn’t go here. Just what had to be purchased within the last calendar year should be included.

Real Estate Taxes/Licenses

Any real estate taxes or federal unemployment taxes can be reported on Line 23. A home office allows a person to put a percentage of the real estate taxes on here too, but a calculation has to be done from Line 30 to see how much to claim.


Those who travel for the business purposes can enter the costs on Line 24a. Remember to only include meals, gas, mileage and other expenses that were for actual business and not pleasure parts of the trip. Only reasonable meals count. Anything extravagant will be frowned on from the IRS.


If the office is not in the home, then a person can deduct 100 percent of the utilities. A home office goes according to a calculation from Line 30. Utilities are considered to be the phone, gas, internet and electric. This goes on line 28.

Home Office

The biggest and most complex deduction is often the home office. In order for this to count on the freelancer taxes, it must be the location where most of the business work is done. The space must be only for business and nothing else. The freelancer must meet clients there regularly, do work there, or using it as a place to store or showcase inventory. The home and office must be measured and the calculations entered online. It’s wise to keep some pictures of the space, keep receipts that are associated with any claims and make sure not to trigger any red flags at the IRS with outlandish claims.

Doing the taxes as a freelancer can be quite tedious. It is better to have an accountant look over things so that there is some level of protection in the event of an audit.


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San Diego’s trusted source for tax preparation, bookkeeping and payroll is on Facebook too!  Hoffman & Associates will be posting helpful tips and tricks to help individuals and business with their financial planning.  Like us on Facebook to stay connect and also keep up to date on changes the tax code that are important to your bottom line!


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4 Critical Bookkeeping Tips for 2015

The Essential Bookkeeping Guide

There are many reasons to keep watch on your books. Knowing your incomes, your outgoings and having control over your finances helps your business and personal life. When you have a complete handle on all of your finances you will actually feel safer and more comfortable with your life. If you are not a numbers person or the idea of keeping track of your finances is terrifying, then you need to hire a bookkeeper to manage it for you.

Actually Do It The first and most important bookkeeping tip is to actually do it. If you don’t do it then you will need to hire someone that will. The reason you need to do it is because you have a legal requirement to keep your books and if you don’t you could be subject to a fine or worse. When you keep your books you will have more control of your business. Its impossible to know whether you are up or down, what bills you have to pay or how who owes you money, if you don’t keep your books. Keeping your own books will lower the fees your accountant charges you to manage your accounts, and if you ever want to sell your business or get financing, you will need to present your books.

Track it All Start by tracking all of your expenses you may end up paying for things that you don’t know about or building up fees that you are blissfully unaware of. Tracking your expenses is the first and most important way to keep track of your finances. Start by noting down everything you buy, ever! If you purchase a coffee, keep the receipt and track it. You need to know how much you pay for coffee every week, month and year. The coffee is just one example; you must track all of your expenses from petrol money to house bills.

Set Aside Money For Taxes Every time you get paid you should put aside the right amount for taxes. You don’t want tax time to come around and you found you have spent the money. The IRS can incur penalties for you not filling out your tax returns on time and you could find the situation getting worse and worse. Note the tax deadlines on your calendar so you know when you need to pay, and set aside money throughout the year so you are always prepared.

Use A System to track it A system can be a simple as a diary or file that contains all your incomings, outgoings, taxes and all other finances. You can also get a system like Simplex to help track your books and accounts in a simple fashion. There are other systems like Everite and Collins that you can use or outsource to manage your accounts and keep your books. There a wide variety of computerized systems and if you are running a small to large business you will want to consider using one of these systems. You can use Sage, MYOB, or search in Google for bookkeeping systems and there are many to chose from. The bottom line is that you must use a system. You can use a notebook or filing system to keep track of everything, and organize it so that you can see incomings and outgoings.

Simple Rules For Keeping Books When you are writing in your files make sure to use a pen instead of a pencil. If the IRS or the tax office is ever inspecting you, they like to see that you are using a pen. Also don’t use Tippex because that can also look suspicious. Keep your books updated regularly. If you wait around for months before organizing and managing your books then it will get too overwhelming and you will end up messing up or leaving it too long. The best thing to do is to keep your books updated daily or at the very least, weekly. This will ensure that you are never piling up too much work and you are keeping it manageable at all times. When you are paid, or you spend or any financial transaction takes place, it should be recorded in your books. If money is going in or out of your pocket then it needs to be in the book. If you use online banking then print out your bank statements whenever you get them. If you get bank statements in the post then keep them all filed so you have all the information needed whenever you are organizing or sorting out your books.  

