Tuesday, February 26, 2008

Freelance Income from Portugal

Hello June,

My husband is a self-employed journalist. He has income coming from an employer in Portugal we live in the USA. We have a home office that he works in at least 12 hours everyday. I have been writing off the income as self-employed income. There are no taxes taken out on this income from the foreign country.

I call IRS several different times they said two things use a form 1116 or write it off as self-employed income. One person said he was not sure and went to ask someone else. I wanted to hire and accountant this year but our income seem to drop each year.

Therefore, we do not make enough income to afford an accountant or tax officer. I have had an accounting and tax course in the pass but as you know the laws are always changing. My question is how to file this income? Should we get Portugal to take taxes out on this income?

Evone from Orange, NJ

Dear Evone,

I assume you used "employer" incorrectly and that you mean the person or business in Portugal that paid your husband for his freelance services.

Your husband's income from Portugal is treated the same as his freelance income from any other place. It is all his self-employed income.

Do not request that taxes be withheld for Portugal. That's their job! If the payer did withhold Portugal taxes then you would file Form 1116 to get credit for taxes paid to a foreign government.


Check out my book Self-employed Tax Solutions. It will simplify your tax and financial life, and save you money!

Monday, February 25, 2008

Husband & Wife Writers: One Business

Hello June,

I love your site, and it is truly the first REAL HELP I've discovered that a simpleton like me can understand.

Our details: I'm a full time writer from Austin, Texas and I maintain my own office . My wife works full time for a regular company, but she's also started contract work for the first time this year. She is in Education, and I am in Entertainment, but we both perform the same function of consulting and writing in our respective areas.

We both received 1099s this year for our separate lines of work.

Our problem: Up until now, I've considered myself a sole proprietorship, and deductions were relatively easy to understand. But now with my wife making contract money, we want to take deductions for her as well.

Can I "roll" her into my business as a husband/wife proprietorship, or is she her own side business?

My tax software lumped us together (our two 1099s anyway) but I'm not sure this action is what should be done. Do we need separate Schedule C's? Or can we actually be a husband/wife business under the same name?

For next year's problem: I'm writing screenplays and likely won't make an income in 2008. That is fine, because my wife landed a large contract and I'll help her with it. But now -- with my own office and different line of work -- then what do we do? If I become her employee, then don't I cancel out my own deductions for a different line of work? (I'll still attend seminars, classes, study, and so forth with related expenses).

I hope you can help!

Thanks. Jad

Dear Jad,

Get rid of the tax software.

OK, now I can answer your questions. Actually, your question about how a husband and wife business may file has already been answered in my post
The Many Advantages of Hiring Your Spouse . But let's deal with your current and future work situations.

For 2007, if you consider the work that you and your wife did as one business then you may file as one sole proprietorship, using one Schedule C, Profit or Loss from Business. You would split the income and the SE tax based on each one's share of income. If you think of the work as two businesses you must treat them like two separate businesses and separate all income and expenses. File two Schedules C. A real drag since, based on your description of the work you both do, I assume you share a lot of the expenses.

One thing you said doesn't make sense, "But now -- with my own office and different line of work." What different line of work? From an aesthetic perspective there is a difference between translating Homer and writing a press release for a new brand of toothpaste but from a tax perspective, writing is writing is writing. Not to mention that you'd probably get more money for the press release than the translation.

For 2008, set up as one business. The description of the work you both do certainly sounds like one business. If it's your wife's business, then you should be her employee. Or it can be your business and she can be your employee.

Be sure to read all my posts about a husband/wife business here's the category payroll -- spouse as employee .

See you off-Broadway.

Check out my book Self-employed Tax Solutions. It will simplify your tax and financial life, and save you money!

Social Security # or Employer Identification #


I am a woodworker. I was wondering when setting up a sole-proprietorship in a one person operation, is it better to file using my Social Security number or file for a FEIN?

Dan from St. Albans, WV

Dear Dan,

Using your social security number is fine.

You must have an employer identification number (EIN), also called a federal employer identification number (FEIN) if you have employees, or a pension plan. Or if you use a business name instead of your own name your bank may require a FEIN for your checking account.

