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.
June


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

2 comments:

Jad said...

Thanks, June! I've really had to work at understanding taxes this year, but thanks to great help from sources like your book (and now your personal response) I've about got it under control.

This is what I've figured out -- hope you are proud of me =)...

(1) I should separate the businesses for 2007 because my wife set up a new home office, purchased a new computer and several costly software programs for her contract work -- all 1st year 179 deductions. Since I'm already established, the deductions wouldn't count the same.
(2) We are both taking separate home office deductions, and thanks to you, I'm not afraid to do so! As a creative writer, I often write as the moment strikes me -- dedicated at my own own office for sure, but also likely to happen at MY home desk at 3am in the morning in MY dedicated 10 x 10 space. Now my wife has her own dedicated 10 x 10 space, and while she works for another company, she is working for herself when accepting additional contract work, which she does from home.
(3) For next year, I'll become her employee because the contracts will be in her name, and since the work I'm doing for her is still of my field (writing, is writing, is writing) then it'll just be simpler that way.

Being able to legitimately take these deductions for the year is saving us a lot. It's been complicated, but the effort is worth the savings!

THANKS AGAIN.

June Walker said...

Here goes, Jad.

I don't usually give specific tax return how-to instruction but your comment helps me make my point that indies shouldn't do their own returns.

(1) Section 179: The regulation that allows deducting the entire cost of equipment in the year it's purchased rather than depreciating over many years.

You know a lot but not enough. Tax pros with only a basic understanding of tax prep -- I hope!!! -- know that Section 179 can be done at any stage of the business not just the first year.

(2) and (3) Look good.

Also you sent me the question:

In one section of your blog, you indicate that (in my situation at least) I shouldn't be afraid to take deductions for the movies I buy, my ticket to the theater, and possibly even my Blockbuster Online account. Why? Because movies ARE my primary business, and although I certainly take pleasure in watching them, I do so as an aspect of my business -- to see what they are doing, or what has been done, so that I can understand it, learn from it, and then hopefully do it better! If this is the truthful case (which it is) then where and how would I claim such deductions?

If visual art is your business then movies, etc, would be considered an education-study expense. Sometimes I categorize it as research but why I do that is beyond the scope of a comment.

BTW -- all this is explained more fully in my book, Self-employed Tax Solutions.

June