Saturday, April 28, 2007

Actor's Expenses

June --

I know it's late in the game here but I just found your site and would like to clarify if possible....My wife is an actor and receives W-2s for all the work she does. When using TaxCut, can/should I create a business for her in the Income section, and subsequently deduct her expenses there? Or should/can these deductions only be done later in the Deductions section? I always thought that being a working actress, she owned her own business, but if she receives W-2s, it seems she actually technically is an employee on each job huh? Would I be able to save more money one way or the other?

Thanks for your help...the site is already so helpful!

Hello Ry,

A couple of points before I answer your question: If you've read my writing on my website, blog or in my books you may already know that I have found no tax preparation program that does the job right for indies -- the programs are geared for employees and don't do the fine-tuning required for self-employeds; I think indies should not do their own tax returns -- they usually cheat themselves; I don't give tax return preparation instruction to indies.

That said, here's how it works for all my actor clients. Their income comes in as both wages for employees and as freelance income on 1099s. Almost always, unless they are doing a showcase or work for some small live theatre, the income comes in as W-2 wages. This is not self-employed income. There is no self-employed business. The expenses must be deducted as they are for all other employees. However, depending on the actor's income and expense amount these expenses may be deducted on the front of the tax return as an adjustment-to-income. This is a much more tax advantageous treatment.

If the actor receives income as both an employee and as a self-employed then expenses must be split between the two.

I'm happy my site is helpful. Please tell your friends and colleagues.


You're asking what?

June --

I am an illustrator. Where to begin? There is no site or book I have found yet that just starts from the ground up. I got limited advice from H&R Block, who printed out 2 voucher forms for me - fed. and state estimated tax vouchers and said "here" and "send in a ballpark amount"!

I really don't even know if I need to file anything quarterly, beside 2 vouchers and a check? Any forms? What do I need to do to START filing quarterly?


Hello Karen,

A big part of getting the right advice is going to the right source. Did you ask the H&R Block person if he knew anything about self-employeds? The other part of getting the correct answer is asking a question with enough information. You need to put time into framing your question. I talk about this on my website at How to ask a question:"Quick Advice" or, "What is the meaning of Life" .

You see, when you say "where to begin, " I ask, begin with what? If you've been an illustrator for a couple of years and you're asking how and when does an illustrator make estimated tax payments, then the answer is here Estimated Tax: How much to plan for .

If you're saying that this is the first year you've been a freelance illustrator and wonder what your first tasks should be regarding recordkeeping. The answer to that would be very different.

Best regards,

Thursday, April 26, 2007

Two Studios

Hi June,

My husband is a self-employed watercolorist. He shares a studio at an art center which he paints and sells his paintings (three or four days a week). The rest of the time (including nights) he paints at home.

Our basement and loft is full of his painting supplies and products. My husband does his paintings at basement during the warm season and in the loft during the cool seasons. The basement and the loft are only used for his working.

We have never used home office deduction because we thought he has a studio at the art center and we do not qualify. Do you think that we are qualified for home office deduction?

Do we need to provide IRS with any proof? If we can have the home office deduction, will there be any trouble from IRS because we hadn't taken any deductions before?

My English is not that good. I hope you can understand my questions. Please feel free to contact me at xxx-xxx-xxxx (day) and/or xxx-xxx-xxxx (night).

Your kind help and advice is highly appreciated. I look forward to hearing from you soon.

Kind regards,
May, in Fairfax, VA

Hello May,

Absolutely yes, you may take a deduction for a home studio. It doesn't matter how many other work places your husband uses.

There is no problem in starting to take home office now even though you qualified previously.

You do not need to provide proof of home office use with your tax return. If your return were audited by the IRS you would need to show proof. I suggest that clients take pictures of their home office or studio, with something in the photo that shows proves the date. This is because you may be audited in a year when your home office is now the baby's nursery or grandma's bedroom.

There are several posts on this blog that give more info on home office. You might want to start with Home Studio .


Tuesday, April 24, 2007

What a mess!

Hi June,

I'm in a real tax mess and need help getting out of it BIG-TIME!

I've been self employed for about 16 of the last 20 years and got in trouble in my early 20's with the IRS by not having enough money at the end of the month to pay taxes on my meager earnings, this went from about 1986 - 1995 (very low yearly income).

Then I was an employee for about 3 years until I "discovered" the Internet and realized that there's a TON of money to be made on it. I spent from about 1999 - 2002 struggling along and from 2002 thru the present, my income has increased substantially, however, because of all my prior problems, I've neglected to straighten things out with the IRS, mainly out of fear, however, I know I'm digging a deeper hole.