More About Your Bank Statements Every month you should go through all your bank statements and confirm that they fit with the details in your books. Anything that you have missed or that isn’t covered you need to track properly in your books. Go through each entry and as you match the entries from your books and your statements you should tick them off. This is an easy way to make sure everything is kept up to date. When you go through the statements make sure you notice any standing orders, interests or charges and confirm that they are all in your books properly documented. When you have gone through everything, calculate the final balance and write it down so you have it recorded for that month. Compile all your total sales figures and expenses for every month and when you have all the data you will be able to properly calculate your profit and loss. You should record all of this in a spreadsheet, or notebook at the very least. There are many software’s and services that you can use to make this much easier.

A Friendly Reminder If this is all a little overwhelming for you and you are already tearing your hear out, then you know exactly why bookkeepers have jobs. It will give you incredible peace of mind to hire a good bookkeeper to manage all this number crunching. Bookkeepers can manage several accounts so you won’t need someone full time, and you can usually hire someone for a fairly low fee to manage everything for you. Regardless of weather you hire a bookkeeper or not, you will still need to start tracking your incomes and outgoings by saving receipts, invoices, banks statements and any other financial transactions.

Claim Business Expenses This is extremely important if you are not doing it already. You can claim for any cost that is made exclusively for the business. You should save all of your receipts, especially those for the business because when you add up those costs you can claim for these. If you have stationary that you use in the office you can claim for that. If you take a trip to the bank in order to have a business meeting then you can claim for the cost of petrol.  If you have an office at home you can claim a portion back from your electricity and maintenance bills including telephone and Internet. If you are having trouble deciding whether something is exclusively being used for the business then you can talk to an accountant.

Get some further training The HMRC give away some free training including some workshops, which you can go on to learn more about this. You can go on a free workshop to learn about setting up a company, managing your VAT, running a payroll and many other financial lessons. It’s important to take an interest in learning how to manage your finances because if you can get on top of it your business will grow and your finances will improve. You will also gain incredible peace of mind knowing that you are on top of everything yourself and you don’t need to hire someone, although you still can if you want.

Final Conclusion There is a lot to think about when dealing with your taxes, books and finances. This is why you may want to consider hiring an accountant or bookkeeper to start the process of managing your books and keep your finances in check. It’s a legal requirement and it gives you an opportunity to have complete control over your financial life.

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S-Corporation Reasonable Compensation

You talked to your accountant or attorney about changing from a sole proprietor ( Sch-C ) or a Partnership to a S-corporation because you heard you could save on Fica and Medicare Tax. Hopefully the professionals you talked to told you taking a Salary from the Scorporation is necessary so IRS won’t be knocking

You talked to your accountant or attorney about changing from a sole proprietor ( Sch-C ) or a Partnership to a S-corporation because you heard you could save on Fica and Medicare Tax. Hopefully the professionals you talked to told you taking a Salary from the Scorporation is necessary so IRS won’t be knocking on your door. IRS is currently very active in small business examinations on this issue. When IRS comes asking for payroll for your S-Corp and you have not put yourself on payroll there can be penalties for not filing and failure to deposit plus interest on the amount that my be do on the payroll taxes.

You need to address the services you are performing for your company and make sure your compensation is reasonable. Also have you adequately documented loans so that IRS would not recharacterize the loans as capitol contributions and determine the repayments to be wages?
With IRS focusing more it resources in the next 3 years on examinations of S corporations, take a look at your company and see if you are paying yourself a reasonable compensation.

IRS is currently very active in small business examinations on this issue. When IRS comes asking for payroll for your S-Corp and you have not put yourself on payroll there can be penalties for not filing and failure to deposit plus interest on the amount that my be do on the payroll taxes. You need to address the services you are performing for your company and make sure your compensation is reasonable. Also have you adequately documented loans so that IRS would not recharacterize the loans as capitol contributions and determine the repayments to be wages?

With IRS focusing more it resources in the next 3 years on examinations of S corporations, take a look at your company and see if you are paying yourself a reasonable compensation.

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Urgent Notice: The Affordable Care Act 10/1/13 Mandate

The federal health reform law called the Patient Protection and Affordable Care Act (ACA) provides for the creation of new state exchanges, also known as insurance marketplaces.  In CA, the state exchange is called Covered California. Most employers will be required to provide each current employee with a written notice of coverage options no later than October 1, 2013.

Any business with at least one employee and $500,000 in annual revenue are required to provide written notices to all employees – regardless of benefit enrollment status or full/part time status – about health coverage options.  Or face up to a $100/day fine.

