With the April 15 tax deadline looming in several weeks, the Glen Rose/Somervell County Chamber of Commerce last week invited a tax expert to speak to chamber members about claiming business expenses, especially for those who are self-employed.
Amanda Banae Phelps, who works in H&R Block's business services area and lives in Bluff Dale, said many people overlook claiming a long list of legitimate business expenses. She also cleared up misconceptions about several types of expenses.
For example, many people want to claim their cell phone as a business expense. Don't do it, she warned, unless you have a separate cell phone dedicated to your business.
Other expenses you can't claim are the costs of dry cleaning and laundering clothes, even though you may work in a business environment that requires you to dress professionally, or scrubs. Many people who aren't employed in the health care industry have taken to wearing scrubs because they're comfortable, prompting the Internal Revenue Service to disallow scrubs as a business expense, Phelps told chamber members. The meeting was held in the old skating rink at Oakdale Park. Len's BL & D Cafe, a new chamber member, catered the luncheon.
Those who work full-time for a company cannot claim mileage to and from work — that's considered part of commuting, Phelps said. But if you're self-employed, you can claim mileage — 50 cents per mile for 2010, when delivering products to customers and any business-related driving.
“Mileage adds up in a hurry,” Phelps said.
The catch is that you must keep track of your mileage in an auto log (or write it down on a piece of paper, with beginning and ending mileage and the reason for the travel).
“Do you have information to substantiate that claim? Because if they audit you, it's not going to be fun,” Phelps said.
If your company reimburses you at less than the IRS' allowed rate per mile, you can claim the difference as long as you have the documentation to back it up.
The reimbursement rate per mile for doing volunteer work is 19 cents per mile.
A member asked Phelps about how to account for a business use in a home.
Phelps said to figure out what percentage of the home is used exclusively for a business.
“That means you don't have toys stored in there or hang your clothes in the closet,” she said.
Take the total square footage of the home and measure the square footage of the area used for business. That ratio can then be applied to claiming part of the utility bills and insurance.
Another member asked what Phelps thought of tax software programs such as TurboTax.
“TurboTax and H&R Block at Home are great as long as you know the rules,” Phelps said. “But a lot of times with the tax software, you are being asked questions and it's your interpretation of them.”
People who rely on tax preparation software often miss deductions they can legitimately claim, such as college education expenses or earned income credits, because they don't know the specific tax rules, she added.
Phelps also noted that the IRS has strict rules on differentiating between a business and a hobby. A business must show a profit for three out of five years. That means that if you have a home-based business, you cannot continue to show a loss for years on end.
“A lot of people get their business expenses disallowed because they take losses for too many years,” Phelps said.
What's allowable in terms of charitable purchases, another member asked.
Phelps said she had recently purchased a box of Girl Scout cookies for $42 a case. If she wanted to claim that as a charitable contribution, she would have to come up with a fair market value for a box of comparable cookies at a store and then could claim the difference.
The bottom line is keep records and when you don't know the rules, don't take a chance of being audited, Phelps cautioned.