Even with the fear, I've tried a few times to resolve everything, however, it always required too much money and with low income (back then) liens and bad credit, it was impossible to satisfy the IRS, and honestly, I don't think the two CPAs I was working with knew enough about being self employed.

Right now, I need to find a way to protect my income (Corporation/Trust?) and I need to start getting this mess straightened out, buy a home and stop paying rent at a higher rate than a mortgage.

Is there any such thing as a self employed tax expert that can protect my income, work with the IRS on my behalf and get me back on track for the first time in 20 years, my wife and I would really appreciate it, this drives her nuts ;-)

Thanks for reading.

Hello Eric,

I did my best to figure out just what you're saying and I attempted to ascertain just what services and/or help you're looking for. Here's what I think:

Some years you have and some years you have not filed a tax return.
Which years are which is not clear.

You owe the IRS [and state(s)?] back taxes. 16 years!!! Really?
How much you owe and to whom for which years is not clear.

"Protect my income" doesn't mean anything. It's a term tax novices like to throw out.

Do not:
Incorporate or set up a trust

Complete a list with the following column headings --
year -- tax return filed: yes or no -- $$ amount owe feds -- $$ owe state -- rec'd IRS notice -- if not filed: have records so can file
Bring the list with you to your meeting with the tax professional.

Yes, there is a tax pro who can help you. An accountant may be enough. Depending on how much you owe, you may also or instead need a tax attorney. Start by finding a local accountant-- one you can meet with face-to-face -- one who is familiar with offers-in-compromise. That's an offer to the IRS to pay a portion of what you owe. In exchange for paying less than you owe you promise the government to play by the rules from now on. The accountant must also be familiar with self-employeds. Contact your local Small Business Association or the business organization at your community college for a tax pro recommendation.

File all back tax returns.

Get on a payment schedule. You must keep that payment schedule or you'll lose the offer-in-compromise agreement.

Be really nice to your wife so she does't leave you for creating such a mess.

Good Luck!

No deduction for billed but unpaid fees.

June --

I am a therapist. I notice that many doctors and dentists bill patients for an amount greater than the amount requested from the patient, then show the difference on the statement of account as a "write-off." Is this a write-off for their federal tax return?

I frequently "slide" my fee downwards to accommodate less fortunate persons and wonder if I can deduct this "lost revenue" as some sort of a write off.

Thanks, John

Hello John,

There is no deduction for billed but unpaid fees.

These posts on my blog cover similar situations and will help you understand why there is no deduction.
Deducting an Attorney's Time
No deduction for donated work or services

Don't let the lack of a deduction stop you from giving the less fortunate a break. You're my kind of guy!



Which business entity is best?

June --

I am a Mortgage Brokerage / Home Remodeler.

What is the best business entity to form to minimize tax and personal liability as a home remodeler?

-- Guy

Hello Guy,

If you use the right tax professional, and set up the correct self-employed pension, then you should be able to get get every tax break you need as a sole proprietorship. Sole proprietorship is also the easiest and least expensive business structure. .

If you need liability protection then register as a Limited Liability Company [LLC] set up as a sole proprietorship. Then look for any other potential liability and get additional insurance to cover those. Take a look at my post LLC? Incorporate? to learn a little more about LLCs.

Don't let some fast-talking accountant bully you into a business structure that you don't need! You may need to incorporate because of factors not evident in your email. If you do, be sure that you understand the reasons why and also what are your obligations regarding maintaining the protection of a corporation.

BTW -- You don't say whether or not you are married. They are many benefits to hiring your spouse.


Monday, April 23, 2007

Reimbursed expenses included on 1099


My husband works in trucking and he is being reimbursed for his tolls. It is on his 1099 so it's considered as income. Why? And how do we put this on our taxes?

Thanks, Tracy


Here's what I wrote about this for my website: Expense Reimbursements Included on Form 1099 .

Please let me know if you need more info.


Sunday, April 22, 2007



I have a problem with my summer employers from last summer. They paid me "under the table" for three and half months last summer.

This year, 2 days before taxes were due, I received 1099s and a note apologizing for the lateness and the new need to file taxes due to fear of being audited.

I was being paid $400 per week even though I worked late nights and overtime frequently. I don't think it's fair that they are suddenly deciding to report my income as freelance contracting even though I never signed anything or agreed to it in the first place. I'm a student who was hired as a "summer intern", all parties agreed that it was supposed to be a learning experience for me, that's why I was paid so little to begin with. I would like to be filed as a W2, but I'm not sure what my rights are. When I brought up the fact that I wasn't able to plan or budget for these unexpected taxes, they asked that I "work off" the taxes. I don't think this is fair.

