Dog walker - Last Minute Schedule C Panic

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taxck33
Posts: 53
Joined: Sun Apr 03, 2016 4:25 pm

Dog walker - Last Minute Schedule C Panic

Post by taxck33 » Sun Apr 15, 2018 11:30 pm

I'm a dog walker on Rover.com (so an independent contractor) and I realized tonight that since I use the accrual method, I have to do Schedule C instead of Schedule C-EZ (for the past 13 years I'd been an employee in an unrelated field, so this is all new to me). While looking into this, I came across some conflicting information - some sources say in order to deduct mileage from home to the first dog of the day and last dog of the day to home, I'd need to declare a business use of home deduction. Others say that's unnecessary and it's still deductible whether or not you take the deduction because home is where you do your bookkeeping and where your business address would be if you filed for a single member LLC for instance.

I'd really like to avoid declaring a business use of home deduction for a couple of reasons - anxiety over an audit, and having to redo my taxes in the next 24 hours (credits more than make up for my tax liability as things stand now, so the small savings in SE tax isn't worth the peace of mind).

Can I deduct that mileage without taking the business use of home deduction?

(I should also note I only grossed a bit over $4000 and netted a bit over $3000 for 2017, so I'm not exactly a big fish, but I always want to make sure I'm doing things correctly and I'm an incredibly anxious person.)

Edited to add on another quick question: I'm confused about the "Did you 'materially participate' in the operation of this business" question. I certainly spent over 500 hours participating in dog walking and sitting activities, so is it as simple as "yes" because of that?
Last edited by taxck33 on Mon Apr 16, 2018 12:46 am, edited 1 time in total.

quantAndHold
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Re: Dog walker - last minute tax question regarding mileage

Post by quantAndHold » Mon Apr 16, 2018 12:31 am

I can’t actually answer your question. But taking the time to get this right is exactly why the IRS invented extensions.

inbox788
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Re: Dog walker - Last Minute Schedule C Panic

Post by inbox788 » Mon Apr 16, 2018 1:36 am

No need to panic. More than a decade ago, I took a couple of years of office deductions. I think it made about a hundred or two differences in taxes or maybe less. When the business was shut down, there was no grand closing and I let my accountant take care of things, but I have this gnawing feeling some items were not done completely properly. I'm not sure if I needed to recapture or other closing tasks and I don't recall paying much attention or noticing such things and I won't have records to deal with these ancient business 20 years from now if/when I sell the house. https://www.irs.gov/businesses/small-bu ... -deduction
I'm not suggesting anything untoward, but simply sharing my experience that while going thought it is very stressful and confusing, but looking back, even if mistakes are made, they're minor and small potatoes. Make a rough estimate of the issue and if it's truly small, it may not be worth the time and effort to figure out the perfect solution, just one good enough. And if it's not so small, then just get an extension to deal with it.

Katietsu
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Re: Dog walker - Last Minute Schedule C Panic

Post by Katietsu » Mon Apr 16, 2018 1:40 am

First, I would consider an extension. I want you to make sure you understand the choices you are making because I am a bit concerned. It would be highly unusual for a small business dog walker to use the accrual method. This is a big red flag to me. Second, the expenses you are going to claim should not change because you think you need a Schedule C vs a CEZ.

Yes, you materially participated in the business. That one is easy.

Now, commuting mileage is never an expense, whether you are self employed or paid on a W-2. Commuting refers to your mileage from home to the first job of the day and from the last job of the day back to your home. (Unless you are traveling out of your metropolitan area to a different city.) Driving from your first job location to your second job location is business mileage. There is a way some people legitimately claim all their mileage. They do this by having their first workplace of the day and their last workplace of the day be at their home. First, you must establish that your home is your principal place of business. You must show that you use it exclusively and regularly for administrative or management activities of your trade or business. And you should also have no other fixed location where you conduct substantial administrative or management activities of your trade or business. It sounds like this applies to you. I assume you do your billing, store your supplies and call your customers predominantly from your home. Whether or not you claim a home office deduction does not have any relationship to the designation of your home as your principal place of business.

taxck33
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Joined: Sun Apr 03, 2016 4:25 pm

Re: Dog walker - Last Minute Schedule C Panic

Post by taxck33 » Mon Apr 16, 2018 8:14 am

Katietsu wrote:
Mon Apr 16, 2018 1:40 am
First, I would consider an extension. I want you to make sure you understand the choices you are making because I am a bit concerned. It would be highly unusual for a small business dog walker to use the accrual method. This is a big red flag to me. Second, the expenses you are going to claim should not change because you think you need a Schedule C vs a CEZ.
- Oh I know the expenses don't change between a Schedule C and C-EZ. I was basically panicking last night and was typing up my stream of consciousness that led me to diving even further into the instructions and publications

- I mentioned in another post why I chose the accrual method, but basically because with the way Rover issues payment, it seems a lot easier to keep track of. They issue payment 2 days after a booking - not a walk - is complete. So let's say someone booked walks from September 1st 2017 through December 31st 2017 - if I'm understanding things correctly, under the cash method all of these walks would show up as January 2018 income but under the accrual method they would happen in the month they took place. Am I interpreting this correctly? It just seems more accurate, and also less of a hassle relating to mileage deduction since you often end up driving from a house that did a booking like I just described to a house that only booked one walk.

