If you know you have made a profit in the quarter you should pay the
estimated taxes. If you're starting a new business (and deducting
relevant expenses) you may not have to worry about actually making a
profit and paying taxes for quite a while.
You probably won't find any specific answers on deducting expenses other
than they should be reaonable for the business you're operating. If
you're operating a photographic business it's reasonable to deduct the
costs of equipment and supplies and other expenses such as mileage. If
you're traveling around to take landscape photos for stock sales,
mileage expenses at 44.5 cents/mile can be significant.
Durable equipment like cameras and lenses, etc. need to be depreciated
over an appropriate period of time unless they cost less than about
$100. When you depreciate equipment you deduct the cost of the
equipment gradually over the assumed life of the equipment. The rate at
which the equipment is depreciated may be linear or non-linear. If
you're going to depreciate equipment you need to read the IRS
publications on depreciation. I figure that no digital camera has a
life greater than three years and use that as my depreciation schedule
for the camera.
Finally, you can deduct expenses against your non-business income
without the business making a profit as it is typical that new
businesses do not make a profit right away. However, if you haven't
reported a profit within three years the IRS will conclude that you're
engaged in a hobby and not a businees and you won't be able to deduct
additional expenses until you make a profit in the business.
I used TurboTax for many years but switched to H&R Block's "Tax Cut
Deluxe" two years ago since TurboTax was getting more expensive. I
found that it was able to import last year's data from the TurboTax
file, worked just as well and cost less. You can buy either product
with the option to include state tax as well as federal. Tax Cut Deluxe
with State costs either $25 or $30 locally depending on which week it is
but always $30 if you buy and download it from H&R Block's web site.
There are more expensive and fancier versions available including
versions aimed at business but the least expensive version includes
Schedule C which is all you need to file for a small, unincorported
business. If you set your business up as a corporation that's another
cup of tea.
Finally, I am not a tax accountant or the IRS so all of this information
is worth exactly what you paid for it.
Chuck Norcutt
Darin wrote:
> Moose,
> I was planning to make an appointment to talk to an accountant about this,
> but it sounds like TurboTax makes it pretty simple. Do you know how much
> self employment income one can earn before you have to pay quarterly?
> Regarding deducting expenses, is there a limit on how much you can deduct? I
> read something on the IRS website about this, but in the end I was only more
> confused. Also, can I do my state taxes with Turbotax as well, or just
> federal?
>
> Thanks for the help,
> Darin
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