Please let me know what I can do in this situation.

Thanks, Viny

Hello Viny,

When you were growing up your mama probably told you: Don't cheat. It's wrong and you'll get in trouble. That's just what happened to you. And it could have been a lot worse.

Being paid, or paying someone else, under-the-table, off-the-books or in-the-parking-lot is fraud. You are hiding income. Breaking the law.

You said your summer job "was supposed to be a learning experience." It was more of a learning experience than you bargained for. Look at it as a valuable lesson, learned early. Pay the taxes and think of it as a 4 credit college course.

Best regards,
June Walker

Friday, April 20, 2007

Foreign Earned Income

Hello Annie,

Sorry for the tardy response, there have been sooooo many questions.

I've embedded responses below. Seems a bit easier this way.

It's good that
you're reading my book. I'm sure you'll learn much from it.


Hello June,
I'm 25, have filed my own taxes two times in my life, and in January 2007 I quit my job as a production editor to become a freelance production editor for the company I had just quit. I work about 20 hours a week and make about $30/hour. By the time April 15 rolls around, I will have received paychecks totaling about $2000. I'm reading your book right now and trying to figure out the estimated quarterly taxes I'll be paying, but I have other questions about my situation.

I've applied to grad school in Australia and will be moving there in July. On a student visa I can work 20 hours a week in Australia, but my company will also let me continue freelancing.

Do I have to pay taxes to the IRS on the work I complete while in Australia? ... yes

If you are out of the States long enough there is an exclusion for income tax on foreign earned income up to $82,400 . However, although you are living abroad, it appears as if your income is "virtually" earned in the USA. If so you'd get no deduction on your indie income. .

If I stay in Australia for 5 years but keep freelancing for American companies, do I owe tax? ... yes, but how much depends on where it's earned.

If I buy a $1000 laptop before April 15, can I deduct any of it on my first quarterly estimated tax payment? Estimated taxes don't work that way. Read this Estimated Taxes here on my blog.

And finally, I don't have a tax professional, but should I get one even though I'll only be in the US for three more months? Yes, you should get advice because you have foreign earned income. Be sure to consult with a tax pro who understands foreign income and USA reciprocal tax treaties with foreign governments as well as self-employed income!

Good Luck in Australia.

Web Designer Business Expenses

June -

I am a web designer and as such purchase software and use software programs at yearly fees for seo, host websites. I am at a loss to know which category software or web hosting go into using the self-employed list from Uncle Sam. Also what about domain registration. I would greatly appreciate your input.

Thank you.
Joan, Scottsdale, AZ

Hi Joan,

All the expenses you mention are deductible. And because they are legitimate deductions, even if you put them in the wrong expense category, you would not lose the deduction in an audit.

Software purchase or yearly fees can go into the supplies category. Or they could be other expenses: software yearly fees. Were I doing your return, I would look at your total supplies cost and your total software costs. If both were high I'd keep the two expenses in separate categories. Likewise, fees for your clients can go into other expenses: client hosting and other expenses: client domain regis.

Hosting costs for your own site could be advertising expense.

Whatever you choose, be consistent from one year to the next.


Thursday, April 19, 2007

Home Office Exclusivity

Puneet from Wisconsin has two questions on home office. I thought it best to look at each individually.

Here goes ... Puneet asks:

(1) I am a full-time doctoral student and also a part-time computer consultant. All of my consultancy work is contract-based projects. While I study as well as work out of my home-office, I do all my work out of my home-office exclusively (that is, I don't do my work anywhere else but in my home-office, but I also study in my home-office because my work is not full-time).

I have many business-use facilities such as additional phone line, software, a computer that I use for my business as well as my research, etc. Can I take a home-office deduction? I started my business last year Fall, so I didn't make any money last year, but this year looks good.

Here's the killer of his home office deduction: I study as well as work out of my home-office.
The "exclusivity" aspect of home office is not that it's the only place you do your self-employed work. It means that you don't do anything else there. Your indie venture may be done in more than one place, but your home office may house only your indie work. You may run two of your home businesses from one home office but you may not do your schoolwork there.

(2) My wife is a full-time artist and art-teacher, and she uses another portion of the house for her art-studio and for teaching art. While she has exclusive, regular, and principal use of her space for her work, we share some facilities such as Internet connection, laser printer, Quicken (I keep her records). We file our taxes jointly. Can she also take a home-office deduction for her portion of the office? Many thanks in advance.

If Puneet's wife does only her art work in her portion of the house, she gets a home office deduction. I assume Puneet's printer, etc is in his home office. His wife may use it. That does not negate her deduction. It does negate his. But, he doesn't get one anyway because he does his schoolwork there.

