Thursday, December 20, 2007

First Year Freelance Writer

Hi June,

I started working as a full-time freelance writer in January 2007, and since then I haven't paid any taxes. (I did pay my income taxes in April, but that was based on my normal full-time job from 2006.)

I've missed three periods of paying estimated taxes, and now I'm not sure if/when I should pay them or if I am exempt because it's my first year as a self-employed freelancer.

I know I probably need to pay a penalty to the IRS but I'm not even sure how to do that.

Will general tax software be able to help me with this?

I really want to get back on track with all of my taxes and all caught up. Any help you have on how to do this would be much appreciated.

Thanks, Stephanie New York, NY

Hello Stephanie,

First: You are not exempt from taxes because this is your first year of freelancing. Now who could have told you that?!

Read this Estimated Taxes to get an overview of how estimated taxes work. Then read my other blog posts on estimated taxes if you need more info.

I do not think that tax software does a good job for indies. Most programs are geared for employees or else small businesses that make widgets. Independent professionals are a unique breed and need special tax treatment by a pro who understands tax law as it applies to the self-employed. Educate yourself about what is and is not deductible. Read my posts on how to pick a tax pro and you'll be headed in the right direction. If you want more information, my book, Self-employed Tax Solutions, will give you a solid understanding of the basics.


Starting Out With a Loss

Hi June,

I just moved to Jacksonville, Florida coming from all over the country working as a PGA professional at private golf clubs. I worked as a club pro up into mid August and then I got engaged and became sales representative for golf apparel working from home.

I collected unemployment from mid august until late November.

I invested in a new vehicle, new clothing, new office equipment, work supplies etc.

I have received $100.00 dollars in commissions as of 12/18/2007. I have future commissions coming but I have no idea what I should do for tax purposes. Can I write off some of these expenses without really earning anything yet? Can I write them off in 2008? Can you help?

Thank you.
Dan in Jacksonville, FL

Hello Dan,

The quick answer: As long as you are in business trying to make money you may deduct business expenses even if you make no money.

The long answer: You need a lot of info. I see you requested a copy of my business expenses list. On the email that accompanied the list was a suggestion to read Is it a deductible business expense? on my website .

On this blog there is a lot of info about all kinds of expenses. Check out the category list on the left. You mention purchasing new clothes, so maybe a good place to start is the category expenses -- workclothes-uniforms-costumes .

And, congratulations on your engagement.

Happy Holidays!

Wednesday, December 12, 2007

Jack or Jane of All Trades: How does an indie define a business?


I'm a writer/designer/wearable art & life style accessories maker, thus my question: How broadly can I define my business?

If I do all of these things and make money at all of them, can I have one umbrella company that does it all? Or do I have to bifurcate the writing and communications activities from the design and manufacturing? To clarify, I'm primarily a technical communicator, but I have also started a jewelry and lifestyle accessories business. I plan on trying to get some writing published in jewelry and accessories publications, so where do I have to draw the line?

So how many "plates" can I have in my "cafeteria business" under one name and under one sole proprietorship? If you know the cartoonist Larson, it's a little bit like the one with "Lou's FillDirt and Croissants."

Christine, from Belmont, CA

Hello Christine,

What a great question. So many indies have irons in many fires -- fill-dirt and croissants is stretching it a bit too much, of course. The goal is to legitimately combine as many of aspects of your money-making activities under one profession or one business as you possibly can. The biggest reason: It simplifies your recordkeeping.

Here's the test that will help you decide: Write one press release announcing your business. In it combine all your services and products. If you can comfortably put them all together in one press release, and if you would not have a problem sending out that press release, then you're OK with one business.

Often the skills in one area give authenticity or credibility to another area. I see no stretch between designer/wearable art & life style accessories maker. And if you write about these things, that you write about other subjects as well does not make writing a separate business.


Monday, December 10, 2007

Auto Algebra & the 2008 Mileage Rates


Awesome site and info! I am definitely looking forward to purchasing the book, Self-employed Tax Solutions.

I am in negotiations with my first client to become their marketing consultant. I will be leading all of the marketing, PR, communication and fundraising activities for a non-profit organization.

I will be leasing a new vehicle soon after the new year. The client has proposed to pay mileage reimbursement for any duties related to their business. I will be driving both the new leased car and my current, much older, high mileage vehicle. Would the tax benefits of driving both cars normally outweigh a monthly mileage reimbursement check from a client? We're probably talking over 200 miles per month for this particular client because I don't they will include mileage from my home office to this office.

If not, can I still hold off auto expenses for other clients and still receive reimbursement from this particular client?

I'm anxious for your reply. This is probably the final negotiating term before I get started.

Thanks a million!

Jason from Charlotte, NC

Congratulations on your new indie work, Jason. And thank you for your generous comment about my site.

I will try to simplify your situation and thereby make it applicable to a lot of indies. First I am going to assume you have read, or I suggest you read if you haven't, How to Calculate Auto Expense and How to Keep a Record of Business Miles on my website. Then you should know that the mileage rate allowed by the IRS for 2008 is 50.5 cents per mile.

As an indie, all the payment you receive ,whether fees or reimbursement for expenses, is part of your gross income. All expenses, whether they were reimbursed or not, are deductible expenses.

For example, if XYZ pays you a fee of $5,000 + reimbursement for 200 miles at 50.5 cents per mile [that's $101] your gross income = $5,101.

Were you to use the standard mileage deduction for your car you would deduct the $101 as a business expense to get to an income of $5,000.

Were you to use actual expenses, it would depend on the costs of running your specific automobiles. Could be more than 50.5 cents per mile. Could be less. So your income could be more or less than $5,000.

To say which is better, reimbursement or not you need to compare two things. Your actual cost of running your car and how much your fee would increase were you to accept a higher fee and no reimbursement.

You may have several clients and some may reimburse you, some may not. You may still deduct all auto miles, for all clients, using either method, as long as you claim the reimbursement in your income.

There are several posts on this blog about reimbursed expenses that you might want to check out.

There is a full explanation of transportation and auto expenses in my book, Self-employed Tax Solutions.


Saturday, December 1, 2007

10 Tax-saving Tips for Writers

Attention writers.

All you freelancers, whether your income skyrockets in the 100s of thousands of dollars or you’re closer to $500 per year, Uncle Sam treats you all the same.

That’s right, amount of income earned by a writer carries no weight with the IRS. You all must follow the same rules. The most horrendous audit I've ever handled was that of an established poet who earned less than $5,000 that year.

I've put together 10 time-and-tax-saving tips on how to simplify complex IRS rules to fit your writing style. All stem from questions you have asked me or areas where I know you need help. A while back I presented a similar set of tips to designers -- Designers Dozen: Tax Saving Tips for the Graphic Artist .

