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Side Hustle and Best Practices

I’ve recently started a new venture aside from my primary job. 
Please, give more information on tax deductions based on expenses, inventory, and office space in home. How do you calculate office space for write off?
If you use your cell phone for a large portion of your business can you write off your entire bill or just a percentage of it. Same with internet?

Taxes based on profit/loss? Are you taxed based on profit or total sales? 

Advantages of creating an LLC for tax purposes?

 

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1 Reply
RobertB4444
Expert Alumni

Side Hustle and Best Practices

Your business is just income and expenses.  Income is any money that you're paid for doing the work that you set out to do.  Expenses are anything that you have to purchase or spend money on in order to continue to do business.  You need to keep track of both and you will enter them into the self-employment section of TurboTax in categories.  For instance, all of the money that you spend on office supplies will be added together and put on a line that says "office supplies".  You won't enter each individual transaction.

 

Your home office is calculated by taking a percentage.  You will take the whole square footage of your home (for example 2000 square feet) and you will take the square footage of your office (for example 200 square feet).  That tells you the percentage of your home that is used for business (in the example that is 10%).  Then you can take that percentage of the bills on the house - 10% of the rent, 10% of the utilities, 10% of the property taxes, etc.  That is your home office expense.  TurboTax will also figure that for you as long as you get the measurements of the house and the office.

 

Cell phone and Internet should be divided the same way.  Percentage of time used for business vs percentage of time used for personal.  If you use them 50% of the time for business you get to take half of the bill.

 

You're going to pay taxes based on your profit.  You will enter in all the information about your business for the year (including how much inventory you had at the end of the year, so be sure you counted that) and then the system will do the math for you and tell you whether you made a profit or lost money.  Whatever that profit is you will be taxed on.

 

An LLC is just a type of corporation and there can be lots of advantages to creating a corporation but there are also a lot of new paperwork hassles that can come up.  I recommend consulting a tax professional and attorney in your area and discussing all of the options regarding becoming a corporation.

 

@Jwoot  

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