Employers can send the notices by mail or electronically.  If you do not offer any health coverage you are still required to distribute the notice to all of your employees.  Effective January 1, 2014, employers will have 14 days from any new employees start date to provide a notice.

If you choose to create your own notice, you must include:

  • Explanation of the marketplaces
  • Reference to www.healthcare.gov
  • Information about premium subsidies that may be available if employees purchase a qualified health plan through the marketplace
  • Notification that employees may lose their employer contribution to the health plan if it is obtained through the marketplace
Download forms below: Offering Insurance Plans? YES or NO

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Got it All? The Tax Preparation List of frequently missed items

Got it All? Tax Preparations

Here’s a list of items frequently missed. Check it against your list to make sure your ready for tax preparation.

  • Refinances. I need to see the settlement statement. Maybe it’s best to bring in all the paperwork.
  • Child Care Expenses. Have the full name, address, telephone and I.D. number of care providers
  • Estimated Tax Payments. Find date and amount for payments. Look near April 15th.

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Combine my business and personal trips?

A great question that I get from my bookkeeping and payroll savvy clients in San Diego is how to combine business and personal vacations you always wanted to take.  It has big tax implications and is important to have a financial guide like Hoffman and Associates walk you through the process. While it’s possible to pull this off there are some very important factors to consider.  Careful planning and preparation can help you save on your trip by allowing you to write off a significant portion of the cost of the overall vacation.

To start with the primary purpose needs to be a business trip and your simply integrating your personal one too.  Doing it the other way around can cause more trouble than it’s worth.  Keep that in mind!  If you’re traveling in the United States, and the primary reason is business then your good so far.

Next you should be prepared to keep record of every transaction that occurs for the trip.  It can be burdensome for many, but good recordkeeping pays off!  Keep in mind this just applies to business travel domestically. Here are the four details that you will want to have a paper trail for.

1. Destination

2. The dates of the trip

3. Reason for travel and what is to be gained from it

4. Costs of travel, meals and lodging.

When it comes to planning the trip there is nothing wrong with you staying the weekend and enjoying the area.  You use that long weekend and enjoy a theme park or go camping.   If done this way your airfare is fully tax deductible and mileage becomes deductable at 55.5c per mile.  The benefit to using mileage is it allows you to take more people with you at no additional cost.  Flying would incur another expense that can’t be used as a deduction! So you can see the clear benefit of driving if the family is coming too.

Another way to have a business and personal trip together is to plan it around some continued learning program.  If its educational then it is a legitimate business expense.  Even if a conference is held in a resort area it doesn’t matter because the purpose is business.  You are free to work all day and play that evening!

I hope this helps you understand how to integrate business and personal trips, it’s all about how you do it.

For small businesses in San Diego that need this kind of insight in their bookkeeping and payroll simply give Hoffman & Associates a call!

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Planning Ahead: 5 Ways To Reduce Your Tax Burden

Tax season is over! Now it’s time to start planning for the next year taxes. To many this might seem premature but planning ahead pays! Therefore many people are in a search for the ways of reducing the tax burden and the tax experts have pointed out many strategies that can be followed to save a considerable amount of cash from taxes. Here we discuss 5 ways to save money on taxes and if you really need to reduce your tax burden, the time you spend here is really worth it!

First and foremost, what you can do to start protecting your profits is put some in a qualified retirement plan. If you have a retirement plan, then you’ll be able to reduce your tax amount as the Self-employed business owners can contribute up to 20% of the total earnings to the retirement plan, but limited to $50,000. When it comes to the corporations, this amount has been lifted up to $250,000 as 25% of the total earnings. This particular amount will be deducted from your total earnings, so you’ll be able to reduce your tax burden by a large amount. Also you’ll be able to get a tax credit up to $500 to cover administration costs for the first three years by adding your employees to a qualified plan.

Employee health plans are the next position where you can have a tax deduction. This is one of the most overlooked tax credits. If you afford to pay an amount equal to 50% of your employees’ healthcare premiums, you will be qualified for a credit up to 35% of your taxes. According to the tax experts, this strategy may not suit for the business owners who are not paying for their staff’s healthcare premiums, but this is most suitable for the business owners who pay 25%-40% of their employees’ healthcare premiums.

Spending a money on your marketing campaigns can also be a good solution to decrease you tax amount while increasing your business revenues.  The key is to make sure you track the ROI (return on investment) to ensure to is an effective marketing program.  Therefore most of the Small-business owners that are smart in this process of pouring cash into their marketing budgets can have the tax amount deducted quite considerably coupled with effective marketing strategies.

