BENEFITS
We know that working from home cancan bring about some extra burdens like adding a phone line, increasing internet speeds, and/or buying extra equipment needed for your day-to-day duties. That is why here at FJP Services LLC our agents 1099 contractors allowing them to receive several Tax benefits and opportunities. By being 1099 you
1. Self-Employment Tax
The self-employment tax refers to the employer portion of Medicare and Social Security taxes that self-employed people must pay. Everyone who works must pay these taxes, which for 2019 are 7.65% for employees and 15.30% for the self-employed. Here’s how the rates break down:
6.2% Social Security tax each for employee and employer on the first $132,900 in wages ($137,700 for 2020).
1.45% Medicare tax each for employee and employer with no wage limit
You will owe an additional Medicare tax of 0.9% in the following situations:
Filing Status Income
Single$200,000
Married filing jointly$250,000
The income thresholds for additional Medicare tax apply not just to self-employment income, but to your combined wages, compensation, and self-employment income. So if you have $100,000 in self-employment income and your spouse has $160,000 in wage income, you’ll have to pay the additional Medicare tax of 0.9% on the $10,000 by which your joint income exceeds the $250,000 threshold.
Paying extra taxes to be your own boss is no fun. The good news is that the self-employment tax will cost you less than you might think because you get to deduct half of your self-employment tax from your net income. The IRS treats the “employer” portion of the self-employment tax as a business expense and allows you to deduct it accordingly. What’s more, you only pay self-employment tax on 92.35% of your net, not gross, business income.
Remember, you're paying the first 7.65% no matter whom you work for. And when you work for someone else, you’re indirectly paying the employer portion because that’s money your employer can’t afford to add to your salary.
2. Home Office
The home office deduction is one of the more complex deductions. In short, the cost of any workspace that you use regularly and exclusively for your business, regardless of whether you rent or own it, can be deducted as a home office expense. You are basically on the honor system, but you should be prepared to defend your deduction in the event of an IRS audit. One way to do this is to prepare a diagram of your workspace, with accurate measurements, in case you are required to submit this information to substantiate your deduction, which uses the square feet of your workspace in its calculation.
In addition to the office space itself, the expenses you can deduct for your home office include the business percentage of deductible mortgage interest, home depreciation, property taxes, utilities, homeowners insurance and home maintenance that you pay during the year. If your home office occupies 15% of your home, for example, then 15% of your annual electricity bill becomes tax deductible. Some of these deductions, such as mortgage interest and home depreciation, apply only to those who own rather than rent their home office space.
You have two choices for calculating your home office deduction: the standard method and the simplified option and you don’t have to use the same method every year. The standard method requires you to calculate your actual home office expenses. The simplified option lets you multiply an IRS-determined rate by your home office square footage. To use the simplified option, your home office must not be larger than 300 square feet and you cannot deduct depreciation or home-related itemized deductions.
The simplified option might be a clear choice if you’re pressed for time or can’t pull together good records of your deductible home office expenses. However, because the simplified option is calculated as $5 per square foot, with a maximum of 300 square feet, the most you’ll be able to deduct is $1,500. If you want to make sure you’re claiming the largest home office deduction you’re entitled to, you’ll want to calculate the deduction using both the regular and simplified methods. If you choose the standard method, calculate the deduction using IRS form 8829, Expenses for Business Use of Your Home.
3. Internet and Phone Bills
Regardless of whether you claim the home office deduction, you can deduct your business phone, fax, and Internet expenses. The key is to deduct only the expenses directly related to your business. If you have just one phone, you shouldn't deduct your entire monthly bill, which includes both personal and business use. You should only deduct costs that specifically relate to your business. If you have a second phone line that you use exclusively for business, however, you can deduct 100% of that cost. By the same token, you would only deduct your monthly internet expenses in proportion to how much of your time online is related to business—perhaps 25% to 50%.9
4. Health Insurance Premiums
If you are self-employed, pay for your own health insurance premiums and were not eligible to participate in a plan through your spouse's employer, you can deduct all of your health, dental and qualified long-term care insurance premiums. You can also deduct premiums that you paid to provide coverage for your spouse, your dependents and your children who were younger than 27 at year-end, even if they aren't dependents. Calculate the deduction using the Self-Employed Health Insurance Deduction Worksheet in IRS publication 535.9
5. Meals
A meal is a tax-deductible business expense when you are traveling for business or entertaining a client. The meal cannot be lavish or extravagant under the circumstances and you can only deduct 50% of the meal's actual cost if you keep your receipts, or 50% of the standard meal allowance if you keep records of the time, place and business purpose of your travel but not your actual meal receipts. The lunch you eat alone at your desk is not tax deductible.
