How do I write off a business expense if I’m not incorporated?

I guess maybe the question should be, Do I need to be incorporated top write off a business expense?

Short story made long – after years at the same company I was laid off and the work I’ve been finding is contract. I don’t have my own company, headhunters just call me up and ask if I’m free. It’s actually pretty sweet because the gigs are usually 3 to 6 months long, pay way better than I was making, and I usually have about 2 weeks off between assignments. Every now and then though I run across a company that wants me to use my own laptop. Up until this point I’ve just chosen other contracts but I feel like I may be limiting myself.

So can I go get a laptop and write it off? I assume I’d have to use some depreciation schedule. If I decide to keep it for my personal use after it’s depreciated do I get penalized?

Section 179 is your friend.

Assuming they’re paying you as an independent contractor, and your earnings get reported on a 1099 instead of a W-2, you’ll need to file Schedule C as part of your tax return. All of your business expenses go on there.

No, you just need to have a business.

Can you call yourself a business? If so, you are one. “Zoid” is now a business. DBAs, incorporation, LLC filings and tax numbers are all great but not necessary to be a business, and AFAIK, the IRS doesn’t look into those as long as you report your income and look like you are seriously trying to make a profit most of the time.

The bigger you get, the more formal you need to become, but a one-man show doesn’t need anything fancy just to exist. Make sure checks are made out to you personally; if they are made out to a fictitious name, you may have trouble cashing them.

I guess I should qualify a bit…
I get paid on W2s so I usually have 2, maybe sometimes I’ll have 3 a year.

So is step 1 to get on a 1099?

beowulff the link you gave says:

Does that mean I need a business license?

Musicat are you saying I just run the business under my own name and I don’t need any license or anything?

Whether you need a business license depends on what business you are in and what state and city you are in. But as someone who is selling services to business I would doubt it. As an independent contractor you are responsible for paying taxes, both income and social security and you have to make estimated tax payments 4 times a year. As stated you add Schedule C on Business Expenses to your Income Tax return.

PastTense covered it. A business license may be necessary depending on local laws. The IRS doesn’t check that kind of stuff. All they want is their money.

Now if you have employees or unusual expenses, things get more complicated and a more formal structure is advised. But what’s the difference between getting paid as a person named Zoid or a company named Zoid? None. Just make sure you can cash the checks.

You will probably get a 1099 from the larger bill payers; small ones, not so much. My advice is to report all income under schedule C and either way, you’re covered. Don’t sweat it if a small company doesn’t send you a 1099. They may just be treating you as an expense like the electric bill or the plumber.

If you are selling stuff that state sales tax must be collected on, you may have to move to a more formal business organization. Time to see a lawyer.

It’s helpful, but as long as you keep track of your income, you can enter the amount on your tax form. Keep a spreadsheet of all your income and expenses and use it to fill out the Schedule C.

The IRS is very happy when you report income that they have no record of. :slight_smile: The are definitely not happy if you do the opposite.

If you switch from being a W2 employee to a 1099 contractor, the first thing that happens is that your self-employment tax is twice what your FICA withholding was. You probably don’t want to go there, unless you have enough deductions to more than make up that difference.

More likely, you want to be looking at unreimbursed employee expenses.

For about four years recently I was self-employed mostly, but never incorporated nor felt a need to.

I did hire a CPA to provide advice and assist me with taxes. Not a tax service in the first quarter, but a real CPA to give advice on accounting, documentation, quarterly taxes, Schedule C, and all the rest. Worth every penny, and it wasn’t that expensive for the value. I suggest you do the same.

Thanks all!

I’m gonna go do some reading and I’ll probably be back with more questions…

Zoid says he gets a W-2 (two of them actually) but RealityChuck writes:

Income reported on a W-2 does not go on Schedule C except in rare and specific situations…be careful. Hire somebody who knows what they are doing.

A good accountant/tax advisor more than pays for themselves, I have found.

Yup, get a CPA.

I wrote off all kinds of stuff when I was self-employed: computer equipment, part of my house, utilities, etc. A CPA can figure it all out, and chances are he/she will find deductions you weren’t even aware you had.

That said, I’m not sure you’re considered self-employed if you’re getting a W2. All my income was 1099. I was not incorporated.

Just a note as incorporated you can get a W2, but it will be from your own corporation to you. Payments from other companies do not require things like 1099’s though they can be used.

Another note, unless you need the liability shield that a corporation offers, IMHO it’s not worth it, taxes are complex enough without having to file for a separate semi-being on a much different tax schedule that may as well been from a different planet.

My wife operated a freelance translation business for about 15 years with no incorporation, and no business licence. This was in Canada, but since we file US tax returns I got to see their forms too. She probably violated local law by operating out of our home, but since she generated essentially 0 traffic, no one knew. For a few years, a courier would stop every week or so. Then all her traffic moved to the net and there was no evidence of her business.

She got to deduct (on both Canadian and US forms) 1/7 of all heating, electricity, and real estate taxes (there was no mortgage), half of her telephone costs (until we got a high speed connection and then she deducted half of that), the cost of her annual membership in the translators society (over $500) and depreciation on her computer. Actually, the Canadian government allowed 100% in the year 1999 to encourage Y2K resistant upgrades. So she sold her old computer for $25, income duly reported, and deducted all the undeducted capital costs. There were a few miscellaneous costs, paper and the like. None of this was ever questioned.

Incidentally, the one licence she did have was one to collect and remit sales taxes. This allowed her to deduct from what she remitted any sales taxes she had paid on equipment.

It’s possible you didn’t state that correctly, but if she collected sales taxes on her sales, they would be remitted to the government. And such a permit doesn’t exempt you from paying sales taxes on goods you purchase for your own business or personal use; it only exempts you from paying sales taxes out of your pocket on goods you resell.

However, this is the way it’s done in US states. Maybe Canada is different.

I was referring to the 1099, not the W-2. Income on 1099 does go on Schedule C, but you can put unreported income there, too.

My wife has been a business from home as a writer for ages. In the US there are some rules about what defines a home office, but I suspect your wife’s office is well within them. The one danger is that in the US if you take a home office deduction for a percentage of your house and then sell your house, that percentage is not eligible for exclusion from capital gains on home sales. (This was true 15 years ago - I don’t know for sure about now.) If your house has appreciated a lot this might be a big tax hit.
For that reason though she has a clearly defined home office now she does not take the deduction - which has turned out to be a smart move.

What if you rent? Can you consider a part of your rent to be rent on office space if you work from home?