You can apply online here and get an EIN immediately.

I wish you much success in your new business.

Check out my book Self-employed Tax Solutions. It will simplify your tax and financial life, and save you money!

Sunday, February 24, 2008

A self-employed NEVER receives wages for work performed!

June --

My question is for a friend who is in construction.

My friend earned wages as a sole proprietor. Now the fellow he worked for says he's not a company or corporation and will not be furnishing him with a 1099-MISC. How does he report his wages?

Rheta from Hickory, NC

OK Indies: What's wrong with this picture? Right you are. A sole proprietor does not receive wages. Only employees receive wages.

The friend in construction is self-employed and whether he receives a 1099 or not his income is self-employment income.

Check out my book Self-employed Tax Solutions. It will simplify your tax and financial life, and save you money!

Transportation expense from job to home office

Thank you, June, for the great information. I've downloaded your business expense list, spent lots of time reading your blog, ordered your book from Amazon, and I still have a question that I probably should know the answer to, but I don't so here go:

I'm an employee and an indie. I know that if I work a couple of hours in the morning (at my home office) before I go to my regular job I can claim that expense (going from workplace to workplace).

What about in the afternoon? When I go from my regular workplace to my home office to do more work? Can I claim that expense?

Thanks, Gary

You are welcome, Gary.

A while ago I spoke with the IRS on just this situation. While that IRS researcher agreed with me that the going and coming from one workplace to another was business transportation and therefore the cost would be a business deduction she could not give me an opinion on whether it should be an expense against the indie business income or against the employee's job.

If I were making the decision I would look at the entire return including how much income from the indie venture versus how much from the job. Depending on the transportation expense, perhaps I'd split the expense proportionate to income.


Check out my book Self-employed Tax Solutions. It will simplify your tax and financial life, and save you money!

Thursday, February 21, 2008

Houseboat Home Office

June --

I am an Ad Agency New Business Consultant. I've been consulting for 3 months.

My wife and I own a home in Birmingham, AL. I have a houseboat in Nashville, TN.

When I was an employee at an ad agency in Nashville I lived on a houseboat through the week and was back in Birmingham on the weekends.

Since starting my own consultancy, I have two clients in Birmingham and Atlanta.
I have another client in Nashville so I’m in Nashville servicing that account two days a week. I have a houseboat there that I use as office space where I spend one to two nights.

I’m registered to vote and my drivers license is in Alabama. I do have space designated on the houseboat for office usage.

Two questions: Can I deduct a portion of the boat as office space? Can I claim residency in Tennessee which has no state income tax?

Your site has been the most helpful resource I've found in working from home. I forwarded your article Designers Dozen: Tax Saving Tips to about two dozen graphic artist that I know along with a link to your blog and website.


Business Runs Better on a Full Tank

michael gass consulting
Advertising Agency New Business Consultant
(877) 695-7466
To learn more, please visit www.michaelgass.com

Hello Michael,

Please keep telling colleagues and friends about my blog. Thanks, I appreciate it.

Yes, you may take a deduction for the costs for a home office on your houseboat. Rules apply same as they do to any other type residence.

You may have as many home offices as your indie business needs and you may take the home office deduction for all of them.

Also keep in mind that the cost of getting from one work location to another is a business transportation expense.

And sorry, no, you cannot claim Tennessee as your state of residence. Good try.


Check out my book Self-employed Tax Solutions. It will simplify your tax and financial life, and save you money!

Sunday, February 17, 2008

More about Business Auto Expense

Maybe it’s because gas prices are rising that I received a lot of questions about auto expense. I hope my responses here and elsewhere on my blog to the many questions about auto expense will help all you indies who use your car for business.

I am considering taking a sales position. It would be outside sales. I would use my own car. They said that I could use my car as a write off. How do I look at this? If I put on 10,000 miles a year how much is it costing me to operate my vehicle and what do I get to deduct off my taxes if I make 40,000 a year?
Dave from Champlin, Mn

Hello June,
My name is Cesar, I am from Fairfield Ca. and been self-employed for the last 5 years as full time structure draftsman who works for a structural engineering firm.

