Monday, April 26, 2010

Mileage rate 2010

The standard mileage rate for employers to reimburse employees for business use of a personal vehicle has been decreased from the 2009 mileage rate level.

For 2009 the standard mileage rate was 55 cents per mile.

For 2010 the standard mileage rate has been reduced to 50 cents per mile.

'Schedule C' business or 'Other Income'?

If you are one of the millions of Americans who receive a form 1099-MISC at year end, you may have trouble deciding how to characterize this income. If you are conducting a trade or business you would be required to file your business activity under Schedule C. If you are not, you would likely file this income on line 21, other income on your return. But this simple decision has very different tax effects, and may not be as easy as one might think.

The IRS has defined a trade or business as, “an activity carried on for a livelihood or in good faith to make profit.” Business activity can also be classified as one that is regular, frequent, and continuous. Businesses in this regard are not required to make a profit to maintain their status as a business, but must be furthering their business interests.

If you do not fall into that previous category then your income would most likely fall into the category of other income. Other income is not subject to self-employment tax, but the trade-off with this income type is that expenses are limited to the extent of the income you have received.

Please note that the fact that you have no intentions to continue the venture beyond one year’s time may not have any effect on whether or not you were conducting business activity during the time in which you earned income (one of the major misconceptions related with business activities).

Please also see the IRS small business/ self employed section for further information, or contact your tax adviser.