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Please make sure to do your own research when estimating what you may need to pay or not to pay in regards to taxes. Also, you must be very VERY careful about keeping detailed records in the form of receipts, etc. for your mileage, purchases and expenses. The best way to reduce your liability is to make sure that you hire a tax professional to help you understand what your allowable deductions are as they may differ by state. I personally use Robert Eagle of Eagle and Company CPA’s. His contact information is 502-694-7100 and he is located in Louisville, Kentucky. He has worked with me and several of my colleagues for several years so he is knowledgeable about the pet sitting and pet care industry. Hiring a professional tax accountant is a tax-deductible expense!
There are several tax benefits of being an independent contractor for Paws Pet Care, but here are some of the top ones that you may specifically be interested in. The IRS does not correct you should you fail to claim a deduction you are qualified for, so it’s in your best interest to be aware of the items you can write off as a cost of doing business. Your deductions should include all necessary and ordinary expenses associated with your work. Here are a few that may apply to you as a Paws Pet Care pet sitter:
OCCUPATIONAL OPERATING EXPENSES
If you work from home, you can have a shared internet account for both home and business use and deduct a portion of the monthly cost, or you can have a separate business account. The same applies for a phone line, including your cell phone. Business cards and other supplies that you have purchased are another write-off that falls under occupational operating expenses.
SUPPLIES AND MATERIALS
Any items you need to conduct business as a pet sitter or dog walker can be written off. All equipment, including items like a computer, camera, printer, or other office machinery, used on the job is tax deductible. Leashes, collars, cleaning supplies for client’s homes, treats purchased for client’s homes and all other supplies that have a business purpose can be written off. Even the lesser items like paper, pens, and ink are a deduction. It’s not commonly known that books, magazines, and newspapers related to your business are also deductible. Even greeting cards sent to clients can be a deduction. It’s one of my favorite write-offs!
For an office in your home to be considered a qualified deduction, it must be used solely for business. No beds or dressers (unless the dresser is being used for storage)! It cannot also be used as a spare bedroom for out of town guests. The way it is deducted is based off its size relative to the rest of the house. For example, if your office takes up 15% of the house, you can deduct 15% of each utility, such as gas and electric, as office expenses. You can also deduct mortgage interest, homeowner’s insurance, repairs, and painting. If you rent your home, you may also write off a portion of your rent.
Whether you have a home office or rent office space, having it cleaned is deductible. A cleaning company, maid service, or janitor can be used. If you would like to get more creative, you can pay your child to clean. You must be sure to pay them reasonable compensation for the work done. Keep in mind your children can also be paid for data entry, answering the phones, or other business related activities. Children under 18 are exempt from Social Security tax. They also are not subject to federal unemployment tax until they turn 21. The other benefit of hiring your child is that you can make a contribution to an IRA or a Roth IRA for them based on the wages you’re paying them. Unless your child has a lot of unearned income, they will not owe income tax on the wages you pay them. This is a great way to lower the family’s tax bill by making taxable income of the parent into untaxable income for the child.
CAR RELATED EXPENSES
Depending on how much record keeping you like do, this can be a big deduction. Many choose to use the standard mileage rate as it is the easier method, but it is a lower deduction. If instead you use the actual expense method, it requires more individual bookkeeping but it allows for higher deductions. Using this method, you deduct the actual costs incurred each year operating your car for work, plus you use the tax code schedule for depreciation and repairs. Your deductible costs include gas and oil, license fees, repairs and maintenance, insurance, and car wash costs. Whether you use the standard mileage rate or the expense method, tolls and parking can also be deducted. Just keep in mind that transportation write-offs are often audited by the IRS, so keep very detailed records. If the car is also used for personal use, you must keep track of the percentage it is used for business when calculating expenses.
As an independent contractor, your health insurance is deductible. Other medical expenses, such as acupuncture, chiropractor appointments, eyeglasses, and nonprescription medications not covered by your health plan can also be written off. While being able to write off 100% of your health insurance is great, it can be taken one step further.