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.

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.

Many people like to do their own taxes, rather than pay someone else to do them. While I understand this mindset, I am glad the I use a tax preparer for my pass through home business LLC and for my personal tax return. For years I did my own taxes, even when I filed as a sole proprietor. However, when I switched my organization to the LLC, added some investments and began itemizing, I decided that perhaps things were getting a bit too complex. I am perfectly capable of taking care of it myself, but it is so time consuming.

I have to read instructions, make sure I have the right forms, and keep up with all of the ins and outs of new tax laws, credits and deductions. Sure, I could buy some software to figure my state and federal taxes, and do it for my business as well, but by the time I paid for the proper edition, it would only be a little less expensive than using my tax preparer. On top of which, we go back to the time thing. With the tax preparer, I bring my (well organized throughout the year) stuff in, talk to him for about half an hour, and then leave for an hour and a half, running errands and being generally useful, while he prepares everything and gets it all ready for e-file.

Even with software, I’d be sitting there for a couple hours in front of the computer. And when I add in what my time is worth, it tips the scales in favor of the tax preparer. It’s more convenient, I have more time, and it’s worth the cost.

What about you? Do you use a tax preparer?

2009 is over, and 2010 is underway. However, you might be getting your home business accounts in order for tax time and your tax deductions. This is a good thing. Outright.com emailed me a checklist of things you should be doing this time of year:

* Record transactions: You want to make sure that you have recorded everything from your various accounts. Without records, these things don’t exist. You can double check transactions against your statements and/or digital receipts that you might have.

* Categorization: You want to make sure that everything is properly categorized in your records so that it can be appropriately deducted on your tax return form.

* Remember mileage: Hopefully, you have been keeping track of the mileage you use when traveling on behalf of your home business.

* W-9s and 1099s: You need to issue 1099s for your contractors by the end of January. This means that you need to make sure that you have updated W-9 forms from those that do work for you throughout the year.

* Estimated taxes: Your last installment of estimated taxes for 2009 is due January 15th, 2010. Make sure you get that off on time, since the IRS will charge you an interest penalty if you are late.

* Check your P&L: After you prepare your yearly profit and loss statement, it is a good idea to check over it. And then check over it again. You want to make sure that everything is in proper order, and that your P&L is accurate.

It’s time to start working out your home business tax deduction options, and one of those is a portion of your mortgage payments. When you have a home office, you can deduct a portion of your mortgage payment.

Here’s how you do it:

1. Check to see how many square feet your home has.

2. Figure out how many square feet your home office has. If you have a whole room for your home office, then use that. If your home office is only a 5 foot x 4 foot area, figure that up.

3. Divide the square feet of your home office by the total square feet of your home.

4. Multiply that number by your mortgage payment.

This will give you an idea of how much you can take as a tax deduction for your home office. Here is an example:

1. My home is 1750 square feet.

2. My home office takes up 6 feet by 4 feet in one room of my home, or 24 square feet.

3. 24/1750 = .014

4. .014 x $1,350 (my mortgage payment) = $18.90

That’s really not much. But if I had a whole room dedicated to my home office, I’d be looking at pretty close to $80, which might be enough to push me down a little bit. And some people believe that every little bit matters.

And, of course, you can also take the percentage of your utility bills. For instance, if I paid $1,200 a year in utilities, I can take another deduction of $16.80 (.014 x 1,200), for that portion of my utilities. This also works if you are renting.

But you have to use the home office space strictly for your home business. This is why I don’t get to count the entire room; I use part of the room for storage. However, you should speak with a tax professional before doing anything, just to make sure that everything is as it should be.

As the end of the year approaches, it’s time to start thinking about home business tax deductions. And one of the things you can deduct is your home business Internet use.

For many people who work from home, the Internet is a lifeline. However, it costs money to get a fast, reliable Internet connection. The good news is that you can deduct some of your expenses. Many people don’t want to get a separate Internet service for the home office, and that is okay. You can actually deduct a portion of your Internet costs.

Figure up how much you use each month for Internet, and then take a percentage of that. For example, 85% of the Internet usage in my home is for my business. We pay about $28.81 for Internet, what with access fees and equipment rental. So, I multiply .85 by $28.81 and end up with $24.49. For 12 months, that’s $293.88 that is eligible for deduction. This amount should be added up with other home business expenses. It should be part of the P&L statement you have if you are a business, or added on Schedule C if you are a sole proprietorship.

