when i was working as an independent contractor, home office was a biggie, but i heard from my accountant that the irs is really cracking down this year on that one. it puts you on audit alert. i think there were a lot of people taking advantage of it in years past. depreciation on office equipment is also one that the irs is looking closer at. i would also deduct gas money to and from office/job sites. work-related travel as well.

but rule of thumb, if you don't have a receipt or a bank statement, don't deduct it.

So Janosh, are you an independent contractor?

As an employee I never claimed anything, but now that I'm self-employed I claim ev-er-eee thing. Every single book, magazine, pencil, mile driven (in my car), software update, professional fee, ink cartridge, cell phone, etc. On my home office space, my accountant takes all the info I can give him: utility costs, mortgage, property tax, even costs for improvements to my home. There is a formula, he takes the total sf of the house and pulls out the 12x12 space I use as an office, then runs the numbers to figure out what he can claim.

Here, actually, is a list of what I included this year, as I just put it together last week:

Charitable donations
Mortgage interest
Property tax
Homeowner’s Insurance
Flood Insurance
Student Loan interest
Computer (software and hardware)
Internet Service
Accountant cost
Professional fees
Entertainment (this was meals with my partner and contractors - I only had $150 worth, so it's not terribly suspicious)
Office furniture
Office supplies
Phone (equip.)
Phone (use)
General expenses (this is unreimbursable stuff like prints, getting booties for the jobsite guys, etc - things that COULD be reimbursed but I didn't do the paperwork)
Postage/Shipping
Professional Development
Parking
Auto (Maint.)
Auto (Insurance)
Auto (fuel)
Auto (mileage)

A couple things my accountant told me:
* break out travel by days traveled/trips aka 4 trips to NYC @ 3 days/per
*break out parking as its own expense

I know you probably won't take this advice, but I recommend getting an accountant to do this for you. Just like we want to be hired as knowledgeable professionals, accountants have specialized knowledge in this area and can save you a lot of money and advise you exactly how far you can push the rules without breaking them. Last year my accountant only cost $300 to do my taxes, and it was definitely money well spent. He figured out, for example, whether it was better for me to claim actual automobile costs vs. mileage (the latter turned out better for me) since you can't claim both. Also, this may not be true, but I think they tend to audit people who do their own taxes more than those who have an accountant, who is theoretically standing behind their work as a professional ans thus is less likely to take risks.

Good luck!

Oh, PS I included magazines and books in Professional Dev.

Oh, and I don't show travel on my list because it was actually on my husband's separate list. There is a rule where if you travel more than one day you get a per diem cost too, but if it's a one day trip you can't claim that, this is why you need to figure out each travel instance as a separate cost.

Again, just get an accountant. Let him/her do his/her magic so you have more brain cells to devote to your own magic.

Beware of turbo tax and other software programs. I have some complicated taxes thanks to investments. Turbo tax pretty much glossed over factoring depletion on some royalty trust income and was very difficult to fix within their program. Not going to be using that again.

Just be sure you don't deduct something which is Illegal....or you might end up in a mess like the x_new york governor.

Also, while jafidler's rule of thumb on receipts is correct, I should admit that I only have receipts for maybe 50% of my stuff - but I do have credit card statements, check stubs, and everything in Quicken. If I ever get audited it will be a hassle, but I'm taking the risk right now as I only have a limited amount of file space in my life!

I'm so honest I even included the 98 cents in interest income I earned on one of my accounts this year! I like to keep even the pennies accounted for.

lb, i'm no longer an ic, but i found it useful to have a credit card reserved for work purchases. that way i could use my monthly statement as a concise record of business purchases. it is probably not as foolproof as keeping the actual receipts, but at least it was some written form of proof. i would probably check with an accountant to see if this is a valid form of proof if audited.

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