1. Use two offices. Forget the old husband’s tale that home office or studio is an audit red flag. The IRS has lightened up on this. Even if you work out of two or three places, if used exclusively for your work they are all legitimate deductions. Yes, both your home office and the spare room at your country place where you do your three-hour morning blogging routine every weekend are deductible business expenses.

2. Work at home to increase your business transportation deduction. If you do most of your research and writing at a local Internet cafĂ© or college library or rented office you may still deduct costs for the area of your home used exclusively and regularly for your business, no matter how small the area. And by having two work places you’ll increase your deduction for auto use or public transportation costs.

Here’s why: The IRS does not allow a deduction for commuting from home to work and back. But it does allow a deduction for getting from one workplace to another. If you work in your home office and then drive to your other workplace – the library -- you are now driving “from one workplace to another.” You've increased your business miles and the amount of your auto deduction, or made your subway trip a business expense.

3. Careful, no office sharing allowed. Keep in mind the all-important IRS exclusive use rule: that your office must be yours and yours only. If you’re the writer for Clyde Client and your spouse handles the graphic design side of Clyde’s website and both you and your spouse use the same office – sorry, no home office deduction.

The way around that: make one spouse the employee of the other. By the way – there are a whole lot more benefits to hiring your spouse.

4. Hire your spouse. Even if your honey only helps you out with printer jams or errand running or fact checking, pay him for it. Putting him on your payroll opens up a vast array of deductions. You can provide generous employee benefits and deduct the costs of those benefits from your writing income. What kind of benefits? Well, for one thing, you can give him a medical plan that covers his family – that’s you and the kids. That would make your doctor bill a deductible business expense.

5. The more broadly defined your business the more deductions you can take. Being a sports writer limits your deductions. Same with calling yourself a technical writer. Yet we know if the money were there you’d write about pretty much anything.

Maybe you can position yourself as a generalist writer; in any case, describe your field of writing as broadly as you comfortably can. Do you sell ads on your blog? Do you sell a copywriting course on your website? Do you write for blogs and edit press releases for local businesses, all while working on your book? Perhaps your true business profession is a writing and marketing consultant rather than a writer.

Whatever your profession, claim all the income --- every dime. Consider as a possible business expense everything you do that makes you better at making money.

6. Why do you watch TV, rent DVDs, see a movie? If it’s just for fun, no tax deduction. However, if seeing films is vital to your own screenwriting or your novel in progress then claim a portion of the costs as a tax deduction. Or, has the literary void on network TV forced you to get cable? Well then, part of your monthly cable cost is a business deduction. And remember, the business use portion of the cost of your TV and DVD player is also a business expense.

7. Are you allowed to deduct a gift basket of fruit to Grandma? Of course you are -- if Gram has some connection to your business. Did she show you how to hook up your scanner? Make curtains for your office?

You’re an indie business and even though you may have a personal relationship with someone, that does not rule out also having a business relationship. This is particularly pertinent in gift-giving. Of course, if you bought your client a basket of fruit as a birthday present you would treat it as a business gift deduction. But what about the friends with whom you have a business connection? If dinner at a friend’s house was planned so that she could help you with your query letter or book proposal, then the chocolate you arrived with is a business gift.

8. Deduct your laundry and dry-cleaning. Spill ink or red wine on your white silk blouse while attending an awards event? Dry cleaning and laundry while on a business trip are deductible expenses. You may also deduct the costs of the first dry cleaning bill after you return home. But don’t get too creative and save all your winter’s dirty clothes for cleaning the day after you return from a 3-day writers’ workshop.

9. Just starting out? Twenty-five query letters out and still no magazine said yes. That’s a bummer, but even if you haven’t yet made your first dollar as a writer you may still deduct your expenses. As long as your goal is to make money, you’re in business – whether you actually make any money or not.

10. Discuss these ideas with your tax pro before incorporating them into your business. That’s the most important tip of all. If your tax pro isn't aware of them … time to get a new pro!

Friday, November 30, 2007

It’s December – Do you know what your taxes are?

It's December, yet there is still time for indies to take a few steps that will make tax-filing season less distressing.

Which steps to take and the order they are taken depend on where you are and where you’re headed. So before you can better your tax situation, you need perspective on your current tax outlook. The way to get this perspective is to compare your expectations or planning for the year to what has actually happened.

If you've made more money than you’d expected or planned for, you may want to reduce your income with more business deductions or pension contributions.

On the other hand, if your income is lower than projected, maybe you can bring in income earlier than you expected or defer some deductions until next year when you’re determined to make more money.

The very first step: Start now! Get your tax papers together. More time means more complete records, fewer missed deductions, and the opportunity to discuss tax strategy with your tax pro. In stead of waiting until the hour has struck, ask her for a review now and get a projected tax total. If you hesitate because of the cost of the consultation, think about this: the more you get done now the less you and she will have to do later. Overall cost may be the same, or even less! And if it does cost you a little more it’s worth it if it helps to improve your total tax picture – and accounting fees are a deductible business expense.

Once you have an idea of your tax position, you can take steps to change it.

Too High Income
If your income is higher than expected or your deductions are skimpier than you’d like, here are some tips.

Look for more business deductions. Are there expenses or purchases planned for the future that you can make now? What about the scanner or desk you really need? The computer that you intended to buy next year?

Fine, you say, but I don’t have the cash for a major purchase. Well, there’s a way around that. Charge your purchase to a bank credit card. For instance, a $2,000 piece of equipment purchased with a bank credit card before the end of the year gets you a $2,000 deduction for this year even if you make no payment on it until next year. Keep in mind, however, that it has to be a bank credit card like MasterCard or Visa -- not a store credit card.

If you’re a cash basis taxpayer, which most of you are, a check written on or before December 31st for a legitimate business expense is a deduction for this year.

Of course, never spend just for the tax break You won’t get a dollar for dollar tax savings. Here’s a general rule: Unless you are in a very high tax bracket, a $1,000 business deduction will save you about $300 to $400 in federal income and self-employment taxes and state tax.

I use the term pension plan and retirement account interchangeably. For an artist or writer with no plan of ever retiring I call it a freedom account because it allows the freedom to change ideas and plans in the future.

So it’s time to re-evaluate your pension plan. The pension laws and regulations have had a complete makeover. You may be able to decrease your tax significantly by starting a pension or changing the kind you have. Be sure to investigate a relatively new pension plan that goes by several names -- the UNI-K, the Solo-K, the one-person-K. It’s easy to set up, flexible and, if established with the right brokerage house, inexpensive . Careful though: some brokers and investment people who don’t usually work with self-employeds may not be familiar with the UNI-K. They will try to steer you to the corporate world 401-K, which is the wrong plan for indies. Make sure that your tax or financial professional has a grasp of pensions that work well for indies.