And, of course, since I am not a tax professional, it is a good idea to double check things with a tax professional or with the IRS.

Hopefully, you are taking a few minutes to look beyond the holiday (and the possible breakdown) to tax time. Now is a good time to organize some of your home business information and documentation — if you haven’t been all year. Just do a little bit at a time so that you don’t feel overwhelmed. Some things to think about include the following tax deduction possibilities:

* Home office supplies

* Computer

* Business travel expenses

* Car or truck

* Trade subscriptions

* Cell phone use

* Child care

You can also take a deduction for your Internet use and part of your mortgage — the part that encompasses your home office. Tomorrow and early next week, we will take a look at how to take the tax deductions for your Internet use and your mortgage use.

If you are unsure about whether you can take a deduction (you should be using deducted expenses for business purposes only), you can contact the IRS or consult a tax professional.

When you have a home business (or even if you work from home as a telecommuting employee), it is possible to deduct some of the expenses associated with your home office. However, it is important that you are careful when taking advantage of these tax benefits. You have to be sure that the deductions you are taking for home business related expenses only. If your son uses your computer to do homework, it’s not really something you can deduct as a business expense. You can check with a tax professional, or the IRS to make sure you are on the right track.

Here are some of the things that you can included for a deduction when you work from home:

* Internet access

* Telephone line

* Part of your rent or mortgage

* Part of your utilities

* Home office supplies

* Computer

* Health care expenses, including health insurance premiums

* Money paid in for qualified retirement plans

* Trade publications

* Business travel expenses and mileage

* Qualified child care

So you know of other home business tax deductions?

September 15th is looming on the horizon. For most people, that date is relatively meaningless. For those of us who work from home with a home business, or who have some sort of side business, though, September 15th marks the paying of quarterly taxes.

When you work from home, chances are that you have to pay estimated taxes. Cash Money Life offers a very succinct look at who should be paying estimated taxes:

You must pay estimated tax if both of the following apply:

1. You expect to owe at least $1,000 in taxes after subtracting your withholding and credits.
2. You expect your withholding and credits to be less than the smaller of;
   • 90% of your current year tax liability, or
   • 100% of the tax shown on your previous year’s tax return.

In other words, the amount of estimated taxes you need to pay to avoid penalties is the smaller of 90% of what you will owe this year, or at least 100% of what you owed last year (110% for high income earners).

I have to admit that I don’t mind paying estimated taxes. It breaks things down so that I’m not faced with a massive tax bill at once. To further ease the situation, I actually figure out how much I pay each month. Then I put that money aside until it’s time to make my quarterly estimated tax payment.

You can figure your own estimated taxes, easily, by taking last year’s obligation and dividing it be four. Then you send in your payment with IRS Form 1040-ES. If you have an accountant or some other professional prepare your taxes, it’s even easier, since they can do the math stuff and issue you four pre-filled-out payment tickets to send in with your tax payment.

Last year, I attended BlogWorld. As a freelance writer and professional blogger, this could be considered a tax-deductible expense. The registration and hotel were paid for by a client, but I did have to pay for my own travel arrangements and meals. As a result, I enjoyed a tax deduction for my travel expenses and meal expenses (only 50% for meals, though). The Wandering Tax Pro offers this helpful insight on Bargaineering:

You can deduct expenses that are “ordinary” and “necessary” for your trade, business or profession. An “ordinary” expense is one that is common and accepted in your specific trade or profession and a “necessary” expense is one that is helpful and appropriate. This is true whether you are a W-2 employee working for someone else or are self-employed, either as a sole proprietor reporting income and expenses on Schedule C of Form 1040, a partner in a partnership which files Form 1065, or an employee of your own “one-man” corporation filing either Form 1120 or Form 1120S.

If you attend conferences and seminars, meet with clients or do some other business-related travel on behalf of your home business, it is tax deductible. However, you do have to be careful. You can only deduct expenses related to your business — no deductions for site-seeing. Additionally, you can’t deduct expenses for your family, if you bring them along. You should also make sure to document the trip, and keep good records. Make sure you talk to a tax professional, though, to ensure that you are on the up and up.

I had a great time at BlogWorld last year, and it cost me hardly anything. It’s all about proper planning — and making sure that some business happens while you are there.