I'm working on a publication explaining the most tax advantageous way for husband and wife to each have an indie business. Watch for the announcement of publication this summer.

Puneet, hope this is clear. Please let me know if it is not.

May 2007 be a money-making year for you.

Best, June

Wednesday, April 18, 2007

Father-Son Working Relationship

June --

I just started to work for my dad. He is a self-employed as a steel fabricator. I was wondering what is the proper form needed for me to be an employee that files his own taxes. And later on down the line when I am made a partner, would it be easier to just be a partner now and file as a 1099 or what is the best route to take on this. I hope i explained my question well enough, I'm a little confused and unsure how to go about things.

Shane from Colorado

Hello Shane,

It appears that you are your father's employee. And so you need to contact your local small business association or your state department of labor about what forms need to be filed for both the federal and your state government.

When you and your father decide to form a partnership, then you and he will be a partners. You will not be his employee, nor a self-employed working for him.

If your father has a business he should have a tax professional to whom he can go for a complete explanation of your working relationship. Both you and he can greatly mess up if you don't set up the working relationship properly.

Best, June

New to Self-employment

June --

I am a contract driver. This is our first time filing as a 1099 what do you suggest?



If you've never before been self-employed you need information -- a lot of it, more than I can provide in an email or a blog post.

I suggest you start by going to
"Categories" on the left and choose the "being self-employed" category. There are a number of posts that will be useful to you.

If you like what you read there and you are looking for basic information on taxes and recordkeeping income and expenses check out my book Self-employed Tax Solutions. Here's a link to the book's Table of Contents.

June --

Wednesday, April 4, 2007

Tax deadline ... Relax ... File in October instead of in April

Your sister has a spring wedding planned and you’re the maid-of-honor. The April tax filing deadline is just around the corner, but there’s no time to think taxes right now.

Or…When you and Gail broke up last week, you left your tax records at her house. You’d prefer to let the storm pass before you stop by to pick up your things.

Or… The project you’ve been working on has taken so long that you haven’t found time even to look at your mail much less get your tax records together.

Will any of these reasons for filing late pass muster with the Internal Revenue Service? An unnecessary question, because you don’t need a reason to file your return after the April deadline. You can wait as late as October 15!

Ignore the old husbands’ tale that filing an extension triggers IRS computer screens to flash “Audit this return!” Not so. An extension gives you more time to collect and review your material. And, even if you have your return completed by the end of February, it’s better for you to hold that return for a little marination.

Here’s why: Most taxpayers think there is only one way to prepare a tax return. Tax pros know that income and deductions can be treated in a variety of ways. If your tax preparer understands the self-employed life, she is equipped to make choices to your tax advantage. And many of her choices for your 2007 return may depend upon your income and expenses in 2008. The later into 2008 the more you’ll know about 2008.For instance, a substantially higher income in 2008 than in 2007 may warrant a fuller deduction in 2008 for equipment purchased in 2007. Or, with a high 2007 income you may want to make a hefty contribution to your self-employed pension. If you don’t have the money right now to put into that pension, an extension gives you until October 2008 to come up with your 2007 pension contribution.Take your time and talk with your tax professional about creating a favorable tax scenario.

Tax returns are due April 15. The IRS offers you an extension that gives you until October 15 to file your return. You may also need to file a state extension.

Be aware than an extension gives you more time to file your return – but does not give more time to pay your taxes. Your taxes for 2007 are due by April 15, 2008.

Automatic Extension Form 4868 must be filed by April 15. You can file online, by phone, or by mail. If you file an extension you have until October 15 to file your return.

To complete the extension, estimate your total tax liability for 2007 using tax returns of previous years as a guide. For instance, if you made 25% more in 2007 than in 2006, pay at least 25% more in taxes. If you made less, pay less. It’s best to overestimate the tax you’ll owe.

Pay the balance due or as much of it as you can. If you can’t pay the full balance due when filing your extension, or if you underestimate your tax liability, you will be charged penalty and interest on the amount owed when you file your return. Always file an extension, even if you cannot pay the full balance due.

And, come return filing time, if you still don’t have the money, don’t file your return late. File on time and you can pay your tax later. If you file your return late, in addition to any late payment penalties and interest you could also be hit with a late filing penalty.

Some anxious people rush to pay their income tax by taking cash advances on credit cards. That’s a foolish move. MasterCard and Visa finance charges are higher than Uncle Sam’s.

Federal extension form 4868 can be downloaded here

You can get most state extensions on line. Search by your state name and the words "tax return extension."