Not Enough Income
On the flip side, what if you had a bad year and made less money than expected? One of the nasty side effects of a bad-income year is that you may be entitled to deductions that get you no tax breaks. Those deductions would come in handy next year when your IT business takes of or you've finally been accepted to the regional juried show, and your income increases.

Here are some possible moves to make in the face of a downer income year.

Delay purchases if you can. This is one of the advantages of understanding your tax situation before filing deadline – not that tax matters should determine all your decisions, but that taxes should be factored into them. If you can wait until next year when there’s a promise of more income, wait.

If you have to purchase a piece of equipment now because the sale ends on December 25, buy it now. According to IRS rules you don’t have to take the deduction in the current year if the equipment was not available for use, So if the set up of the scanner or computer must wait until the holidays are over and the guests leave then it is not available for use and so it is not a deduction until next year.

Do everything you can to get your income up. Offer discounts, have a sale, make an extra effort to get the money owed you, pester the gallery owners or consignment shops or laid-back-clients that have been slow in paying or who normally pay after the first of the year.

I said earlier to take a look at your pension if you’re having a good year. And if you’re having the opposite kind of year, look just as hard. Several pension plans require a contribution. You may not need to make a contribution in the current year because you don’t need to reduce your income. And in a low-income year you may not have the funds to make a pension contribution. The solution may be to change to a different type of pension plan. And now, before the year is out, is the time to discuss that with your tax pro.

This month you will see a lot of last minute tax tips posts and columns. Most of them will tell you the same old stuff: Clean out your closet and give the clothing to charity for a big write-off. It is a good idea to free up some closet space and do a good thing with your discards. But that is not going to have a big impact – if any – on your tax situation. picture. So, start now to develop your 2007 tax picture and you'll have a better perspective into 2008.

In future posts I’ll mention tax tips from other folks that are worthwhile. Keep an eye out for them.

June Walker

Thursday, November 29, 2007

Receipts for Travel Expenses

June --

I have been an indie for 6 months - as a researcher, speaker, and writer about world affairs - in Reston, VA.

When I travel for business, do I need receipts for every bite of food or hotel room I deduct or can I take a standard deduction? If standard, where do I find the rates?

Thank you.

Hello William,

On a tax return travel expenses fall in to two categories: Meals and Everything Else.For Meals & Incidentals you do not need receipts. You may instead use the IRS "per diem" amount for the city you were in and the date you were there.
The rates are in IRS Publication 1542.For Everything Else you must have receipts. Be sure to read Business Travel Expenses on my website.


Taxes when you work in one state but live in another.

June --

I have been a mechanical designer for one year. I have been working in Texas for the past 8 months. Texas has no state income tax. My residence of record is in Roswell, NM, but I have been renting an apartment here (in Texas).

I have not had any New Mexico income tax withheld from earnings here. Will I still have to pay New Mexico state income taxes ?


Hello David,

Yes, you must pay New Mexico.

Regardless of where you work you must always pay income tax to the state where you live. Of course if your resident state has no income tax, then you pay no income tax where you live.

Typically, you pay income tax to the state where you work and you receive a credit for those taxes paid in the state where you live.

Here's an example of how it works:
You work in state A. Let's call it your work state --non-resident state in tax jargon.
You live in State B. Let's call it your home state -- resident state in tax jargon.
Your total home state income tax is $5,000. That includes tax on your earned income and tax on interest and dividends and stock sales. You paid $4,000 tax to your work state and so you get a credit. So your home state tax is $1,000.

It may not work out dollar for dollar if one state has a different tax rate than the other. And of course, if your work state, like Texas, has no income tax, then you get no credit and so owe NM the entire tax.

Also read this blog post Work in Another State


Monday, November 26, 2007

Do it right!

June ...

I just recently found your blog and cant wait to run out and buy your book!

I am a sole proprietor operating out of my home within Philadelphia. As you probably know, Philadelphia has the highest business taxes in the country. My business is new and I have yet to pay these taxes (not even sure I can afford them).

Anyway, onto my question ... does it make sense to setup my business outside of the city at, say, my in-law's address? I'm not sure this is legal or not. I'm sure you'll advise me. If I'm able to do this, will this prohibit me from taking a home office deduction? I'm sure there are a ton of negatives I'm not considering, but the taxes in the city are out of control!!! and I cannot move until the housing market comes back up.

thanks so much. jason.

Hello Jason,

So glad you found my blog! I know Philadelphia. I have clients and a daughter there.

Using an address strictly to avoid taxes is fraud. Don't do it. Your best defense against high taxes is information. So, instead of finagling, learn as much as you can about business deductions and other indie financial tax and money matters. . It's a new "business" you're starting. Do it the right way. Legitimately. And people will treat you -- and pay you -- as a legitimate business.

And please, do run out -- really quickly -- and buy my book, Self-employed Tax Solutions.


Sunday, November 25, 2007

Husband-Wife Business? Don't set it up as a partnership.


I am preparing to take the plunge into SE and your book Self-employed Tax Solutions book has been an excellent resource.

Due to the work I do and subsequent contractual liability concerns, it was in my best interest to form an LLC, which I did as a single member.

My spouse will work in this venture in a part-time/full time business management capacity while I provide billable consulting services.

Are we better off with my spouse as a member, thus a partnership LLC, or as an employee in a single member (sole proprietor) LLC? I want the maximum liability protection, and equal "ownership" but do not want to give Uncle Sugar anymore than I absolutely have to. Since we file jointly, I'm thinking the tax advantage lies with the sole proprietor option but need your advice.

Thank you in advance.

Dean from Fort Collins, CO

Hello Dean,

Very smart move -- getting information before you make a decision!

An LLC treated as a "disregarded entity" is a sole proprietorship.

The most tax advantageous business structure for a husband-wife business is that which has one spouse as the sole proprietor and the other spouse as an employee of the sole proprietorship.

The least tax advantageous is a husband-wife partnership.

For an understanding of the advantages read my posts in the category payroll -- spouse as employee.

Glad my book is a good reference for you. Please tell your indie friends and colleagues!


Monday, November 19, 2007

No Clothing Deduction


I've just discovered your website and I think it's great! I'll be reading it regularly for sure.

If you have a small boutique and you are the owner and naturally you take some of the clothing home to wear it yourself. From a business perspective it's important that you wear your merchandise - it makes it easier to sell it, you need to know if it holds up, you need to know if it fits right. I know you would have to pay use tax on the cost of the merchandise that you wear. But can you deduction the cost as a business expense? And if so what would you call that account? I thought of research and development, but that doesn't sound quite right.

