New home office

[Trish Meier]

Hi, I am self-employed and have some questions I was hoping I could get help with.  I recently quit my regular day job and will just be working on my self-employed/gig work/contract jobs full time (which I have been doing as a side job for years).  I converted a home office space that I didn't claim previously.

1.  I will have start-up costs for the home office/full-time conversion. I started setting the office up in October but didn't get it completed until February.  Do I claim that on this year's return or next?  Also, will I need to do depreciative value on my desk and laptop and how do I figure that?  And I had to have new windows put in that room, will I be able to claim those as well?  

2.  I imagine I will have to start paying estimated tax payments and have no idea how to do that.  Can I just log in on Turbo tax and send them?  And what percentage of my income do I need to save for that?  I should be around 30k a year.

3. I know I can get a deduction for the "employer" half of my tax bill, but am not sure when or where or how to claim that.  

4.  Also I understand I will be getting a 1099 from Paypal after this year.  But I get 1099s from each company I contract with already - how do I make sure I'm not making duplicate payments on the same income?  

[DianeW777]

Let's tackle these questions one at a time.

1. You would begin depreciating your home office once it was available for use.  If that was February 2024, then you will do that next year. As far as the desk and the laptop, if they are used full time for only business and they were placed in service in 2023, then you can choose to depreciate or expense it under safe harbor (placed below).  If they are/were not used 100% for business you must determine time for business vs total time of use to arrive at the business use percentage.  The window and any renovations will be added to the cost of your home and the square feet of business use vs total square feet of the home will determine your business use percentage.
2. The estimated tax is calculated solely on your net profit. If you track that regularly it will be very helpful to you.  Below is a general idea how to calculate it. You can enter what you think will be your net profit and create estimated tax vouchers for 2024 in your 2023 tax return. 
   1.  Calculate your net profit from your self employment (income less expense) for each of the following periods:
      1. Jan - Mar estimated tax payment due April 15th
      2. Jan - May estimated tax payment due June 17th
      3. Jan - Aug estimated tax payment due September 16th
      4. Jan - Dec estimated tax payment due January 15th, 2024
   2. Calculate Self-employment tax (net profit x .9235 x .153 = SE tax) - same periods 
   3. Personal Income tax (based on the rate at which your combined taxable income from all sources falls) - 
      1. Tax rates for 2024 - see page 7 of Form 1040-ES Instructions.
         1. Depends on filing status, taxable income amount from all sources (for the entire year) and anticipated itemized deductions if applicable or the standard deduction
            1. Use your 2023 tax return to see what the taxable income was. If you can assume your other income and any federal tax withholding will be similar in 2023 you can ignore this step.  
3. TurboTax will calculate half of your self employment tax and enter it in the appropriate location on your tax return.  You do not have to calculate this. For 2023, it is placed on Schedule 1, Part II, Line 15, then moves to the 1040.
4. You must track your income and only you will know if any of it is duplicated.  If you keep a spreadsheet and enter your income each month, you will be able to compare that to your 1099s you receive in January 2024.  You are required to report only what you actually received. 
   1. Self employed and Gig Workers - There are many links that might be useful to you.
   2. Taking Business Deductions
   3. What can I expense or depreciate with the business safe harbor election?
   4. Depreciation of Business Assets
   5. IRS Guide to Business Expenses

You can review the information and be sure to ask any questions you might have, we are here to help.