My question is I have my client who's office is in San Francisco downtown and I travel to that office sometimes 5 days a week, but try to work from home at least 2 days when no rushes or deadlines occur, also work during the weekend as well.

Can I write off lunches I buy for myself?

Can I write off mileages and gas receipts? or one or the other on gas and miles? Also can I write off car insurance on one of my cars?

Dear June:
Your book
Self-employed Tax Solutions has been an invaluable help.

Regarding auto mileage deductions, I make a bank deposit daily. I want to know if I can take a mile deduction for driving to the bank from my house on the way to work or if I should go to the bank on my way from work. I can do either I was just trying to do what ever would give me the biggest benefit.For 2008 I will have an in home office deduction thanks to reading your book. The room I lease at the Spa is too small for an office so I do all my calls, Bank deposit slips and paperwork at home.

Thanks for the Help Joyce San Antonio, TX

Kimberly from Columbus, OH
I’m having a problem trying to calculate my miles driven per day for the year to get more tax money can you please help me out?

You may deduct as a business expense the cost of going from one work location to another. It’s as simple as that.

If you don’t have a home office, then you may not deduct going from home to the bank or to your studio in town or to your client’s office. You may deduct the cost of going from the bank to your studio or to your client’s office.

Business auto expense can be figured in one of two ways.

The first, the standard mileage method, simply multiplies your total business miles by a per mile rate set by the government. The rate changes yearly . For 2007 the rate was 48.5 cents per mile. For 2008 the rate is 50.5 cents per mile.

The other, the actual expenses method, multiplies your total auto expenses by the percent of business use. If you put 20,000 miles on your car in 2007 and 5000 were for business use then your business portion is 25%.

Expenses for your car, include items such as:
· Gas & Oil
· Repairs & Maintenance
· Tires
· Insurance (Remember AAA or other road service coverage, too.)
· Registration & License
· Car wash
· Garage rental
· Loan interest
· Lease costs
Parking tickets, speeding tickets and fines are not deductible business expenses.

Added to the business portion of expenses is the amount for depreciation of the business portion of the cost of the auto.

A note to Cesar: Sorry, no lunch deductions. Take a look at my response
On-the-road Meal Deductions to Kevin earlier today. You may deduct meals only when traveling. Check out the expenses -- meals and entertainment (8) category for a fuller explanation.

Check out my book Self-employed Tax Solutions. It will simplify your tax and financial life, and save you money!

On-the-road Meal Deductions

June --

I've been a newspaper courier for 5 years.

I deliver several different weekly newspapers all in different cities. I use my home as an office. I travel over 500 miles a week and my routes are quite large. I'm on the road for 10 - 12 hours a day 3 days a week. I get very tired from driving that long + lifting bundles. I sometime stop to eat and rest. Would my meals be deductible?

Thank You, Kevin from Kent, Ohio

Hello Kevin,

You don't say whether you stay overnight nor how long you rest. Based on what you've said, your meals are not deductible.

Meals while on the road are deductible if your trip is considered "travel." Travel means you must stay overnight or you must rest to properly perform your duties.

If your trip is considered travel you may deduct all travel expenses and the cost of meals and lodging.

In my book, Self-employed Tax Solutions, all travel and also travel-meal expense is explained in depth. It is an expense topic that has a lot of rules as well as nuances. Here's a Travis Truck Driver example directly from my book:

Travis Truck Driver leaves the terminal at five in the morning. Three hundred miles later he’s at the turnaround. While his truck is being unloaded he has a big lunch and then dozes off outside the diner while waiting for the guys to finish the reloading. He then heads back to the terminal where the truck is again unloaded. He’s home by midnight. Travis’ lunch break nap was just that, “a nap.” It was not enough time to get adequate sleep. His trip is not considered travel. Therefore he cannot deduct travel expenses.


Thursday, February 14, 2008

Reimbursed Auto Expenses

June --

I have been an attorney for 7 months.

I know there are two ways to deduct car expenses. But if I am reimbursed by a client for some of my mileage, am I stuck with the mileage method? E.g. I travel regularly from my home office to my office down town. I am paid by the client at 50 cents a mile for trips to court and meetings at their sites.

Elizabeth from Rapid City, SD


The reimbursement is part of your income. You may want to read these posts on expenses -- reimbursed .