6. Travel
To qualify as a tax deduction, business travel must last longer than an ordinary workday, require you to get sleep or rest and take place away from the general area of your tax home (usually, outside the city where your business is located).
Further, to be considered a business trip, you should have a specific business purpose planned before you leave home and you must actually engage in business activity—such as finding new customers, meeting with clients or learning new skills directly related to your business—while you are on the road. Handing out business cards at a bar during your friend’s bachelor party won’t make your trip to Vegas tax deductible. Keep complete and accurate records and receipts for your business travel expenses and activities, as this deduction often draws scrutiny from the IRS.
Deductible travel expenses include the cost of transportation to and from your destination (such as plane fare), the cost of transportation at your destination (such as car rental, Uber fare or subway tickets), lodging and meals. You can’t deduct lavish or extravagant expenses, but you don’t have to choose the cheapest options available, either. You, not your fellow taxpayers, will be paying the bulk of your travel costs, so it's in your interest to keep them reasonable.
Your travel expenses for business are 100% deductible, except for meals, which are limited to 50%. If your trip combines business with pleasure, things get a lot more complicated; in a nutshell, you can only deduct the expenses related to the business portion of your trip—and don't forget that the business part needs to be planned ahead.
7. Vehicle Use
When you use your car for business, your expenses for those drives are tax deductible. Make sure to keep excellent records of the date, mileage, and purpose for each trip and don't try to claim personal car trips as business car trips. You can calculate your deduction using either the standard mileage rate (determined annually by the IRS; it's 58 cents per mile in 2019) or your actual expenses.
The standard mileage rate is the easiest because it requires minimal record keeping and calculation. Just write down the business miles you drive and the dates you drive them. Then, multiply your total annual business miles by the standard mileage rate. This amount is your deductible expense.
To use the actual expense method, you must calculate the percentage of driving you did for business all year as well as the total cost of operating your car, including gas, oil changes, registration fees, repairs, and car insurance. If you spent $3,000 on car operating expenses and used your car for business 10% of the time, your deduction would be $300. As with the home office deduction, it may be worth calculating the deduction both ways so you can claim the larger amount.
8. Education
Any education expenses you want to deduct must be related to maintaining or improving your skills for your existing business; the cost of classes to prepare for a new line of work isn't deductible. If you're a real estate consultant, taking a course called "Real Estate Investment Analysis" to brush up on your skills would be tax deductible, but a class on how to teach yoga would not be.
9. Business Insurance
Do you pay premiums for any type of insurance to protect your business, such as fire insurance, credit insurance, car insurance on a business vehicle or business liability insurance? If so, you can deduct your premiums. Some people don't like paying insurance premiums because they perceive them as a waste of money if they never have to file a claim. The business insurance tax deduction can help ease that dislike.
10. Rent
If you rent out an office space, you can deduct the amount you pay for rent. You can also deduct amounts paid for the equipment you rent. And if you have to pay a fee to cancel a business lease, that expense is deductible, too. But you can't deduct rent expenses on any property that you own even partially.
11. Startup Costs
The IRS usually requires you to deduct major expenses over time as capital expenses rather than all at once. However, you can deduct up to $5,000 in business startup costs. Examples of tax-deductible startup costs include market research and travel related to starting your business, scoping out potential business locations, advertising, attorney fees, and accountant fees. If you set up a corporation or LLC for your business, you can deduct up to $5,000 more in organizational costs such as state filing fees and legal fees. Professional fees to consultants, attorneys, accountants and the like are also deductible any time, even if they aren't startup costs. Business expenses such as buying equipment or vehicles aren’t considered startup costs, but they can be depreciated or amortized as capital expenditures.