In the previous years, there was a 100% bonus depreciation which facilitated the business owners to cover their all costs related with their businesses without additionally spending even a dollar and now it has been downgraded to 50%. If you are confused about the depreciation of the bonuses for your small business, now you don’t need to be worried about it. This is because according to the experts, the bonus depreciation which was downgraded to 50% will come back to 100% in near future. So it is better to keep all the records and documents of the equipment purchases while keeping eye on the latest business news updates and for sure, you’ll be able to have a big tax deduction.

Many entrepreneurs neglect calculating their small expenses and eventually without knowing, they miss the chance of deducting their taxes. Banking fees such as online transaction fees and checking account fees or other charges like PayPal fees that seem small at the time add up! All these small expenses must be included in your yearend budget if you want to keep your money. Another important thing that you should follow is tracking the mileage and calculating the cost according to the IRS standard mileage rate. You can use the Smartphone applications like MileBug, Trip Cubby to calculate the mileage and it would be better if you can add all driving costs with including parking fees to account. If you calculate all these expenses simply, you’ll be able to have the yearend budget with the accurate income. Therefore your tax burden also will be significantly deducted.

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Tax Savings Tactics for Small Business Owners

It’s a common situation that as soon as the tax time approaches, small business owners start losing their sleep over tax payments. If you are a small business owner, you may relate to this. That’s why, it’s always better to prepare well in advance, in order to face this crucial time of the year with courage. The key factor that differentiates a visionary business owner from the crowd is his ability to think ahead. To encourage this type of mentality and the spirit of thinking ahead, we have compiled a list of tax saving tactics. We are sure that these tactics would not only help you in saving a considerable amount of taxes but also make you a smart financial manager at the end of the day. The strategies are especially beneficial for end of the year taxes and Q4 tax payments.

In order to take full advantage of the tax savings; the most important thing that you should do is to keep track of the tax opportunities. There are several methods that you can employ to accomplish this. For instance; a tax diary, a tax diary is a wonderful way to keep you updated, about all the tax saving schemes and opportunities out there. Another important tool that should be in your arsenal is rock-solid tax organizer. As a business owner, you must already be aware of the importance of saving and keeping safe all your receipts and documents. Another thing is the knowledge and education of tax policies and deductions.  These may not provide you the overnight results, but can be a great asset in the long run. Above all, who can underestimate the importance of a good tax advisor? A good tax advisor is the person who is always willing to listen to your side of the story, your views and your plans, in addition to offer his suggestions. There is nothing better than having a Hoffman and Associates to handle and mange your income tax process. It’s always recommended to communicate regularly with your financial advisor or bookkeeping service. Prepare a checklist of the things with their help that you may need at the time of tax payment. This strategy will be very helpful in preventing the chaos and confusion that may arise during the eleventh hour of tax payment.

To prepare you well for the tax payments, it’s often recommended to get enrolled in one or more benefit plans. These plans can save you a significant amount of tax breaks. Contributing in a defined benefit plan is always a better idea than to contribute in a contribution plan, especially if you are a small business owner and you are over 50 years of age.  The reason is that you can contribute more in defined benefit plan. More contributions effectively means more tax savings.

Another income tax aspect that can cost you heavily is your purchasing decisions. Although in most of the tax plans, making purchases for your business is considered as a tax saving tactic. However, it is highly recommended to take the recommendations of a professional tax advisor before making any big purchases. Lastly, in case of 1099 employees, it’s recommended to set up your quarterly payment estimates; if you haven’t already done so. This will effectively help you in sorting out your cash flow, which in turn can prove to be beneficial for substantial income tax savings.

For general tax deductions, experts are of the opinion that you should enroll in a simplified employee pension plan (SEP). This approach plays a very important role in tax saving benefits for your contribution. Most importantly, a small business owner should be smart enough to take advantage of minor tax saving opportunities that come his way, such as incurring costs in dry cleaning or certain educational events for the employees, mileage deductions for driving etc. These minor opportunities would add up eventually to make a substantial difference.

As far as the yearend tax payments are concerned, remembering little things can make all the difference. For those, who have received salaries this year; tax relief act of the previous year would be applied. While in 2011 there was 100% depreciation bonus on any purchase for the new equipments and machinery for the business. That’s why it was considered to be the best time for making big purchases. But you don’t need to worry if you haven’t done so. In 2012 the depreciation bonus may fall down to 50%, but according to experts, it can again go back to 100%. That’s why it’s not recommended to repeat the mistake of the previous year.  Make a list of equipment  and machinery that you think would be beneficial for your company and keep your eyes and ears open for the announcement for depreciation bonus.

This is only a preview of the ways, in which you can save substantial amount of tax. In depth study and implementation of these techniques can effectively maximize your tax savings.

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