Combine those miles with all your other business miles and use same deduction method for all business miles.

-- June

Check out my book Self-employed Tax Solutions. It will simplify your tax and financial life, and save you money!

Husband & Wife are Not Sharing Their Home Office

June --

I’m just finishing up your book, Self-Employed Tax Solutions, and I’ve enjoyed it immensely. Thanks for putting all this gobbly-gook into something normal people can comprehend!

I’m still confused by the home office rules. (Who isn’t?!)

Here’s my situation: I am an independent software developer, working most days from our home in Shoreview, MN. I've been an independent since 2003. My husband is also an independent (he’s a technology strategy consultant - he went independent last year). Typically he does not work from home, although occasionally he does. We have a large office, and while there isn't a wall between us, the room is clearly bifurcated between his “space” and mine. (Mine has carpeting and his does not. We have completely separate desks, etc.)

In the book, you note that both “Victor Visual” and his wife share the studio, and thus can’t claim the deduction because neither has exclusive use. But then later on, you note that a business area doesn't have to be an entire room.

I’m wondering if I can take the deduction for my section of the office (and perhaps the area where I house my server rack and printers, in the room next door.) I assume that we cannot both take the deduction – him for his half and me for mine (then again, since our businesses are separate, perhaps that is okay, too?)

Note: I did read the items on the blog under husband-wife business and home office, so if I missed the answer, I am sorry.

Thanks, Avonelle from
Shoreview, MN

Hello Avonelle,

Thanks for your generous comment on my book. I think indies are normal people. It's the rest of the work that's got it off-center!

It's important to understand that a home office does not need to be an entire room. It just needs to be an area of your home, apartment, even houseboat, that is used exclusively for your business.

An aside ... sometimes exclusive use is not required, for instance, for day care and inventory storage.

So, if you use half the room for your business and your husband uses the other half for his business, then you each get a deduction for your share of the room in relation to the total size of your home.

Here's another way to visualize it: Were you to have a 2000 square foot apartment and your area were the extra bedroom, 10 feet by 20 feet, then your home office is 200 square feet or 10% of your apartment. If your husband used a 10 by 10 area of the den for his desk and bookshelf then his 100 square feet equal 5% of the apartment.

You may take 10% of the costs of running your apartment as a business expense. He may take 5%.

Were you both to work in the same space for two different businesses, then neither of you would have exclusive use and so neither of you would get a home office deduction.


Friday, February 8, 2008

Regulations determine whether you are self-employed.

Hi June,

I found your website and find the info quite helpful...thanks!!

My wife and I have a situation at hand that will require a decision for her to remain a PRN Physical Therapist (employee) or a contract therapist (self employed).

The agency is going to straight contract and phasing out the PRN option...so, she really does not have much of a choice if she wishes to remain with this company. She currently gets no benefits from the company in regards to vacation, PTO, 401K, etc....strictly wages. She does get mileage reimbursement, which is only 0.36/mile vs the gov rate. She typically sees 32-35 patients per week @ $60/ea or ~2k gross/week. She also typically puts ~600 miles/week on the vehicle. At the moment, they want to switch to contract therapists and pay the same amount (60/ea) WITHOUT the benefit of mileage reimbursement.

Although educated, I do not know the "ins and outs" of which is more advantageous.

I have read your advice links and wonder what your opinion is in regard to this case.

And thanks for the wealth of information on your website.

Brent from Louisiana

Dear Brent,

ou are welcome. Pleased my info helps you.

Employee or self-employed is not an arbitrary decision. Conditions must be met by the worker -- your wife -- and the person or agency for whom your wife works.

If your wife has been an employee the agency and none of the working conditions have changed the agency cannot simply change her worker status. Call your local Department of Labor if the agency insists.

You should also read these posts
employee vs. self-employed for a better understanding of the requirements and conditions required for self-employment.


Check out my book Self-employed Tax Solutions. It will simplify your tax and financial life, and save you money!