-- Kaylyn

Hello Kaylyn,

The IRS is a stickler on this. The answer is no, you cannot deduct these clothes because you wear them in your everyday activities. Were you to wear something for a specific period of time, keep a written record of when worn and the result of the test, then you'd be able to take the deduction.

Take a look at this post Clothing and Make-up as a Business Expense .


Sunday, November 18, 2007

Medical Insurance Deduction for Indies

Hi June,

I like how you write, it's fresh and easy to understand.

I have a question. I'm considering quitting my job and working for myself doing free-lance technical writing at home. My big fear is the cost of health insurance. Any tips?

As a sole proprietor, can I deduct ALL my health insurance premiums and out of pocket expenses? If yes, then basically does that lower my taxable income? Can you give me an idea if that would make my health insurance premiums about equal (after all taxes paid at year end) to what I would have paid working for my current employer? Currently I spend $130/month, but I received an estimate of $250-$400/month from Blue Cross/Blue Shield as an independent person (depending on the type of health plan chosen).

Is there any other way to recoup that insurance premium besides a tax deduction, too?

Holly from Warrenville, IL

Hello Holly,

Let me give an overview of how medical deductions work.

If a taxpayer is not self-employed then medical insurance premium costs and all other medical costs are deducted as a personal expense in what I call "the guts" of the tax return. If these medical expenses do not come over a certain minimum or if the taxpayer's income is so high that the medical expenses don't meet another threshold, then the deduction for medical expenses is lost.

If a taxpayer is self-employed, here's the difference: Medical insurance costs are deducted on "the front" of the return and immediately reduce taxable income. Other medical costs are still deducted as a personal expense in "the guts" of the return. No medical expense is a direct deduction from business income.

There is no way, without analysing your personal tax return and projected income, to tell whether your new premiums would actually cost you any money. Why not calculate as if you simply had an additional $270 [400 - 130] cost per month and see if you could handle that?

Glad you like my writing. Thanks!

Artwork is not a deductible business expense ... even for artists.

Hi June,

I'm an oil painter who is being audited by the IRS. They are refusing to allow my deduction of oil paintings I have purchased from galleries. I have receipts for all of these purchases and have provided them to the IRS. I am deducting them because I believe they are necessary for my business. These are artists whose work I admire and learn from. From these paintings I can see how they solved similar problems. I can also use these paintings as examples when I teach. One of these painting is from my teacher's teacher who is deceased and this is the only way I can learn from him.

What do you think? Should I be able to deduct this from my business? I make my living as a painter, and I feel this should be valid. I'd appreciate any comments you have and if you know of a precedent for this?

Thank you so much for your time.

Cheri from Sandi Park, NM

Dear Cheri,

The IRS thinking is that art treasures and antiques do not depreciate in value and so you may not deduct their cost as a business expense.

There is ambiguity about something such as an antique desk used in your office or a musician's rare banjo. If they are used and subject to wear and tear they may be depreciated. That is not the IRS regulation however. It is from a tax court case only and so could be rejected in an audit.

I spoke with the IRS about this last week and the response from that particular IRS employee was: Yes, you may deduct the cost of the oil painting if it is part of the ordinary and necessary costs of the business. Therefore as long as the IRS has accepted that you are a self-employed artist seeking to make a profit you may deduct the costs of artwork as teaching tools. His opinion is not the one generally accepted by the IRS!

My experience has been that the IRS will not allow the deduction. I know of no precedent to the contrary on oil paintings or sculptures.

Of course what would make sense is to treat artwork like houses and other buildings. Deduct the cost and pay tax on the gain when it is sold.

Wish I had better news for you.


Saturday, November 17, 2007

Work-at-home expenses allowed without a home-office

Hi June,

I am a self-employed film and video freelance editor and work out of my home as well as work on-site and go back and forth between the two sometimes. I can not deduct for a home office though because I share a one bedroom place with my fiancee.

My question is, even though I can not claim a home office, can I still claim expenses incurred from working out of the home, i.e. my editing system, my laptop, my editing software, my supplies, my entertainment expenses, etc? I certainly hope so. Please let me know.

Thank you for your time.

Hello Sarah,

The short answer: Yes, you may deduct every one of the expenses that you questioned.

So many indies get mixed up on the relationship of office-in-the-home to other expenses such as office supplies and equipment. Even the experts get it wrong. Here's an example of how wrong they can get it --
It's tax time so ... beware of bad advice from the real-life Sammy Segar, CPA

Simply put there is no relationship between home office deduction and the deductibility of office equipment or supplies or any other business expenses. As I explained in the above noted post: " ... the deduction of office equipment and furniture has nothing to do with a home-office deduction. If you use a computer only for business it qualifies as a business deduction, even if it sits on your kitchen counter. If you have a printer perched on your home-office desk it does not qualify as 100% business use if your kid borrows it to print his homework. An ergonomic desk chair used only when you’re working at your business computer qualifies for a business furniture equipment deduction even though it, too, sits in your kitchen.

Where business equipment is located or used in the home is not relevant to a deduction. Nor is its use related to the size or even existence of a home office.

The same applies to all business expenses. In my book, Self-employed Tax Solutions, I use the following example: "Telephone expense is not directly related to office-in-the-home expense. You may deduct for a phone used in your residence even if you do not have an office or studio in your home. If you do claim an office-in-the-home deduction don’t think that somehow office size and phone use need to match. They don’t. Your home office may take up 10% of your residence but you may use 88% of your phone for business. No correlation, no problem."

-- June

PS: Take a look at Shared Rent: You may still deduct for home office . You may have a home-office deduction.

Thursday, November 8, 2007

Wacky payment method?

June --

I have been a sole proprietor home care physical therapist for 10 years.

Can sole proprietors be paid via direct deposit in NY? We were always told no, but now one of my clients ( a hospital) wants us to sign up for direct deposit. I'm leery. Any advice?

Frank -- Franklin Square, NY

Hello Frank,

"We were always told." Told by whom for goodness sake?!!!! And for what tax reason were you not allowed to have your payment deposited directly into your checking or savings account?

I get emails where indies have been told a lot of wacky things, and let me tell you that's up there with the wackiest. You may be paid in and by anything -- camels, dollars, rubles, gold, check, credit card, cash, barter, wampum, even direct deposit into your bank account.

And it's all income that must be reported on your tax return.

You must email me back and tell me who told you that.


Tuesday, November 6, 2007

Husband & Wife Working Together: Incorporate or Not?

Dear June,

I am a freelance designer. My husband works for an advertising company. Once in a while he helps me out with my work. My friend's accountant told her that I'd save a lot of money if I incorporated. Should I incorporate and put my husband on my payroll?
I'm confused because I don't really know how a corporation works.

