Photo by Mingo.nl via Flickr Creative Commons.

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Photo by asian186 via Flickr Creative Commons.

I recently received this question from a reader:

What form do you use to file your mileage usage?

This is a good question. When you are filing for business expenses (such as driving your car for your home business) you actually keep track of your mileage and report it on your tax form as a business expense (for a sole proprietorship, it goes on Schedule C). There is a worksheet in your instruction booklet that helps you figure your mileage.

If you have mileage related to working for someone else for your job, you keep track of it and you put it on Form 2106, which includes all employee business expenses that you might pay throughout the year. However, it is important to note that these must be expenses that have not been reimbursed to you by your employer.

For charity mileage, medical mileage, job hunting, educational and moving expenses, there are places you can deduct these on your form 1040, and some of them are deducted on Schedule A when you itemize. Before you deduct any mileage, though, you want to make sure that you have accurate records, in case you are flagged for an audit. You want to make sure that all mileage was only for the use you state. No personal mileage deductions. A tax professional can help you sort through everything if you have more questions, since I am not a tax professional.

It’s a new year, and if you are like most people, you thinking of how to improve your budget for 2010. For someone with a home business, budgeting is especially important. This is because you may not have a steady income each month. Some months you may make more than other months. As a result, budgeting becomes especially important. Here is a simple process that can help you budget for the new year:

1. Look at your total earnings for last year. Divide that by 12 to get a monthly average.

2. Look at your total expenses for last year. Divide that by 12 to get a feel for your monthly obligations.

3. Create a monthly budget based on your income and expenses.

4. On months when you actually make more than your average income, put the money in a high yield savings accounts.

5. On months when you fall short of the average income, you can use what you have saved up to make up the difference.

This process is easily done when you have personal finance software, or bookkeeping software. You can create a report that breaks it all down for you, including allowing you to see categories (entertainment, eating out, etc.) where you can cut back if necessary. If you don’t have personal finance software, you should consider getting some in order to more easily track your cash flow.

There are a number of work from home scams floating around out there, from the “Google Jobs” scam to different networking marketing scams. While there are some legitimate marketing scams, including MLM, it is important to note that you still need to be careful. You want to be careful to avoid scams that could turn your home business dream into a nightmakre.

Online Home Business Idea recommends that you take the following steps to avoid work from home network marketing scams:

* Research the company to make sure that it is established, and has a track record of several years. Check with the BBB for complaints.

* Look at the products being promoted. Are they useful? Would you want to buy the products? Be wary of products that offer some sort of “miracle”, “cure”, or “amazing money making potential”.

* Check with others who have done this, probing them for how they make their money, and proof that they are earning well.

You can never be 100% sure that something will work out. But you do need to be careful. Do your homework, and if something doesn’t feel right, or if it seems too good to be true, stay away.

One of the hardest things about working from home is the fact that there are so many distractions. And, of course, no matter where you work, your computer is an endless source of distractions. You can help cut down on distractions when working from home if you try to have a set time to work (preferably when the kids are at school or down for a nap), and by having a dedicated space for your home office.

But what can you do about distractions on your computer? Freelance Folder offers some insight into freelance writing tools that can help you increase your productivity, many of them by making adjustments to your screen so that you can only see what you are typing, or that limits you to accessing one application at a time.

1. WriteMonkey (Windows)
2. WriteRoom (Mac)
3. Dark Room (Windows)
4. Think (Mac)

You can also use something called RescueTime that tracks the type of web browsing that you do, logging your visits and helping you pinpoint the biggest time wasters. Then you can focus for a certain amount of time, while RescueTime blocks out the distracting sites.

These are interesting productivity tools, and they can help your reduce distractions and get more done.

For a home business, it is important to get “out there” in cyberspace, reaching customers. And one of the best ways to do this is through search. When you think of search, though, chances are you come up with the big guys: Google and Yahoo. These outlets can be expensive, especially as you struggle to recover from the recent recession.

One way you can still take advantage of search advertising online is to go to alternative search engines like eZanga.com and advertise. You can save between 30% and 50% over Google and Yahoo in some cases. Here is what eZanga points out on its web site:

Our innovative and proprietary technologies push the limit of Meta search technology by retrieving search results from multiple search engines, we then re-rank and display the most relevant results without duplication. We also provide online advertisers with local, regional, and national advertising focused on generating high Return on Investment (ROI).

It’s an interesting option for the home business that is looking to keep up with online advertising, but doesn’t yet have the resources to pay the big bucks.

No, FCC, I am not being paid to shill for eZanga.com.

I prefer to have my home business taxes prepared by a professional. There are lots of reasons for this. But I didn’t just head down to the local chain tax prep place and bring my stuff. Instead, I called around to different tax preparers and accountants. Finally, I chose an accountant that has served me well for the last few years, and who has been a great help to my home business finances. Here are some things to look for a tax professional:

* Services: Make sure that your tax professional offers the services that you need for your home business. It might make sense to have an accountant who can do other things on top of tax prep. Or it might be comforting to know that your tax professional will represent you in case of an audit.

* Fees: While price is important, it isn’t everything. In some cases, you get what you pay for. If the tax prep services are cheap, there might be a reason for that. But, on the other hand, sometimes a really expensive service is just that — really expensive. Shop around and get an idea of what is a reasonable fee.

* Trust: It’s a good idea to work with someone you trust and are comfortable. Meet briefly with your top candidates to determine whether or not you mesh well. You should also get references to double check and make sure that your preferred tax professional comes recommended.