Database of Indie-Savvy Tax Pros


I'm a private math tutor and a musician, and this will be my third year doing my taxes as 100% self-employed. I'm about to order your book. I've done my taxes myself the past few years, with some advice from unpaid volunteers (retired big-company CPAs) which I'm now suspecting may have been poor advice. This year I want to hire someone to review my past 2 years, plan for next year, and educate me so that I can do my taxes myself with confidence that I'm not screwing myself. So my question is: How do I shop for a CPA with assurance that I won't get a Sammy Segar?

What questions should I ask to gauge if someone is knowledgeable about self-employment issues? And not just knowledgeable- but someone who really know the ins and outs and what questions to ask me so that I'm maximizing every possible expense and deduction.Thanks for any tips!

Lacie from Austin, TX

I responded -- see Two Parts to Finding the Tax Professional Right for You -- and Lacie said:

Thanks June. I've been learning so much from your website since I discovered it a couple of weeks ago, and am looking forward to reading your book when it arrives. I especially dig that you take the time to answer the little subtleties that make each case unique. I can imagine that from your point of view as an expert, a lot of the questions you get sound like the same one over and over. It’s nice that you’re sensitive to our difficulty translating general information to our own situation--and so friendly and patient-sounding about it to boot!I'm still a little nervous about knowing *how to know* if "this guy is any good".

Last year I thought the city volunteer I used was super nice and helpful and felt less stressed after meeting with him because I came home with answers. Then all these months later, I'm learning that these answers were wrong and cost me money. Each person that answers my questions in this field does so with such authority, it's easy to think I’m done when really I should triple and quadruple check the answer. So my plan is to meet next week with the CPA (actually I'm not even sure now if she is a CPA- didn't even think about there being a difference between one and a tax preparer before reading one of your posts yesterday- that's how much I don't know), read your book, revel in the relief of having been armed with some knowledge, then attempt to give an educated review of the meeting and this particular tax professional. The only screening I did was ask her on the phone if she worked with indies. She said that was her primary clientèle, so that's hopeful. I'll let you know how it goes.

I asked Lacie to please let us know about her new tax pro. I am attempting to compile a national database of indie-friendly tax pros but so far the list is very, very small!

So, I ask all of you:
Please help your fellow indies. If any of you has a tax preparer that you think really understands the indie tax situation, please let me know. I am being inundated with requests from around the country for recommendations. Let's build my database of indie-friendly tax pros


Thursday, February 7, 2008

Two Parts to Finding the Tax Professional Right for You

Unless you’re new here you already know that I advise against preparing your own indie tax return or using tax preparation software. I recommend you hire an indie-savvy tax professional. Easier said than done. I know.

The difficulty in finding an indie-savvy tax return preparer might seem puzzling at first, since a considerable share of tax pros are themselves self-employed. But their self-employment is different – one might call it prosaic. For instance, Sammy Segar, CPA, will rent a DVD for amusement at the end of a tough day. It does not register with him that an artist, a writer or a musician might have a valid professional reason for buying or renting a DVD. Sammy would never imagine that such an expense could be a business deduction. Sammy’s creativity is confined to the search for tax loopholes for corporations and executives, and that’s more a matter of rote than of innovation. Most tax pros don’t like to do tax returns for indies because the rules and regulations need to be analyzed and interpreted to fit unique indie situations. And then of course, Sammy doesn’t like to deal with the various personalities of the IT consultant, the plumber, the psychologist, the inventor, the landscaper, the dog trainer. He’d rather crunch numbers for the cubicle-dwelling corporate dullard who’s dreaming about his retirement now only 35 years off.

I’m having a bit of fun with my fellow tax pros, however, the point is to help you understand and to help you make the right choice. Think about accountants as you think about doctors. They specialize! You would not use an ophthalmologist for treating breast cancer. Nor would you seek out an orthopedic surgeon for a head cold. Don’t use a corporate accountant to handle your indie tax situation. There is nothing in the title CPA –certified public accountant – that means someone has prepared sole proprietorship tax returns. While the return preparer at the tax franchise around the corner may have been working with indies for 20 years. You need to find out.

To help you in your search, think of it in two parts.

Part 1: Get some recommendations.
· Ask colleagues whom they use.
· If you belong to a professional organization, combine efforts with other members to find someone.
· Call your local
Small Business Development Center or Small Business Association . Both are often located at a community college Try your local chapter of SCORE.
· Ask a tax franchise if they have a preparer who specializes in self-employeds.