Janice from Ohio

Hello Janice,

Do not incorporate unless your personal tax pro analyzes your unique situation and gives you specific, understandable reasons why it would be better for you.

Here's a snapshot of how a corporation may handle income:

In a corporation, the tax benefit of retained earnings -- that's corporate profit that is not distributed but kept in the corp for future business spending -- comes into play only when you make a lot more money than you need to live on. By doing this, you leave some of the earnings of the corp in the corp and do not have them available for living expenses.

In your corporation you would earn money as a designer. These would be your wages. Your husband would earn wages. The corporation would have a profit on which the corporation -- that's you -- would pay tax. The corporation profit -- in the form of dividends is distributed to you.

On yours and your husband's tax return you include your wages, his wages and the dividends. You pay tax on that income. Note that on the dividends, the corp -- you -- have already paid tax once. Now you will pay tax on those same dividends again.

You must pay whatever fees your state requires for setting up a corp. You must pay an accountant to help set up a corp and every year to prepare a corporate return for the feds and also for the state. There are various required papers, such as corporate minutes, that you'll need to keep.

All this is a hassle and expensive and so you don't want to do it unless you must.

When you have a sole proprietorship and you hire your spouse as your employee this is what happens or may happen:
-- Your wages to him simply move the income from one part of the return to another. No tax change. -- If he must accompany you on a business trip, his expenses are business deductions. Not so if he were not an employee.
-- You may provide him with a health plan that covers his family [that includes you]. All family medical expenses then become deduction against your business income.
-- You may give your spousal employee dental coverage, life insurance, disability coverage, a pension -- all are deductions against your business income.

And, if he works out really well, you may give him a raise.

Keep in mind: A sole proprietorship may be an LLC. Read about it here Sole Proprietor as an LLC


Contributions from a Minor to a Pension or Retirement Account


If a young person (under 18) earns money doing odd jobs (like mowing grass etc...) and then puts this money into a Roth IRA is he in any way exempt from having to file a tax return and thereby able to avoid paying self employment (social security) tax?

I realize that if he were going to use the money to buy comic books or something he would never even consider reporting the "cash" income, but I'm assuming opening the Roth IRA will put him on the IRS radar.

John in South Carolina

Hello John,

Regardless of how young the indie he may contribute to a pension only if he has taxable earned income. So, no he cannot hide the income and also put it into a pension.

If the grass cutter wanted to contribute, let's say, $4000 into a ROTH -- or any other pension/retirement account -- he must file a tax return showing that he had at least $4,000 taxable earned income.

Were he an employee that would be $4,000 in wages, for an indie that would be $4,000 net profit.

To establish a pension plan for a minor the account must be opened and held by an adult, as guardian, in the name of the minor. While the adult is the individual authorized to perform transactions on the account, the minor is considered the registered owner for tax purposes.

Although there is no minimum age, on various kinds of pensions there is a maximum age at which you may not longer contribute.


Monday, November 5, 2007

How does an indie pay social security tax?

June --

I am self-employed with no employees, however I am interested in paying something into the system toward social security benefits for myself in the future. What tax form do I fill out to get started?

Jane from Baltimore, MD

Hello Jane,

Every self-employed who has a net profit of $400 or more pays into social security when she files her tax return.The amount is figued on Schedule SE: Self-Employment Tax. Social security is part of self-employment [SE] tax.

-- June

Sunday, November 4, 2007

How much should I charge?

June --

I have been a Web Developer / ASP.NET Programmer / Writer / Educator for 4 years.

I agreed to a rate before researching the real cost of taxes etc... is there a rule of thumb for consulting so I don't make this mistake again?

For example, should I add 35% to my minimum rate to ensure that I take home what I need?


David, M.Ed. from Seattle

Hello David,

I think you
are asking two different questions.

I will ignore taxes for a moment and look at how much an indie should charge. Let's say you were making $50 per hour as an employee. All your work expenses would be covered and so $50 per hour meant $50 an hour -- less taxes -- into your pocket.

Now, as an indie you have many expenses that you must pay and they must be figured into your hourly fee. Not only do you need to look at things like the costs of a computer purchase and publications you read and the costs of running a home office, but what about hours on the phone with your computer guru who is helping you after your computer crash? What about your time or someone else's time cleaning your home office? Your time doing your own bookkeeping? Your time on the web getting answers to tax questions?

Most new indies -- that is, those without experience who have no history on which to judge their rates -- severely undercharge. They usually should double or triple their fees. When they give a fee of $500 for a project they think would take them 10 hours, they should have charged $1,000 or $1,500. Most often the project takes at least twice as long as they thought and they didn't figure in things like the two hours at Best Buy exchanging the modem they just bought.

The market and your reputation may limit how much you can charge but it is important to know your actual costs and to strive to charge what works for you. Especially at the start of your indie business it is important to keep a log of time spent on each client as well as on "general" time -- that's the bookkeeping, cleaning, errand running kind of stuff.

Your other question about fees and taxes: Plan on 1/3 to 40% of your net profit going toward taxes. Read more here Taxes: Which ones and how much do I pay?


SE Tax and Partnerships


My husband currently receives a 1099 & is self-employed as a territorial sales rep.

He pays alot on self-employment [SE] tax. We are thinking about opening up a retail store in which we would be partners in an LLC.

Does The Small Business and Work Opportunity Tax Act of 2007 mean that we would not need to file for SE tax on this small business? If I am understanding it incorrectly & we still do need to file SE tax, is there some way we can combine his territorial sales rep work in which he already pays SE tax with the small retail business, so that we are not paying SE tax on two related businesses?

Also, does the Small Business and Work Opportunity Tax Act of 2007 eliminate the double taxation that occurs with husband & wife partnership llc's?

Thanks, Eileen

Hello Eileen,

Wow! You are mixing up apples, potatoes and Fruit Loops.

First of all, there is nothing in the Small Business and Work Opportunity Tax Act of 2007 that eliminates SE tax. To make sure there was no hidden paragraph that I missed I called the IRS to confirm. If you found something that says it's been eliminated, please send it to me.

Second: There is not now nor was there ever a double taxation of SE tax. Read What is Self-employment (SE) Tax? on this blog.

In a partnership SE tax is paid on the net profit. For instance, if you and a friend were 50/50 partners then each of you would pay SE tax on half the profit. A husband and wife partnership would also split the profit and pay SE tax on his and her share.

By the way, a partnership is the least tax advantageous business structure for a husband and wife business. A better way: One spouse as owner, the other as an employee.


Saturday, November 3, 2007

What is Self-employment (SE) Tax?

