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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22655
Experience:  Taxes, Immigration, Labor Relations
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I am working in the US on an H1B under 1099 as the Vice President

Customer Question

I am working in the US on an H1B under 1099 as the Vice President for this small business. Althought I have worked for this company through the whole year based in Europe, I moved to the US when my H1B was approved which was in end of May/beginning of June. Upon moving into the US, I bought myself a nice car worth $29K. I live in Salt Lake City and commute daily to Ogden (30 miles north of SLC). Additionally, there are times that I do work from home on the weekend. The reason for my questions is being a 1099, I understand that there are deductions related to transportation, business expenses, and others which I am eligible for.

I am in the process of preparing my taxes and would appreciate some guidance.
Submitted: 2 years ago.
Category: Tax
Expert:  Lev replied 2 years ago.

Hi and welcome to Just Answer!

Because your compensation is reported on 1099-misc form - you are considered self-employed contractor - and report all your income and expenses as if you are running your own business.

There are some advantages and disadvantages of such situation. Th e main advantage is that you may directly deduct all qualified business related expenses and only your net business income will be taxable.

The disadvantage of such situation is that you are responsible for both income and employment taxes - both are based on your net business income.

You will report your gross income and expenses on the schedule C - www.irs.gov/pub/irs-pdf/f1040sc.pdf

You need to report the total amount you receive on schedule C, line 1.

Please take a look at the schedule C - lines 8-27 - these are your expenses - you need divide them by these categories and calculate your net business income on the schedule C and it will be reported on the form 1040 line 12.

If her net business income is above $400 - there will be self-employment taxes - calculated on the schedule SE. You do need to attach schedule C and schedule SE - www.irs.gov/pub/irs-pdf/f1040sse.pdf to your tax return.

 

Self-employment taxes from schedule SE will go to the form 1040 line 56 - http://www.irs.gov/pub/irs-pdf/f1040.pdf also - you will deduct half of self-employment taxes on the line 27.

This publication might be very helpful - www.irs.gov/pub/irs-pdf/p334.pdf

Among other expenses - you may deduct expenses for business use of the home - a part of your home must be used regularly and exclusively as one of the following:

  1. The principal place of business for your trade or business
  2. The place where you meet and deal with your patients, clients, or customers in the normal course of your trade or business; or
  3. A separate structure used in connection with your trade or business that is not attached to your home

 

When the exclusive-use requirement applies, you cannot deduct business expenses for any part of your home that you use for both personal and business purposes. Further, under the principal-place-of-business test, you must determine that your home is the principal place of your trade or business after considering where your most important activities are performed and most of your time is spent, in order to deduct expenses for the business use of your home.

When figuring the amount you can deduct for the business use of your home, you can use the entire amount of expenses attributable solely to the portion of the home used in your business. The amount you can deduct for expenses attributable to the whole house depends on the percentage of your home used for business. To figure this percentage, you may divide the number of square feet used for business by the total square feet in your home. Or, if the rooms are approximately the same size, divide the number of rooms used for business by the total number of rooms in your home. You figure the business portion of your expenses by applying this percentage to the total of each expense. If you are a qualified day-care provider who does not use any area exclusively for day care, your business portion is further limited by the ratio of the number of hours the area is used exclusively for business to the total number of hours the portion was available for any use.

use Form 8829 to figure your business-use-of-the-home deductions and.

Publication 587 has detailed information on rules for the business use of your home - www.irs.gov/pub/irs-pdf/p587.pdf

 

If you are eligible to deduct home office expenses - all your travel between two work locations are considered as business related (not simply commuting) and may be deducted based on number of miles driven - for allowed standard mileage rate - see here - http://www.irs.gov/taxpros/article/0,,id=156624,00.html
January 1 - June 30, 2011 - 51 cents per mile
July 1 - December 31, 2011 - 55.5 cents per mile

Let me know if you need any help or clarification.

 

Customer: replied 2 years ago.
Thanks for you answer and sorry for my slow reply as I had to review all the links above. Unfortunately, I still have some questions/issues which are left un-answered.

- Can I deduct the full values of my used car which I purchased cash this year? It is used solely for work and the cost was $30000.
- Can I deduct my gas expenses & mileage? I believe the value changed throughout the year. Average 50c/mile
- I can deduct a portion of my internet at home when used for work?
- Similar with meals/entertainment when related to a work expense?
Expert:  Lev replied 2 years ago.