Part 2: Decide if the recommended pro is right for you.
· Ask the tax pro to speak to your professional organization.
· Ask how many indies she has as clients. Ask for a reference.
· Use your instincts and your talent. Size up the pro the same way you would a new client.
· Talk about your work. Does she ask questions about your work? Does she want to know more about what you do?
· Always, no matter where the recommendation comes from, ask questions of the pro before you engage him or her. Especially ask questions you know the answer to -- that'll give you a good idea where the pro is coming from.
· Do you understand the answer? If you really do you’ll be able to explain it to another indie. Try it.
· Get some education yourself on the tax laws and regs as they apply to self-employeds. Your best defense is to learn as much as you can. You might want to start by reading, "
Is it a deductible business expense?" or Taxes: Which ones and how much do I pay? Both on my website. Or about LLC vs incorporating .

For a better understanding of tax and recordkeeping basics
check out my book, Self-employed Tax Solutions.

For more information about how to Pick a Pro, look at these bIog entries:

It's tax time so ... beware of bad advice from the real-life Sammy Segar, CPA
Clueless Professional Accountant (CPA) Says You Can’t Deduct a Gift to Your Mother
Pick a Tax Professional: Experience or Price
Tax Pro's Fees for Tax Return Preparation
Don’t Do Your Own Tax Return

Monday, February 4, 2008

Deducting Health Insurance Premiums

Hi June,

Love the site but I didn't find what I was looking for. my husband has recently started his own cabinet business. We are still in the making and will probably set up as a sole proprietor with wife as employee.

I am currently employed full time and have medical insurance coverage. I have included him on my plan since he left his job to become self employed.

Am I correct that we cannot use the insurance payment deducted out of my pay as a company expense/deduction? My insurance is covered by my employer but I have to pay for his on a monthly basis,

I have read so many different scenarios but am still confused.

I appreciate your help in advance.

Susan from Goldsboro, NC

Hello Susan,

I'm pleased you like my site. Thanks for letting me know.

I assume then that you have already read all the posts on health insurance. If not check out the category insurance -- health/medical on the left. You will see that you may deduct health insurance premiums only if you are your husband's employee and an employee medical benefit plan has been set up for you.


Have a question? Do a little legwork.

Hello Indies,

I have found that for all the unique qualities indies possess many do share the general public's tendency of research avoidance. Indies need to be especially attuned to doing research because they don't have big daddy in the personnel office to whom they may address their concerns.

My blog is a good place to start sharpening your research skills. Before you
"send June your question" check out the categories on the left and the "search" facility in the upper left corner. There's a good chance your question has already been answered. And, if not, you'll be able ask a question that utilizes a basic understanding of your concern.

I do read every question I get from this blog and from my website. I answer or comment on just about all of them either directly via email or here in a post. So many of you have questions on similar situations -- but with a twist here or there -- that I am going to try something a little different. I am going to composite or group similar questions and provide an answer. Or I'll show you questions I just received that have already been answered here on the blog.

Let's see if it works. Here's an IT consultant who asks about a husband-wife business and about forming an LLC. Both questions are already fully answered on the blog.

Hi June,
I was googling on the net and found your website. Its cool!. I am an IT consultant planning on establishing an LLC. I am not sure whether starting it up as a single member LLC (myself) or multi member LLC (both me and my husband as members) will help us taxwise? My husband is an full time employee, but he would be taking care of the business (IT consulting firm) completely (75%). Would it be beneficial if my husband is the owner and I work as an employee for him? Please let me know what options would best for us. Also this is the first time, i am planning on establishing a business, so any help is appreciated.
Thank you in advance - Chris from Chicago.

If Chris takes a look at the category list on the left side she will see husband-wife business has 12 posts and business entity -- LLC has 11 posts. That's where the answers lie!

And, as far as "any help is appreciated." Indies, read, read, read. There is so much useful tax-saving and time-saving information at your fingertips!

What's the difference between a W2 and a 1099?

