Are You Self-Employed? Here’s What You Need To Know About Your Bookkeeping

Many self-employed business owners have specific questions about their bookkeeping. For clarification purposes, we will define the terms and the criteria first, so you can directly know how to position yourself as a business owner and obtain bookkeeping services.

For tax purposes, we will refer to self-employed individuals as independent contractors who file their business tax return in a Schedule C form, which is attached to their 1040 form.  

Owners of S corporation, C corporation, multi-member LLC or LLP are business owners who file for taxes separately from their individual tax return, which explains why they do not qualify for the self-employment appellation. 

Do’s – What you are allowed for your bookkeeping

• You can deduct your mileage for all business errands while excluding the commuting mileage, which means the mileage used to leave your home to go to the place of service. However, when the taxpayer (the self-employed business owner) moves from one client to another, that driving mileage can be deducted from his/her gross income.
• Your home space used as an office space, including garage, greenhouse, cabin, cellar or basement, can also be deducted, as well as furniture and equipment. The storage space can also be used as deduction as long as the business owner uses it on a regular basis. The deduction would include utilities and home insurance expenses. It is important for business owners to know that they do not qualify for home space deduction if they have a defined business location.
• Expenses for painting and repairs done for your office can be deducted.
• A telephone line exclusively used for business operations can also be deducted.
• The security system can be deducted, and this would also apply to the home office deduction.

Don’ts – What you are not allowed to do as a Schedule C filer

There are quite few factors that self-employed business owners should take into consideration for bookkeeping purposes. 

• As a self-employed business owner, you should not add yourself in payroll, even if you are fully responsible and liable to add employees on payroll for recordkeeping purposes. 
• You cannot claim deductions on your regular office space and home office at the same time. The main location where the business owner processes the operating activities and administrative tasks can be claimed as a deduction.
• Self-employed individuals cannot claim the first telephone landline of their homes as a deduction. They can only claim the telephone exclusively used for the operating activities of the business.

The IRS has published the following publications for reference and guidance: 

Publication 587

Publication 463

Eneya Accounting has the expertise to train independent contractors on how to do their bookkeeping in order to maximize their deductions. This will reduce their tax liability at the end of the year. Schedule your consultation with us for better guidance on your bookkeeping.