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Your Self Employed Hidden Paycheck – Little Things Add Up (Part 2)

Written by: Merra Lee Moffitt

Article Overview: You get a hidden paycheck from being self employed (part 2)! There are numerous things that your family gets huge benefit from that the business needs and pays for. And you also get the small business tax deductions, too!

Your Self Employed Hidden Paycheck – Little Things Add Up (Part 2)

In Your Self Employed Hidden Paycheck - How to Pay Yourself More with Less (Part 1), I showed that my 2008 hidden paycheck from being self employed was $23,606. Here's how the numbers add up. We're talking about items my family gets direct benefit from but can be attributed to the business and taken as small business tax deductions. If you are self employed your family also gets paid in ‘stuff' that employees normally buy after they get their paycheck, but you can buy before you take your paycheck. The business purchase of this stuff, instead of you personally constitutes a hidden paycheck. Most articles focus on self employed taxes and the tax savings aspect. Oh yeah, I also saved $6610 last year in self employed taxes from this. But this article focuses on the hidden paycheck produced by legitimately buying using the business what also has personal benefits.

Make sure you check with your CPA before you take any of these deductions since your situation is most certainly different.

My Self Employed Hidden Paycheck items for 2008:

Self employed health insurance - First, the big one. As an employee, it's not deductible even if you pay the whole thing. Being self employed, it's entirely deductible. I spent $5068 last year.

Cell phone - I have five lines for my family. These cost $179 a month after subtracting the kid's lines although all are necessary to my business and my sanity.

Home/business phone - Working from home allows me to write off my phone ($45/mo) and my long distance VOIP line with BroadVoice ($35/mo).

Internet - My Internet at home costs $50/mo. Who could run a business without that?

Lunches/dinners out - Meeting with clients and prospects over lunch or dinner is a relaxing way to build business. Even after the 50% deduction, I spent $129/mo.

Party leftovers - My client party at my house had 146 clients and prospects last year. In Berks County, it's a mortal sin to run out of food, so I ended up with a steak, shrimp, appetizers and alcohol left to freeze. Although extremely hard to estimate, I would say safely about $500 total was the value of what we ate later in the year with family and friends.

Travel - I have a lot of clients near San Jose, California where I used to live, many began as close friends. Traveling there three times last year to see them and the clients they refer is like a vacation for me. Since I stay with my mother-in-law (who I just love), I only spent $2772 on three trips last year.

Vacation - When many people go on vacation, they work part of the time and deduct part of the cost. I didn't last year, so my business deductible vacation was $0. This can be a significant amount as we will see in a future article.

Home office deduction - Working from home allowed me to take $3484 last year off my taxable income. Think of it as the business paying part of the electric, mortgage, pool maintenance, and everything that goes into maintaining a house divided by the square footage used for your business.

Per diem meals - I found this little known tax deduction that works for me because I stay at my mother-in-law's house when I visit my clients in CA. Per diem meals is a daily rate based on where you travel allowed for deduction where you don't need a receipt. California is $59/day and I spent 47 days there last year. So I get to take $2802 as business expenses.

Office supplies - With two teenagers in school and various Boy Scout projects, we use extra paper supplies such as paper, toner, and notebooks. Maybe it's not worth mentioning at only about $200 a year. But it illustrates that there are probably things you haven't thought of yet.

Auto mileage - If you routinely stop at the grocery store, department store, or friend's house on your way home from a client or meeting, you have saved yourself a trip and pocketed the mileage. Make it a habit and it is money your household is getting without spending. With 55 cents a mile, that was around $1294 last year.

Computer equipment - Who could run a business without a computer? It's also personal entertainment, shopping aid, and correspondence tool. We tend to buy a laptop about every year for either my husband or me and give the older one to our kids or assistants. Patrick's MacBook and all its software, cases and parts was $2052. Yes we bought other computer stuff, but I'm only counting here what we would have had to buy for the family (and unable to deduct) if we weren't self employed.

Telephone equipment - Between dropping my Ipaq and being a woman with the ‘no pockets' problem, I need to upgrade my cell phone nearly each year. Without extending my contract, it cost $299. At home we have a TalkSwitch PBX which died after 5 years and we replaced it for $826.

NOW, a big disclaimer. I do not do taxes! I work with a totally excellent CPA who specializes in self employed taxes and helps me. Then I pass onto my self employed clients whatever they are missing. So if you have any questions whether something is a business deductible in your situation, ask your CPA. I am only helping stimulate your brain and get this stuff recorded in the first place. You can't count it if you don't track it.

How do you figure your hidden paycheck?

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Article Tags: broadvoice, business phone, business purchase, business tax deductions, cell phone, cpa, health insurance, hidden paycheck, home business, leftovers, long distance, lunch, mortal sin, personal benefits, prospects, sanity, self employed health insurance, self employed taxes, small business tax deductions, working from home



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Young Entrepreneur - I'm fifteen and last year, when I was fourteen I owned a motor sports marketing company. So yes, I do feel last year I was a "Young CEO." This year I'm getting more involved in investing. I assume I am now a "young investor." And for everyone's reference, there are four types of people in this world: 1.)The Employed 2.) The Self Employed 3.) Business Owners 4.) Investors The difference between the self employed and business owners is that business owners can leave their company for one year and come back and find that it is more profitable than when he/she left. A self employed person is like a Doctor or Dentist.
Re: Ways to Boost Productivity - 1. Give Employees More Than a Paycheck 2. Provide Better eSupport Channels to Promote Self-Service 3. Complete your most dreaded tasks first thing in the morning. 4. Outsource as much as possible 5. . Turn off the TV.
Re: Books for the Entrepreneur - I like "A Whole New Mind" by Daniel Pink, and "Predictably Irrational: The Hidden Forces that Shape our Decisions" by Dan Ariely.
Re: Books for Business Owners - Hi DougSchadle, Thanks for sharing your favorite business book with us! A good book I'm reading now is "Maximum Achievement: Strategies and Skills That Will Unlock Your Hidden Powers to Succeed" by Brian Tracy as it was a birthday gift from a friend. Tracy's book is helpful in identifying what's important in your life and then setting an action plan to achieve it.
Patent information - I'm also interested in Part 2. Thanks.


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