Joe an electrical designer from Ridley Park, PA asked:
When I become a sub-contractor how many exemptions can I claim on my W-2. I was told 4 was a good number since I will receive more take home pay and then make mileage, etc. deductions from my income tax return.

Well, Joe, sub-contractors -- also known as self-employeds, indies, solos, freelancers -- do not have anything to do with W2s.

When an employee is hired he fills out a W4 in which states whether he is married or single and how many exemptions he will take. At year-end the employee must receive a W2 from his employer. A W2 states wages earned and taxes withheld. Bad things happen if an employer does not provide a W2.

A self-employed may be asked to fill out a W9 when he starts a project for someone. On the W9 the indie gives his name, address and social security number or his employer identification number. If the indie is paid $600 or more by an individual or a company, that individual or company should send a Form 1099-MISC to the self-employed. A 1099-MISC states self-employed income earned. Even if there's no 1099 the self-employed must report the income on his tax return -- no matter the amount. Nothing horrendous happens if a 1099-MISC is not sent to the indie.

Read these posts on employee vs self-employed for more info.

And, of course, for a complete explanation of employee vs self-employed be sure to check out the book that can simplify your tax and financial life, and save you money! Self-employed Tax Solutions.

Saturday, February 2, 2008

Husband and Wife on Ebay


I am from Binghamton, NY and I work full time a database analyst for a major corporation in NY, and my wife is a housewife and full time student and she doesn't work.

In Jan. 2006, I started selling crystal and china on ebay, and I got a EIN so I could buy these products from the manufacturer direct. I do all the work with the ebay business like placing all the ads, taking all the photos, ordering the products, answering all the questions from customers, keeping track of all the money and accounting, paying the state sales taxes quarterly, etc. The only work my wife does is spends about a hour a night helping me pack the products for shipment.

In 2006, I netted an additional $33,000 from the ebay sales, and I filed a joint return with a Schedule C with me as the sole proprietor, and Schedule SE to pay any self employment taxes for the additional earned income.

I did not include my wife as a partner or employee.

My question is, with the new Small Business and Work Opportunity Tax Act of 2007, can I still continue to file as a sole proprietor and not include my wife as a partner or employee without any problems from the IRS?

-- Charles

Dear Charles,

No, there's is nothing in the Small Business and Work Opportunity Tax Act of 2007 that says you must partner or employ your spouse. So many indies are confused about this new tax act that a couple weeks ago I wrote a column explaining some of its ins and outs. Here's the post The Many Advantages of Hiring Your Spouse . I suggest you read it.

In that post and in several other posts on hiring your spouse you will find that there are many advantages to putting your wife on your payroll, even if she works for you only 5 to 10 hours per week.

BTW -- great work on Ebay!
-- June

How to prove an expense when there's no receipts:


This is my first year as a self-employed person. I moved out to Tbilisi, the Republic of Georgia from Massachusetts in fall of 2006. I did this to be with my fiancé, who is from this country, and to freelance.

I was wondering if I can deduct one of my flights out here as a business start up cost. Another quick question is that I live in the land of no receipts...very informal economy. Taxis aren't licensed, I don't have a formal lease agreement for my home office, everyone pays in cash and its impossible to pay by credit card in most places...What forms of receipts will the IRS accept as legitimate, if I get audited. I have to make up my own receipts.

Thanks so much!

Dear Jennifer,

I have been to Tbilisi. I think Tbilisi men are the sexiest looking men in the world!!

No, you cannot deduct the cost of the move. You could if the reason were job- rather than love-related.

I know how the economy works there. And since receipts are few and far between you will need to keep a complete and extensive journal -- chronologically and categorically -- of all expenses . You will need to a column for "why" or the reason for the expense for some categories. Use either a spreadsheet or Quicken. I recommend Quicken.

You don't say what your self-employed venture is so I can't give you specific examples. Whenever you are in a situation where no receipt is possible but some other "proof" is available, get it --perhaps a postcard, advertisement, menu, anything that can show your "businesslike" approach to your recordkeeping. I think these posts may shed more light on businesslike.

my book, Self-employed Tax Solutions, I explain which expenses must have receipts and which may be estimated.

Cheers! And enjoy Tbilisi!