Schedule C question

[taxme]

What is the name of your state (only U.S. law)? Oklahoma

Ok, I am debating whether or not to use turbo tax (roughly $90) or an accountant (roughly $300) for help with my taxes. Money is tight right now, so I am trying to figure out if using an accountant will result in a break even or gain for me in my return, otherwise I dont know that it would be worth it.

My scenario is this: I have worked for the past year as a contractor and have only made $3000. I have also had another job as an employee. As an employee, I took 0 deductions so I should be getting money back from that even though I am a single guy. As a contractor I have business lines, use my cell phone, have a home office, moving expenses, internet expenses, etc. From reading online I assume my taxes will only be $300 from the $3000 I made, is this correct? If so, will taking more than a $300 loss for the year be beneficial for me? I feel like I can easily find $300 worth of deductions on my own, making a CPA unnecessary, is this true? Any advice anyone can give based on the little facts I have given? Thanks.

 

[FlyingRon]

How you get the taxes done is up to you. You can deduct the cost of tax preparation if you are itemizing deductions. All your legitimate business expenses for your independent contracting business can be deducted from your schedule C gross. What the tax on the remaining income is depends on your tax rate. Don't forget you owe SE tax unless you're making a whole lot in your W-2 job (be sure to watch both the FICA and MEDICARE caps). I'm not sure what "loss" you're referring to. Note that some things like the home office and moving expense would seem to be somewhat dubious deductions.

 

[taxme]

I understand I am the one to choose, but I am asking if anyone has any idea or experience in showing that using a CPA would be beneficial to me even though I have a small income for my schedule C and money is tight. I am trying to understand if the CPAs benefit to me would be equal to or greater than the difference in cost compared to the turbo tax.

The loss that I am referring to is a loss in my contractor position. If my expenses outweigh my income isnt that a loss? If it isnt, I apologize for my inaccurate verbage.

Do you have a website that will give me an estimate for what my SE taxes will be? Why is moving and home office a dubious expense, because they are hard to prove?

Also, does it make a difference if my expenses-income = zero, or expenses-income = negative number? Once I get to zero, would it matter to keep itemizing things or would it not make a difference?

 

[LdiJ]

I understand I am the one to choose, but I am asking if anyone has any idea or experience in showing that using a CPA would be beneficial to me even though I have a small income for my schedule C and money is tight. I am trying to understand if the CPAs benefit to me would be equal to or greater than the difference in cost compared to the turbo tax.

The loss that I am referring to is a loss in my contractor position. If my expenses outweigh my income isnt that a loss? If it isnt, I apologize for my inaccurate verbage.

Do you have a website that will give me an estimate for what my SE taxes will be? Why is moving and home office a dubious expense, because they are hard to prove?

Also, does it make a difference if my expenses-income = zero, or expenses-income = negative number? Once I get to zero, would it matter to keep itemizing things or would it not make a difference?

First, your self employment (contractor earnings) are reported on schedule C. You take your gross income, minus your deductions, to determine your net profit.

Your net profit is then taxed based on 15.4% self employment tax, plus your marginal income tax rate.

Taking a home office deduction is very dubious because its difficult to prove that you have a true home office...a space in your home that is dedicated to business and NOTHING else. Its even more dubious with only 3000.00 of self employment income. It would be more credible if you had 30,000 of self employment income.

If your valid expenses from self employment put you in a loss position, then that loss can be taken against your other income.

There are very strict rules for moving expenses, and those are reported on the front of your 1040. Make sure that you read the rules carefully before taking any moving expenses.

The value of a tax professional (not necessarily a CPA) is that they help you avoid the pitfalls of taking deductions that raise red flags and can get you audited. They also help you understand what you can and cannot do and what you should and should not do.

Cell phones and internet expenses can also be dubious, unless you have clear logs that spell out what is business use...or a clear cut separation of business and personal use.

For example, if you would have internet anyway, whether you used it for business or not, an expense for internet might be disallowed. If you have a cell phone that you only occasionally use for business, and business doesn't cause you have to have higher cost plan than you would have had anyway, again, it might be disallowed.

Maybe you don't need a tax professional this year if you only claim expenses that are directly related to your self employment, and avoid the dubious expenses. However, if next year you start making more substantial income from self employment, I would advise using a tax professional.