While income tax is paid on any kind of taxable income, self-employment (SE) tax is paid only by people who work for themselves. SE tax is social security and Medicare tax for self-employeds and is paid on a self-employed’s net earnings.

Net earnings – think of it as net profit. It's what you have left after subtracting all business expenses from your gross self-employed income.

You must pay self-employment tax if net earnings from self-employment are $400 or more. The SE tax rate is 15.3% and is made up of two components: 12.4% social security tax plus 2.9% Medicare tax.

Social security benefits are available to self-employed persons just as they are to wage earners. Your payments of SE tax contribute to your coverage under the social security system which provides you with retirement, disability, and survivor benefits.

Medicare coverage provides hospital insurance benefits.

There is a cap on the amount of earned income on which you must pay social security tax. The cap for 2009 and 2010 is $106,800.

That means that you do not pay social security tax on income over $106,800. If you were to make $106,800 as an employee and also have an indie venture with a $20,000 profit, you would pay no social security tax on the $20,000 profit because you had already paid the maximum social security tax for 2009 or 2010 via withholding on your wages.

If you had a job and were also self-employed you would pay social security tax on both wages and profit until you met the $106,800 limit.

If you earn $106,800 in 2009 or 2010 you will pay the same amount of social security tax as Max Millionaire who earns $1,000,000. Hmmmm... do you see an opportunity here for filling the social security coffer?

There is no cap on Medicare tax. You pay 2.9% Medicare tax on all earned income.

{revised 1/31/10}

Indies Need Health Coverage

The American jobs market has changed – more than that, it has been transformed – since Bill and Hillary Clinton’s unsuccessful attempt to put together a national health plan in the early 1990s. In the ensuing years the independent professional – in sheer numbers, although up to now not in political power – has boomed. No longer should the indie be an overlooked factor in US tax law or in labor or health benefits strategy.

Health coverage will certainly emerge as an issue in the national elections of 2008. It’s vital for indies to make themselves heard in the coming debate. We indies need health care coverage solutions that are in sync with our workstyle.

I’m going to have more to say on this topic in the coming months. For a brief but interesting look at such matters, check out Home-Office Politics, Matt Bai’s article in the November 4 issue of the New York Times Magazine. If no longer available online you may get a PDF version here.

Can I deduct meals & lodging?

June --

I've worked as a software consultant on 1099 on and off for 15 years.

I work at my clients business site 3-4 days of every week and the rest of the week I work at home. My home is 60 miles from my clients business. Since it's such a long commute I always stay in a hotel close to the clients site the 2-3 nites I'm working at the clients place. I do this every week. Can I deduct travelling expenses for the hotel/food etc? I do not claim a home office deduction.

Thanx a lot in advance.
Brian :)

Hello Brian,

You say "clients site" not client's site nor clients' site so I don't know if you are talking about one or more clients. If you have only client brings that brings up the question : Are you really self-employed?

Knowing nothing else about your work or number of clients, I'll assume for this situation that you are legitimately self-employed.

You have no home office so you may not take the commute to your client's site.

Sixty miles is not a long drive. If for your convenience you are staying there rather than driving back home then you may not deduct costs for lodging and meals.

If your work requires you to be available on your client's site for so many hours that you would be too tired to safely drive back home then lodging and meals would be a legitimate deduction.


Tuesday, October 23, 2007

Cruise Ship Entertainer Gets No Tax Breaks

Many months ago I received the email below from Charles, a cruise ship entertainer. Charles and I have exchanged email over these months. I had questions for him prompted by my many conversations and correspondence with the IRS. At times I waited weeks for a response from the advanced tax law section of the IRS.

Here's the situation:

Hi June,

I really appreciate your site and what it has to offer... Excellent, clear, understandable advice and information.

Here's my question in two parts: I work as a guest entertainer on cruise ships. I spend most of the year away with a few weeks at home.

I also hire dancers and technicians on the ship for my show and pay them in cash onboard. They are not US citizens and do not get a 1099 from me. I simply have a record of paying them. Do I need to send out 1099's? Is there another way I should do this? It adds up over the year to a considerable amount.

The second part is that if I'm spending 330 days outside the US on the ship, do I qualify for the foreign earned income exclusion? Or, if not, since I pay for meals, etc. is there a per diem amount I can use for those days out at sea or in port in other countries.

There's not a lot of info for us cruise ship workers, but I hope to learn more.


I also learned from Charles that the ship is registered in the Bahamas and he is paid by the cruise line. He visits up to 20 or more countries each year and is in US ports sometimes for a few hours. He's in international waters about 95% of the time.

When not on a ship he lives in Las Vegas, Nevada. He has a house there and a Nevada driver's license. Charles says that he does not consider Las Vegas his place of residence since he is never there. "I live on a boat but visit my house once in a while to dust," is what he tells people.

The ship provides accommodations, but Charles pays extra for meals and incidentals.

My findings ...
The good news is that Charles is doing it right regarding the
independent performers he hires. His payments to them are business deductions and all he must do is keep a record of payment. No 1099 is required. This is because the work is being performed outside the US.

The bad news is that someone in Charles' working situation does not get a business travel deduction for meals and incidentals. The IRS gives a deduction for expenses incurred while away from home, such as the per diem for meals and incidentals, to alleviate the burden on someone whose business needs require him to maintain two homes. "Home" in this circumstance refers to the principal place of work, not the personal residence. The exception for this circumstance is when the work is "temporary."

And then there's even more bad news. A US citizen may exclude up to $82,400 income earned in a foreign country or countries if he is a bona fide resident of another country or countries. [Read more about foreign earned income here.]The cruise ship travels to many countries and through international waters. Charles resides on the ship. The Bahamanian ship is not considered a residence in the Bahamas. Charles is an itinerant and so gets no foreign earned income exclusion.

Monday, October 22, 2007

Indie Health Insurance -- somebody is trying to help

Take a look at the Small Business Times based in Milwaukee. Our representatives in congress are trying to help us self-employeds with health insurance.

Self-employed need level playing field in health care
The "Equity for Our Nation's Self-Employed Act" (H.R. 3660) was recently introduced in the U.S. House of Representatives by U.S. Reps. Ron Kind (D-Wis.) and Wally Herger (R-Calif.) to help put self-employed businesses on equal footing with large corporations by permitting health-insurance premiums to be deducted from both their income and payroll taxes .......

Ron Kind's Web Site:
And, Wally Herger's Web Site: .

Let them know that we support their efforts.

Saturday, October 20, 2007

Jazzercise Franchise

Hi June,

I stumbled on your site while looking for self employment tax info and found the article pertaining to whether a person is an employee or self employed. I read that it is about the relationships.

