HomeChild CareHow does a self employed person figure gross income?
Posted in Child Care on 4th September 2012

How does a self employed person figure gross income?
I am not into accounting and need help. I started my own mobile pet sitting and grooming business last year and need to figure out how to calculate my gross and net income and learn exactly what they mean too. I also need to know more specifically – if I drive to my client’s site for jobs mainly and work out of my home other than that, is my gas a monthly business expense? Do I figure exactly how many miles I drive to clients and to buy business supplies too, then multiply the miles I get per gallon average, and average the gas per gallon price, and deduct that from my gross along with expenses like printing, office supplies? If I use my car so much and work in my home, can my car payment, insurance utilities and internet connection be counted as business expenses too? I am aware I may need to proportion them to leave out personal use and that I can take them as a tax deduction in proportion at the end of the year. I want to know if my monthly reporting of profit,loss,income,expenses should also show these items? Can I just use the tax deduction amount per gallon when doing this too, the one from the IRS to use for tax deductions which is .51c this year.

I am sure if I rented an office I would put in an expense line item of the full amounts for rent/util/repairs made each month, so it seems I should be able to do the same if I do business in my home instead. Can someone point me to some written rules for this that are not related to taxes but instead to how to make a General Ledger type balance sheet for each month?

I do do some grooming in my home and I have a room in my home that is ONLY used for grooming even.
I am about to move and then I will not have a room in the house only for grooming but I will use the garage only for grooming (and storage of personal items). Does that also count as using a room only for business?
I am renting the house specifically because of the size and convenience of the garage for business use.
I use my new $ 700 laptop and $ 50 a month internet account atleast half the time for business.
I use my new $ 15000 better mpg car 75% of the time for business and bought it specifically because of my business.

I want to do this to try to figure what my true gross income is because I am in a divorce with a child custody case and need to show how much child support I need or how much I would pay based on this statement: (we have about 40/60 custody visitation)
“In joint custody situations, courts typically arrive at an appropriate child support amount by calculating the child support obligation for each parent, subtracting the lower one from the higher, and ordering the parent with the higher one to pay the difference, usually in proportion to the amount of time during the year that the child is in each parent’s care.”
from here:
http://www.proactivechange.com/responsibledivorce/legal/child-support.htm

I also just want to do this right every month for taxes and for my own reporting.
Do I need to hire an accountant or is this something I can figure out and do on my own?

And if a car is owned rather than leased can I still claim it as an expense? Or if I say it is a business car, can I use it for personal use? I did buy it specifically for my business, but the loan is in my name, not business name, and I use it to advertise too (magnetic signs on doors).
I make $ 1500 a month on my pet sitting and grooming business on average over the last 6 months, and I make another $ 1500 a month from internet income that has little to no expenses. I did not make much money in the last 6 months of last year but I did file for the LLC in June last year. I filed the taxes with my personal taxes last year. I own the car, not lease, sorry to confuse.
Thanks for the info on the commute regarding car – so if I go out to many clients a day – 5 to 10 – and go home between many of the visits (back to office) is it still only the going to 1st visit and returning from last visit is the ‘commute’? And in which case if possible I should make those visits closest to home clients so I can deduct the most miles right? Is that ok to do?
And though I did not keep good records last year I am this year. I keep track of all my business mileage which is about 800 miles a month on average and I also do keep all receipts. I keep and Excel sheet of all income and expenses and I use a receipt book when people pay me. I just downloaded Quicbooks free version to see if that helps me enough to buy the full version.

Best answer(s):

Answer by tro
you have far too many questions to expound here, but call 1 800 829 3676 and request publications 334 and 17 to help you
you will report any and all income from this business on Sch C
you will maintain good records of your income and expenses that are business related, if you use your home, you need to see if it will qualify, if you use your vehicle you need to keep a log of business miles
just for starters, but the pubs will help you

Answer by the tax lady
To be honest, exactly how much money are you making at this business? You claim to have been in business for a few months now, are you actually bringing any money in? First you say you bought the car, then you say you leased it. Can’t be both unless this is a homework question.

1. You need DETAILED records. The IRS can disallow all of your expenses if you don’t get decent records. Your records need to include mileage logs, receipts (not just credit card bills), usage logs for your computer, etc.

2. You need to read publication 334, 463, and 587 (home office) and need to look at 1040 schedule C.

3. Your questions indicate you may be asking “friends” for advice. This is dangerous.

The car. The magnetic sign is deductible only for the cost of the sign. Putting the sign on your car doesn’t change the miles from personal to business since driving the car is not considered advertising.

The mileage. You need a log showing every trip, date, mileage and destination/client. If you only have one client in a day, the mileage will be considered commuting and won’t be deductible. If you see two clients in a day, going from one client to another, the first leg and last leg are commuting. For most individuals, the mileage log is enough of a pain to keep that they do not go further for the actual expense use (where you’d need to have every gas receipt as well). In that case, you use the standard mileage amount if you own the car.

The home office. So, you are planning to count the garage as the business office. READ publication 587 very, very carefully. Is the garage heated/cooled? If not, you can’t really claim the full percentage for utilities for it.

Internet access is considered a utility, unless you can prove you are entitled to a home office deduction, you won’t be deducting any of it. The IRS views it like having a phone these days.

Answer by Judy
Sounds like you need more advice than there’s time or room to provide on a forum. Yes, get an accountant and have them show you what records you must keep. After they get you started, you might be able to do a lot of the record keeping on your own.

It’s adjusted gross income, not gross income from your business, that will figure into the child support calculation.

The room where you live now might qualify as a home office, since it’s used exclusively for business. The garage when you move won’t qualify, since its use is split between business and personal storage.

Your internet connection isn’t deductible. Part of the laptop cost might be.

The cost of the magnetic signs on your car would be a valid expense. Miles driven, though, are not a deduction for advertising.

And just out of curiosity – if you started your business last year, how did you file your return for 2010? If you didn’t file it yet, and didn’t keep accurate mileage records broken down by personal, business and commuting, you won’t be able to deduct mileage.

The IRS mileage allowance is that high because it INCLUDES actual expenses like cost of the vehicle, gas, insurance, repairs, maintenance – you don’t get both.

Answer by Bobbie
I also just want to do this right every month for taxes and for my own reporting.
Do I need to hire an accountant or is this something I can figure out and do on my own?
Yes I would agree with you about this you really do need to get a good CPA or enrolled agent to help you get every thing set up with some face to face individual assistance for all of the information and assistance that you need here and now.
Hope that you find the above enclosed information useful 05/24/2011

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