Small Business Start-Up

[Gustavo V5]

Hello, I just started my own small pet business and I mainly work from home but some of my services take place outside of my home when I travel to and from a clients home. I'm curious as to what all I need to do for tax purposes & if a 1099 is necessary? I am married and we plan to file married & jointly like we always do but this is my first time being self-employed. I'm trying it out! I work for myself and currently have no employees as I'm just starting off full-time solo. What all can I include for my expenses? I utilize just about the entire downstairs of my home, the backyard, the washer & dryer, electricity, gas, water, cleaning supplies, a ton of dog supplies, I also purchased a lot of equipment for dog care and grooming. I also use my car to pick up and drop off pets as well as drive to and from clients home to feed and walk their pets. Can I include my vehicle, gas, & miles? I only accept cash & Zelle payments, do I need invoices/receipts? 

Thank you!

[CatherineR · Accepted solution]

Great job Gustavo starting your own business!  I can help answer your questions.  Let's take them one at a time:

Vehicle used in business

You will need to track your total miles and the miles driven for the business.  This includes travel to and from your clients homes to perform your services.  There are many mileage tracking apps you can utilize for this.  Here is a link to some of them: 

https://dollarflow.com/best-mileage-tracking-apps-free/

In addition to mileage tracking you will need to track all expenses associated with the vehicle (gas, repairs, insurance, lease payments, etc).  When you prepare your taxes for the business (schedule C) you will calculate 2 options for the vehicle deduction:  Standard mileage using IRS rates on business miles driven OR actual expenses based on business miles driven as a percentage of total miles driven.   Whichever option results in the bigger deduction can be used for your business.  It is very important to keep good records for all of this.  

Income receipts and 1099s 

Keep track of all cash receipts and Zelle payment receipts.  Zelle should be able to provide a statement or receipts or possibly a 1099K to you at the end of the year.  The information should show the receipts for the business less any charges by Zelle for processing.  This should be add to your records of cash receipts to arrive at total income for the business.  You will only need to prepare 1099s if you paid any individuals more than $600 for the year for work performed for you.  Since you are solo this year this should not apply.  

Home office deduction and business expenses

Expenses directly for the business such as dog cleaning supplies and equipment used solely in the business will be deductible against your income on Schedule C.    Expenses that are shared between your personal residence and the business will need to be allocated as home office such as utilities, home insurance, etc.  These type of expenses will be allocated based on the square footage of your home used for the business (basement) vs the entire square footage.  Other expenses such as appliances will also have to be allocated based on time percentage used for business vs personal use.  

A good bookkeeping software should be used (QuickBooks) to keep track of these expenses so at year end the tax preparation will be made easier.

Remember too that a schedule C business means you are responsible for self employment taxes on your net income.  This is in addition to regular tax on the net income for the year based on your filing status and tax bracket.  You may want to consider making estimated tax payments in 2022 to prepay any potential tax liability to avoid penalties.  Our Tax Caster program can help with that https://turbotax.intuit.com/tax-tools/calculators/taxcaster/.  It will be updated for 2022 very soon.  

I hope this information helps.  Good luck with this new business and remember we here all year to assist with your questions. 

[Gustavo V5]

This is Gustavo's wife Natalie. I apologize for the confusion but thank you and thanks for all the information. I greatly appreciate it! Have a wonderful day!