Well, I am a franchisee without owner status. The students pay the owners and the owners pay me a set amount per class. The owners decide which times and days I can teach, I am given music and choreograph notes and DVD's from Jazzercise Inc. to follow with approved routines. I cannot make up my own. Corporate determines how long my class is, the structure of my class, and even how long I can stretch in between routines. I am monitored for compliance once a year by Corporate and failing would mean termination. They require that I have CPR certification and pay liability insurance or again termination would ensue. The owners pay the rent, decide the class fee, maintain the membership, and promotions and all advertising. I own my microphone, because I choose not to use theirs, they own the mixer, speakers, weights, and mats that both I and the students use. I do not have my own business cards and had to sign a no compete document so that I cannot teach another aerobic format anywhere else.
Should I be filing self-employment tax? My owners do not give me any tax forms to file, even when asked. I did get the grand total of earnings for the year in writing after much prodding, (the total being $5730) and they do not report income paid to me to the IRS. What do you think? I believe I have the option of getting paid a percentage of the center instead of a base rate. Would that make a difference? So again, employee or self employed?

Thank you in advance for all your help!

Carol from Oregon

Hello Carol,

Franchise laws have different elements than those for indies. There are many questions in your email and your situation is too specific for a general response.

Here's a site that might point you in the right direction. It is from Jazzercise explaining its two franchise types:
I assume you would have entered into a franchise with the advice of an accountant or attorney. You should contact that pro and get your situation cleared up. And maybe there are some Jazzercise folks who will read this and pass on some info to you.


Want a correct answer? Know Your Source

June --

Do I need to obtain a business license in order to practice privately in the state of Louisiana or is my occupational license issued by the state board sufficient?


Hello Barbara,

You are assuming a wealth of knowledge on my part of the intricacies of state by state regulations that would be impossible for even the Great Oz.

And if I did give an answer, how would you know it were correct? What are my credentials regarding Louisiana state regulations?

As an indie, flying solo, you must be sure that your sources are authoritative. Therefore, whenever you seek information, make sure you are asking the the right person -- or agency -- a well thought out question.

You might start your quest for info on licensing at


More about Medical or Business Expense

Hello June,

I have a wonderful therapist who is very expensive! I understand that it's fine to deduct psychotherapy. Now this therapist also happens to be a great bodyworker, and occasionally he does bodywork and other kinds of body-oriented psychotherapy on me. Even though I know "massage" isn't deductible, I still deduct this. Is that kosher? How about herbs that I buy from him?

I also get lots of massages and body treatments for myself--no way of making that deductible, though, right?

Finally, even though I teach "raw culinary arts," a lot of my students have health related questions, so I'm up on a lot of things regarding herbs, supplements, yoga, and exercise. Can I deduct expenses related to these things as "business research" related expenses such as yoga, DVDs and classes?


Hello Jenny,

If the body-
oriented psychotherapy is part of your medical therapy treatment, the same way that, for instance, art therapists may work with children, then I would consider it a medical deduction. However, you need to ask your psychotherapist whether he classifies it as a medical treatment, that is whether he has a code # for health insurance reimbursement.

You are correct. Massages and body treatments are not medical deductions. Wish they were! See Medical or Business Expense on whether you may deduct the cost of yoga.

Yes, the costs of DVDs and classes that better prepare you to answer your students' questions are deductible business expenses.

Best, June

Self-employed Tax Solutions -- 6th Printing!

A little horn tooting this morning. Self-employed Tax Solutions' publisher, The Globe Pequot Press just contacted me to say that the 6th printing of my book is happening as I write this!

I'm not sure if it's because there are so many indies out there, or because there are so few accurate, easy-to-understand, books to help on indie taxes, but for all of you who bought the book, and to everyone who writes with questions, comments, and kudos, my thanks go out to you!

Friday, October 19, 2007

Homeland Security or Jobs 'n' Things

A while back I received the following email:

Hi June,

I'm almost done with your book, it has been and will continue to be extremely helpful. Very well put together, great job!!!

Now for my question: My husband and I were recently replaced by illegal immigrants on our w-2 job (janitors). My question is, how can an employer get away with hiring illegals that have no ss#'s, no drivers licences, or licences from another state.

Thank you June.

Yvonne, from Urbana, Illinois

Even though this is a question about W-2 people and not indies it certainly could apply in self-employment situations. And I thought the answer to Yvonne's question was going to be quick -- something like: They get away with it because nobody notifies the authorities. Then I was going to tell her to call her local Department of Labor (DOL).

I expected a quick confirmation of my planned response by a call to my local DOL. And that's where the marathon started.

If you have been replaced by an undocumented worker – or, the term I prefer, an illegal alien – there isn't much you can do about it. Neither the federal government nor most of the state governments are doing anything to protect American workers from getting pushed out of jobs by cheaper illegal alien workers.

Once upon a time government was a friend of the working people – adopted laws that helped them to organize, protected them against unfair employment practices. That feels like a long time ago. In fact “the Department of Labor” born in the New Deal, would be better given the 21st century name of "jobs 'n' things." In Illinois, state of my blog visitor -- the name has been changed to the Department of Labor and Human Rights. In New Mexico the DOL has been renamed the Department of Workforce Solutions.

And if you look up state websites for the department with oversight over labor matters, there’s nothing about undocumented workers to be found on them. In most states there appears to be no agency that has any jurisdiction over them.

You’ll find, for instance, a notice posted on the website of the North Carolina Department of Labor – that it “does not have anything to do with immigration or the working of documented or undocumented alien workers. For general questions or information on immigration, you need to contact the North Carolina Employment Security Commission's (ESC) Immigration Section in Raleigh.”

But when my office called the North Carolina Commission, we were told that it has nothing to do with undocumented workers either.

But, if you are the sort who refuses to give up, and you’ve lost a janitorial gig in Illinois, try the Illinois Department of Labor (IDOL). According to Anjali Julka, who handles departmental press relations, you can file a complaint.

“If they feel that they’ve lost their jobs for reasons that might fall under our authority, they can file a complaint and see what action we can take.” A formal complaint, she said, “would certainly prompt the department to review their case at least and see if it’s not us that can help them, who can.”

Minimum wage violations or failure to pay overtime may be valid issues, Ms. Julka noted.

A complaint form can be printed from the IDOL website and mailed into the Department, or the forms can be picked up at any IDOL location, or can be requested by telephone.

“An investigation by our department would determine if they have been wrongfully terminated,” Ms. Julka said. “There’s no need to provide any information other than what’s printed on the form.”

And if you don’t mind whether your grievance at being replaced by illegal aliens might take a decade or so to clear up, you have one more long shot – you can report the case to Immigration and Customs Enforcement [ICE], a bureau of the federal Department of Homeland Security.

