Business Tax Preparation FAQs

  1. What small business expenses can I deduct or write off?

Answer: You can deduct business expenses such as rent, utilities, office supplies, and travel expenses. Make sure they are ordinary and necessary for your business.

  1. How do I calculate travel expenses when using my personal car for my business?

Answer: You can use either the actual expense method or the standard mileage rate method. The standard mileage rate for 2024 is 67 cents per mile.

  1. How do I know if I qualify for the home office deduction?

Answer: To qualify, you must use your home office space exclusively and regularly for business purposes.

  1. Are business gifts deductible?

Answer: Yes, but the deduction is limited to $25 per recipient per year.

  1. Can I deduct my health insurance premiums?

Answer: If you are self-employed, you can deduct health insurance premiums for yourself, your spouse, and your dependents.

  1. What is the difference between a Form W-2 and a Form 1099-MISC or Form 1099-NEC?

Answer: Form W-2 is for employees, while Form 1099-MISC or Form 1099-NEC is for independent contractors.

  1. How do you determine if a worker is an employee or an independent contractor?

Answer: The IRS uses factors such as behavioral control, financial control, and the relationship between the parties to determine worker classification.

  1. Do I need to pay my income taxes quarterly or at the end of the year?

Answer: As a small business owner, you are generally required to pay estimated taxes quarterly.

  1. Can a married couple operate a business as a sole proprietorship or do they need to be a partnership?

Answer: A married couple can operate a business as a sole proprietorship if they meet certain conditions.

  1. Is my gym membership tax-deductible?

Answer: No, personal gym memberships are not tax-deductible.

  1. Can I deduct home office expenses?

Answer: Yes, if you use your home office exclusively and regularly for business purposes.

  1. How do I pay Social Security taxes for a nanny?

Answer: You need to withhold and pay Social Security and Medicare taxes for your nanny if you pay them $2,400 or more in a year.

  1. How do you distinguish between a business and a hobby?

Answer: The IRS considers factors such as profit motive, the time and effort put into the activity, and the manner in which the activity is conducted.

  1. Can I run personal expenses through my business?

Answer: While you can use business accounts to pay for personal expenses, it is not advisable as personal expenses are not tax-deductible.

  1. Are business meals deductible?

Answer: Business meals are generally 50% deductible if they are directly related to your business.

  1. Can I deduct startup costs for my business?

Answer: Yes, you can deduct up to $5,000 in startup costs in the first year of your business.

  1. How do I report income from a side business?

Answer: You report income from a side business on Schedule C (Form 1040) if you are a sole proprietor.

  1. What is the self-employment tax rate?

Answer: The self-employment tax rate is 15.3%, which includes Social Security and Medicare taxes.

  1. Can I deduct the cost of business insurance?

Answer: Yes, business insurance premiums are deductible as a business expense.

  1. How do I handle sales tax for my business?

Answer: You need to register for a sales tax permit, collect sales tax from customers, and remit it to the appropriate state agency.