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I am trying to determine how/where a second income is reported for tax purposes and what expenses I can claim to off-set the income.

At the beginning of the year I established a sole proprietorship, home-based business (I provide computer consulting and training services). All of my business activities are conducted outside the home but I set-up a home office in 50% of my basement to help with client management, keep up my professional skills, etc. I employ my two children (both under 18)as part-time employees to help with filing, mailing, copying, checking email, etc. I pay each of my employees $2500 per year ($2000 goes into an IRA for each child).

For 6 weeks during the summer, I was employed as a "contract instructor" by a computer training center. No taxes or social security, etc. was deducted from my pay. Since September, I have been working as an instructor and my employer deducts taxes, social security, ect and will provide a W-2.

Now for the questions:

-Is the "contract instructor" income reported differently than the other "second W-2 income", and where?

-Can I claim my employee's salaries, auto expenses, etc. as a business expense, and where?

-Can I claim my home office as a deduction?

Many thanks!
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