Don’t hold your breath, though. A Senior Special Agent in an ICE regional office lamented that he has two Special Agents to cover an 18-county area in one of the fastest-growing areas for undocumented workers in America.

The agent (speaking on the condition of anonymity) said that “the government is overwhelmed” because of a shortage of people in Homeland Security. He suggested that the aggrieved parties try anyway.

How long would it take to get action? That, he responded, depends on the priorities of the local office. “The report is taken and it’s taken to the field and prioritized. Maybe never, maybe immediately,” he said. “National security-related issues, probably immediately. Politically-motivated issues, maybe quicker. If you could only spend a day in your local ICE office and see what happens, the volume of work and what kind of resources they have, you’d have a good understanding. But this isn't like the private sector where when you get a demand for your product you increase your manpower.. . . If were up to me we’d have an agent for every illegal alien. Well, maybe one for every thousand.”

So, it was asked, an average time wouldn't mean much because much depends on the urgency of the matter? “Yes, an Osama bin Laden sighting would take precedence. . . . and unfortunately we don’t have the physical manpower to address every single issue. And it might be a supervisor’s decision to not assign it to somebody.. . . I wish I had a good answer.”

New Mexico Workforce Solutions (formerly Labor Department) -- its vision statement saying, "The New Mexico Department of Workforce Solutions is a World-Class, market-driven workforce delivery system that prepares New Mexico job seekers to meet current and emerging needs of New Mexico businesses" -- appears eager to welcome willing hands from south of the border. A Workforce Solutions official pointed out that Santa Fe has designated “a safe haven for illegal immigrants – they can hang around there, they take them burritos in the morning, and employers come by and pick them to take them to day-labor jobs.”

Many illegal aliens work at construction sites. U.S. Commerce Secretary Carlos Guttierrez comes on a news show every once in a while to tell us “that we have to face the fact that there are jobs that Americans are unwilling to do.” But I don’t think Americans decided that they don’t want construction work or janitorial work anymore. I think they’re being displaced by undocumented workers willing to take these jobs for much, much less money. That’s really what the undocumented workers issue is about, and in the long run it isn't good for American indies or for Americans generally.

Thursday, October 18, 2007

Making a payment to someone? Plan ahead

Hi June,

I have a quick question. I own a rental property here in San Francisco and I had a tenant who I paid off to leave the building. I paid her $20,000. I would like to write it off but the tenant refused to fill out the W-9 form. I have her new address but not her social security number. What are my options?


Hello Rusilla,

An overview before I answer: Whatever an indie pays someone in the course of business is a deductible business expense. And, that someone must claim the income regardless of amount received. If any individual is paid $600 or more the indie must file a Form 1099 stating the amount paid to the individual . The Form 1099 is sent to the government and to the individual.

What you are supposed to do before you pay anyone is have him or her complete a Form W-9. This provides you with the person's legal name, address and social security number. All this info is needed when you file a Form 1099.

Rusilla, you didn't do this.

Step #1: The IRS says that if someone refuses to give you the necessary info you should withhold 28% from the payment and send the withheld money it to the feds. In other words you are responsible for withholding and paying the tax of the individual you paid. Of course, since you already paid the vacating tenant that can't be done.

Here's steps 2, 3, 4, and 5.

#2: Send a letter to the tenant with a request for info. Let her know that failure to provide you with the info will cost her a $50 penalty. [Big incentive. Right?] Include a W-9 with your letter.
Keep a copy for your records. IRS suggests that you get some kind of postal receipt acknowledging delivery.

#3: If you get no response, repeat Step #2.

#4: File the Form 1099 with no social security # for the tenant.

#5: You'll get a notice from the IRS about why there's no SS#. You explain and include copies of your letters to the tenant.

You may still use the $20,000 payment as a cost of business. There is no need to forfeit such a cost but you must follow the above procedure.

For all my readers: Learn from Rusilla's error. Get the info upfront.


Wednesday, October 17, 2007

Using your own car for work

Hello June,

Thanks for the great and informative sites.

My question--I work as an investigator for a company that investigates accidents involving City government "department" vehicles.

The job requires the use of my own vehicle to travel to accident scenes, and I am required to drive to work so that my vehicle is available for me to respond to the scenes of accidents. I also respond to emergencies after hours as required. I am required to type up notes and report, which I can do from home.

I read that the IRS does not allow the deduction of expenses/mileage for traveling to an office, unless I am traveling from home office to office office. So the crux of the question is: Can I deduct traveling to the office, since I am required to bring my vehicle? Is my home considered an office because I am often times required to respond from home to accident sites, or if I can write a few sentences before work everyday will that suffice?

Thanks for the help.
Michael from Los Angeles, CA

Hello Michael,

So glad my sites are providing useful information. Thanks for letting me know.

On deducting transportation: The IRS says you may deduct the transportation costs of going from one work location to another, not from one office to another. So you may deduct the costs of getting from one accident scene to another, or from the office at work to accident sites.

You may not deduct your commute from home to the office and back home even though your are required to use you car once at work. The reasoning. You would need to drive to work anyway.

You talk of your "job" so I assume you are an employee rather than an indie. In which case I would use the following example from the IRS Publication 463 to allow for the costs of going from your home to an accident site after hours.

You regularly work in an office in the city where you live. Your employer sends you to a one-week training session at a different office in the same city. You travel directly from your home to the training location and return each day. You can deduct the cost of your daily round-trip transportation between your home and the training location.

There are several posts on this blog and my website explaining what and when working at home means legitimate home office. Take a look at them here. Writing "a few sentences before work everyday will" not suffice.


Tuesday, October 16, 2007

Hello Indies, the IRS calls each of you an independent contractor.


I have really enjoyed your site and put the information to good use.

You have probably already been asked this question, but I am wondering what the tax difference might be between being a 1099 or being a consultant.

Kristie from Kansas City, KS

Hello Kristie,

No difference. Please read on.

On the home page of my site I say: If you call yourself a 1099 Worker, Sole Proprietor, Freelancer, Subcontractor, Free Agent, or Self-employed then this site is for you. You're an independent professional -- I call you an indie.

And on the very first page of my book, Self-employed Tax Solutions, I say:
personal trainers,
pet sitters,
real estate appraisers,
creators of intellectual property,
graphic designers,
investment counselors,
information technology consultants,

Web site designers,
solo performers on the stage and in the business world …

each of you is unique. Yet despite your uniqueness you all have one thing in common -- you are all self-employed.

You may call yourself by another name -- sole proprietor, freelancer, indie, subcontractor, free agent, independent professional -- but to the taxing authorities all these descriptions mean the same thing. And the taxing authorities require all of you, no matter what you call yourselves, to follow the same rules.

I am pleased my site is useful to you. Thanks for letting me know.