Katietsu wrote:
Mon Apr 16, 2018 1:40 am
Now, commuting mileage is never an expense, whether you are self employed or paid on a W-2. Commuting refers to your mileage from home to the first job of the day and from the last job of the day back to your home. (Unless you are traveling out of your metropolitan area to a different city.) Driving from your first job location to your second job location is business mileage. There is a way some people legitimately claim all their mileage. They do this by having their first workplace of the day and their last workplace of the day be at their home. First, you must establish that your home is your principal place of business. You must show that you use it exclusively and regularly for administrative or management activities of your trade or business. And you should also have no other fixed location where you conduct substantial administrative or management activities of your trade or business. It sounds like this applies to you. I assume you do your billing, store your supplies and call your customers predominantly from your home. Whether or not you claim a home office deduction does not have any relationship to the designation of your home as your principal place of business.
Thank you! I do all of my record keeping and setting up customer appointments at home (and definitely start and end the day doing that), so it seems as if I'd qualify for taking the mileage. If I don't claim the deduction, do I have to formally establish it somehow by another method?

riverguy
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Re: Dog walker - Last Minute Schedule C Panic

Post by riverguy » Mon Apr 16, 2018 8:51 am

Your reasons for doing accrual accounting seem misguided. Cash is going to be way easier to keep track of. Who cares if you have that income show up as 2018 income and your expenses are in 2017? It's all going to average out.

taxck33
Posts: 53
Joined: Sun Apr 03, 2016 4:25 pm

Re: Dog walker - Last Minute Schedule C Panic

Post by taxck33 » Mon Apr 16, 2018 8:58 am

riverguy wrote:
Mon Apr 16, 2018 8:51 am
Your reasons for doing accrual accounting seem misguided. Cash is going to be way easier to keep track of. Who cares if you have that income show up as 2018 income and your expenses are in 2017? It's all going to average out.
Why is it misguided or harder to keep track of than cash? For accrual, when I'm back from the day's walks I just enter them into my spreadsheet. For cash I'd have to keep track of when Rover is releasing money, when people extend bookings, when people remove stays near the end of a booking, when people book near the end of a month, etc.

Accrual just seems more easy and more accurate on every level, unless I'm completely missing something.

taxck33
Posts: 53
Joined: Sun Apr 03, 2016 4:25 pm

Re: Dog walker - Last Minute Schedule C Panic

Post by taxck33 » Mon Apr 16, 2018 9:02 am

riverguy wrote:
Mon Apr 16, 2018 8:51 am
Your reasons for doing accrual accounting seem misguided. Cash is going to be way easier to keep track of. Who cares if you have that income show up as 2018 income and your expenses are in 2017? It's all going to average out.
Oh and I should also add I don't make very much money at all (I forget if I said it earlier, but I grossed roughly $4,000 and netted roughly $3000 for 2017) and my wife is in school, so we're on Medicaid until she finishes and gets a job. Keeping track of monthly income / change in income is important because of the threshold, and I want to be diligent about giving them an accurate number. Under the cash method, things would be more unpredictable whereas with accrual I always know where I stand each month.

jebmke
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Re: Dog walker - Last Minute Schedule C Panic

Post by jebmke » Mon Apr 16, 2018 9:12 am

taxck33 wrote:
Sun Apr 15, 2018 11:30 pm
Edited to add on another quick question: I'm confused about the "Did you 'materially participate' in the operation of this business" question. I certainly spent over 500 hours participating in dog walking and sitting activities, so is it as simple as "yes" because of that?
The answer here is "yes"; this question is designed to delineate between passive and active business participants.

As to cash vs. accrual, in my opinion, the cash method is simpler and cleaner. Receipt or disbursement of cash is generally unambiguous. Accrual entries can involve judgement and interpretation and be subject to challenge. Just ask the guys at Enron (and more recently, GE).
When you discover that you are riding a dead horse, the best strategy is to dismount.

taxck33
Posts: 53
Joined: Sun Apr 03, 2016 4:25 pm

Re: Dog walker - Last Minute Schedule C Panic

Post by taxck33 » Mon Apr 16, 2018 9:22 am

jebmke wrote:
Mon Apr 16, 2018 9:12 am
taxck33 wrote:
Sun Apr 15, 2018 11:30 pm
Edited to add on another quick question: I'm confused about the "Did you 'materially participate' in the operation of this business" question. I certainly spent over 500 hours participating in dog walking and sitting activities, so is it as simple as "yes" because of that?
The answer here is "yes"; this question is designed to delineate between passive and active business participants.

As to cash vs. accrual, in my opinion, the cash method is simpler and cleaner. Receipt or disbursement of cash is generally unambiguous. Accrual entries can involve judgement and interpretation and be subject to challenge. Just ask the guys at Enron (and more recently, GE).
I'm planning on getting off of Rover soon and starting my own dog walking LLC soon, and I will definitely use the cash method for that going forward (with handling everything myself and getting payment the day of, they should essentially be equal anyway).

Is my having used accrual for 2017 for my Rover earnings likely to trigger an audit? I had no idea it was such a strange decision! It seemed like a no-brainer to me at the time.

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