Part 5C: Other business deductions
Apr 07 '00
This Epinion deals with business deductions other than depreciation/expensing. I will use the categories (and line numbers) from 1040 Schedule C, even if the the business is a rental (using schedule E); employment-related expenses (using form 2106), or unreal (I mean, personal) property rentals (using your own schedule).
Examples will refer to Epinion and multi-level marketing (of real products) income.
Line 2: Returns and Allowances
Use this line to report 1099 income not actually (or constructively) received during the tax year. As an example, in my consulting work for the late Financial News Network, they frequently issued the 1099 in year N but didn't mail the check until the January 7 or so of year N+1. You either have to report only the income actually received on line 1 (and attach a schedule to report the difference), or report the total amount on line 1 and back out the non-received amount on line 2.
However, income you could have gotten had you asked for it counts as received, even if you forgot to ask for it, if you knew (or should have known) it was available. As an Epinions example, any Eroyalties balance (over $10) in your account on December 26 would count, because you could rationally expect to receive it in the current year had you asked for it. Unless Epinions does wire transfers to your bank account, Eroyalties that appear after that would not be considered constructively received in the (then) current year.
Line 4: Costs of goods sold
You don't need to worry about this unless you have an inventory, and are reselling goods that you have purchased elsewhere. Even in MLM businesses, this is not common. If you are in a resale business, you must use the accrual method of account for inventory-related line items, which means you probably need an accountant.
Line 8: Advertising
Cost of advertising in opt-in newsletters, junk mail (I mean direct mail (or email)) lists, and costs of mass (E-)mailing are included here. (Note that Epinions may (and probably will) close your account if you do mass E-mail.) I'm not sure of their policy on opt-in newsletters.
Part of the cost of maintaining your web site may be deductible in this category, as well, to the extent that it contains advertising or links to epinions.
Line 10: Car and truck expenses:
$0.325/mile for January-March 1999, and for 2000, $0.31 for April-December 1999 can be used instead of allocating depreciation, gasoline, repairs, insurance, etc. (Business-related) parking fees and tolls can also be deducted, and interest on the business percentage of the car loan is deductible interest on line 16b.
Line 11: Commissions and fees...
If you pay someone else a referral fee to refer people to your site, or to your Epinions, this is where you deduct it. NOTE: I don't know whether Epinions would flag your account if you did; I suspect they would. This is also where you deduct rental commissions and management fees for rental property.
Line 15: Insurance (other than health)
This would cover the business fraction of any insurance that covers your computer, homeowners insurance (for rental or home office), etc.
Line 16: Interest
This includes mortgage interest for rental properties or for the home office deduction, interest on car loans (to the extent the car is used for business), interest on computer loans (to the extent the computer is used for business), etc.
Line 17: Legal and professional services
This would include (the business fraction of) professional web site design fees, the cost of eviction services (for a rental property), the cost of legal action getting your commissions from an MLM company, etc.
Line 18: Office expense:
I don't know what this covers. Perhaps postage, if you mail a product? This is probably where I would deduct business-related magazine (or E-magazine) subscriptions.
Line 20: Rent or lease:
20a would cover the business component of auto expenses for a leased auto, and possibly the business component of a computer lease.
Line 21: Repairs and maintenance:
I don't know; perhaps computer repairs? It's certainly a big item for rental property.
Line 22: Supplies:
Printer paper and cartridges?
Line 23: Taxes and licenses:
Property taxes on rental property; any required business license for an MLM business would go here. I doubt anyone requires a license for an epinions business.
Line 24: Travel, meals, and entertainment:
This would cover the cost of travel to your rental property to inspect it, and possibly the cost of travel to an MLM meeting. Meals and Entertainment is only partially deductible; and might include the cost of setting up a meeting of your MLM downline to encourage consumption and sales.
Line 25: Utilities:
Phone expenses (but no part of the basic cost of a single phone line in your home), ISP costs, and home office allocations come to mind. (Of course, only specific business-related costs or the business fraction of fixed or unallocated costs can be deducted).
Line 27: Other costs:
This includes amortized startup expenses. Any expenses that you incur for a business before it actually starts must be amortized over a period of no less than 60 months, starting when you actually start the business. If you fail to do this the year you start the business, the costs only go to the basis of the business if sold, and are not deductible.
Lines 9, 12, 14, and 26 are unlikely to apply unless you have employees or are on the accrual basis. Line 19 includes Keogh plans, which you can have without employees, but you need an accountant to set it up. Line 13 is covered in Part 5B.
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Epinions.com ID:
Arthur.Rubin
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Member: Arthur Rubin
Location: Brea, CA, USA
Reviews written: 97
Trusted by: 108 members
About Me:
Expert in mathematics, computers, income tax, with a wide variety of interests.
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