How should I maintain records as a Self employed Individual who has a home office and its married filing jointly

[andresfelipe883]

I am self employed sole proprietor and have a couple of 1099-Misc forms to report, but I am also compensated by another company on a W-2.

I also would like to report Business Expenses and some Home Office Expenses.

I am married and I would like to file jointly. My wife is employed full time and reports a W-2 and she doesn't participate on my business.

We pay our home expenses out of a joint checking account and that is where my records for the home office portion would come from.

1) How should I file my takes? I have the home and Business TurboTax Product. I have always filed single, but now with our incomes combined, me and my wife benefit by filing jointly as it reduces our overall tax bracket level.

2) In order to support my Expenses for Business directly and Home office, for those items that are paid for from our joint account. Are those bank records allowed to claim the expenses? does the fact that is a joint account affect the filing in any way?

Thank you!

[Carl]

Filing joint does not change the fact that you are the one and only owner of your business. You will still report all business income/expenses on SCH C as a physical part of your joint tax return.

However, mxing business money with personal money in the same account tends to create a book keeping nightmare. From the sounds of it though, I get the impression that you've keep detailed records and can therefore justify and prove all of your business transactions if ever audited on it.

But for the future, starting today if not sooner you need to open a physically separate bank account for the business. Many banks now-a-days offer free business checking. So cost should not be an issue.  I recommend you do as I do with my SCH C business.

I have a physically separate checking account for the business. It was my personal preference that I not have that account with the same bank where the personal accounts are. Any and all transactions for the business are run through that business bank account with no exceptions. When I get my bank statement each month, each and every single transaction on that statement is a business transaction. Period.

Once a month on the 1st business day of that month I take an "owner's draw" out of the business account and deposit it into the personal account(s) as needed. That is the absolutely only transaction that has anything to do with non-business each month. There are no others. Not ever. No exceptions.

I use Quickbooks for the business account. Makes life easy all the way around. It's a snap to balance my monthly statements each month, and at tax time I can import directly into TurboTax from Quickbooks. Saves me a ton of time.

I am also compensated by another company on a W-2

No big deal. Just enter the W-2 just like to you do your wife's W_2 and in the same section of the program. But do be aware of this: If your W-2 has the "statutory employee" box checked, then it's self-employed income and it's *IMPORTANT* you pay attention to detail so you make the right selections that will ensure it is included in your *EXISTING* business SCH C, and doesn't create a *NEW* SCH C.

[VolvoGirl · Accepted solution]

If you are married you can only file a Joint return or as MFS Married filing Separate.  Did you file Single when you were married?

Joint is the best way to file.  You report both your incomes on the same return.  It doesn't matter which bank account you pay the expenses.

To report your self employment income you will fill out schedule C in your personal 1040 tax return and pay SE self employment Tax.  You will need to use the Online Self Employed version or any Desktop program but the Desktop Home & Business version will have the most help.

For the future, you should use a program like Quicken or QuickBooks to track your income and expenses.  There is a QuickBooks Self Employment bundle you can check out which includes one Turbo Tax Online Self Employed  return....

http://quickbooks.intuit.com/self-employed

You need to report all your income even if you don't get a 1099Misc. You use your own records.  You are considered self employed and have to fill out a schedule C for business income.   You use your own name, address and ssn or business name and EIN if you have one.   You should say you use the Cash Accounting Method and all income is At Risk.   

After it asks if you received any 1099Misc it will ask if you had any income not reported on a 1099Misc. You should be keeping your own records.  Just go through the interview and answer the questions.   Then you will enter your expenses.

FOR 2019

Here's a blank schedule C to see how it works

https://www.irs.gov/pub/irs-pdf/f1040sc.pdf

For 2019 Schedule C Net Profit or Loss goes to 1040 Schedule 1 line 3.  Then the total on schedule 1 line 9 goes to 1040 line 7a.

Self Employment tax (Scheduled SE) is automatically generated if a person has $400 or more of net profit from self-employment.  You pay 15.3% SE tax on 92.35% of your Net Profit greater than $400.  The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare.  So you get social security credit for it when you retire.  

The SE tax is already included in your tax due or reduced your refund.  It is on the 1040 Schedule 2 line 4 which goes to 1040 line 15.  The SE tax is in addition to your regular income tax on the net profit.  You do get to take off the 50% ER portion of the SE tax as an adjustment on 1040 Schedule 1 line 14 which flows to 1040 line 8a.  Turbo Tax automatically calculates the SE Tax and Adjustment.

Here is some IRS reading material……

IRS information on Self Employment

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center

Pulication 334, Tax Guide for Small Business

http://www.irs.gov/pub/irs-pdf/p334.pdf

Publication 535 Business Expenses

http://www.irs.gov/pub/irs-pdf/p535.pdf