I run into a lot of Schedule C filers in my practice. They have the hardest time calculating and justifying their returns. Part of the problem stems from the fact that most of these filers run a small business. And because they have a small business, they deal with a wide array of issues including building a client base, chasing past due receivables, and making sure that they provide quality services. In short, they don’t have the time or energy to keep the ideal set of books and prove their expenses when necessary.
Unfortunately this circumstance puts many small business owners and independent contractors at risk; Schedule C returns are three times more likely to get audited than any other return. Thus these filers find themselves in a bind having to produce and keep track of all those receipts when juggling several roles.
Luckily for those of you in this category, you can take solace in simplified deductions that reduce some of the paperwork required when preparing your returns.
1) Simplified Home Office Deduction – New for 2013, business filers can use a simplified version for deducting expenses for business use of their home. This deduction allows a taxpayer to expense a portion of their residence that is exclusively used on regular basis for business purposes. Ordinarily, you have to keep track of applicable housing expenses such electricity, gas, phone, cable, and internet. You then multiply that figure by the fraction of square footage of the office space over the total square footage of the entire property. With the new procedure, you can just take the total square footage of the business space and multiply it by $5. Keep in mind, the space must be smaller than 300 square feet or you can’t use the simplified method.
2) Standard Meal Allowance When Traveling Away From Home: Usually when you are traveling away from home on business, you need to keep receipts in order to verify what you spend on food and incidentals. This is especially cumbersome for people who travel a lot or drive for a living. However, you can use a standard amount allowed for meals and incidental expenses instead of keeping records of your actual costs. Furthermore, you can use the standard meal allowance whether you’re self-employed or an employee. The set amount varies depending on where and when you travel. For most small localities in the U.S. for 2013 the rate is $46 per day. Transportation workers get $59 per day ($65 for travel outside of the United States). You can find all current rates here. You can generally only deduct 50% or 80% of the standard expenses (depending on what you do). And while you don’t have to keep records of the actual meal and incidental expense, you still must establish the time, place, and business purpose of that travel.
3) Standard Mileage Rate – As with the other examples, the standard mileage rate allows you to take a preset amount for your car expenses, rather than keeping receipts for costs like fuel, maintenance, and repairs. For 2013, the amount allowed is 56.5 cents a mile. Again, while you don’t have to keep track of your actual expenses for your vehicle, you must keep a log that shows the time, place, and business purpose of the travel.
Schedule C filers have enough on their plate when it comes to running their businesses. These simplified methods can make it easier to maximize your deductions and the time needed to run your business.