Please feel free to ask clarification questions as long as you need.

- Can I deduct the full values of my used car which I purchased cash this year? It is used solely for work and the cost was $30000.

You may deduct the cost of your car which is used 100% for business. To do so - you need to choose actual transportation expenses deduction (not based on the standard mileage rate). In additional - you will be required to depreciate the car - means you will deduct the purchase cost over the useful life of the car which is 5 years.
- Can I deduct my gas expenses & mileage? I believe the value changed throughout the year. Average 50c/mile

You need to choose the method of deduction - if you choose to deduct actual expenses - you will deduct depreciation, insurance, gas receipts, etc. If you choose to deduct based on the standard mileage rate - you will claim deduction based on the number of miles you drove for business reasons - the rate in 2012 is 55.5 cents per mile.
- I can deduct a portion of my internet at home when used for work?

Yes - you may deduct a portion of your internet fees attributable for business use.
- Similar with meals/entertainment when related to a work expense?

That is correct - you may deduct business related meal and entertainment expenses. Please be aware that only 50% of your expenses may be deducted.

Customer: replied 2 years ago.
So if I was to chose the deduct through the actual expense, how would I go about doing that. Where would I find the depreciation or can I deduct the value of the purchase?

I assume, I would add all my gas receipts, insurance, fuel ect... separately to come with the full today.

Is there any other deductions which I may be eligible?
Expert:  Lev replied 2 years ago.

So if I was to chose the deduct through the actual expense, how would I go about doing that.

You will deduct your transportation expenses on schedule C line 9 - http://www.irs.gov/pub/irs-pdf/f1040sc.pdf

Depreciation is deducted on line 13.

Where would I find the depreciation or can I deduct the value of the purchase?
I might suggest IRS publication 463 page 23 - http://www.irs.gov/pub/irs-pdf/p463.pdf

which contains details and examples of deducting actual car expenses including depreciation.
I assume, I would add all my gas receipts, insurance, fuel etc...

For deducting actual car expenses - that is correct.

Please be sure not to include any personal expenses - for instance if you are using the same car for commuting - that is not considered as business use..

Is there any other deductions which I may be eligible?

To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.

Any expenses which are both ordinary and necessary may be deducted.

 

Please be sure to accept the answer. Experts are credited only if answers are accepted.

Let me know if you need any help.

Customer: replied 2 years ago.
Sorry but being new here into the US, this tax system is different:

1) I officially moved into the US on May 31, 2011 after my H1B visa was approved. Prior to that I was a resident of Belgium which is where I was based. As such, shouldn't my 1099 reflect or be based on the amount I would have made with the company past that date. As legally the amount I made prior to that, I am in need of reporting it with Belgium and was not made here. Therefore shouldn't my commission made prior to May 31st, be considered a professional fee (similar to our other contractors) and as such report that with my country in Belgium?

2) For the car expense, can I put this in section 179 and fully deduct it this year?

3) I am trying to do this via turbotax, but somehow it is not allow me or does not give me the option to deduct my phone expenses ect.

4) It is also asking me giving me the option to deduct the car in both business & personal, why is that?

Expert:  Lev replied 2 years ago.
1) I officially moved into the US on May 31, 2011 after my H1B visa was approved. Prior to that I was a resident of Belgium which is where I was based. As such, shouldn't my 1099 reflect or be based on the amount I would have made with the company past that date. As legally the amount I made prior to that, I am in need of reporting it with Belgium and was not made here. Therefore shouldn't my commission made prior to May 31st, be considered a professional fee (similar to our other contractors) and as such report that with my country in Belgium?
Your income is taxable based on the dale it is constructively received. If income is paid after you become a resident of the US - that is included into your US income.
Income paid when you were a nonresident is not taxable in the US.
2) For the car expense, can I put this in section 179 and fully deduct it this year?
Only if you use the car for business. Commuting is not considered business expenses. Depreciation and section 179 deduction may not be mor e than $11,060
3) I am trying to do this via turbotax, but somehow it is not allow me or does not give me the option to deduct my phone expenses ect.
On schedule C - you need to report as other expenses.
4) It is also asking me giving me the option to deduct the car in both business & personal, why is that?
You may not deduct personal use. You may only deduct percentage of car expenses for business use.

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