Business Gifts Given

Hi June,

My husband is an Orthopedic Surgeon and works in Indianapolis. He never itemizes business gift write-offs. We have referring physicians who he speaks to throughout the year who are critical to referring heavily to his practice as a specialist. I know he is not comfortable giving a small 25$ gift certificate (and that is the number I heave read) and he spends literally thousands on stuff once a year at the holidays. I think he should and that's great!

Then I said, maybe he should purchase on his business credit card, 20 gift certificates from 100 - 250 dollars. That got us talking yet again about writing these business thank you gifts off our taxes. I wonder if this seems appropriate? It does top me.

Our tax person is very conservative I think. I couldn't care less if we get audited other than the headache. Thoughts?

Thanks
Sue

Hi Sue,

There is no limit on the amount you may spend on a gift for a business associate. The limit is on the amount you may deduct as a business expense. And that amount s $25 per business associate per year.

A more interesting element of your question is that you think it might be different were you to put the expense on a business credit card. There is a lot of misunderstanding about business checking accounts and credit cards. Just because an expense is paid through a business account does not make it a business expense.

I say in my book, Self-employed Tax Solutions that as long as your records are accurate one checking account is perfectly acceptable to the IRS. I think one big factor in the insistence on a business checking account is that it’s supposed to cover up financial shenanigans. Many people like to believe that because something is paid by a business check that makes it a business deduction. Of course, that is not so! The attaché case for your daughter's twentieth birthday, even though purchased with your business check, is not a business expense. But the flowers, paid from your personal account, given to your mother as thanks for typing your business plan, is a business expense.

Best,
June

Artist Tax Problems

Hello Ms. Walker,

Me and my husband are self-employed artists.

The question that I have for you doesn't really belong to the self employed category, though. Here it is: I have a trust that sends me 1099's. This year, the 1099B said that my proceeds from an exchange,(a trust merger) gave me a net proceed of 80,000.

When I plugged this number into TurboTax, there wasn't any spot for "exchange", so I listed it as a "sale": it said I would owe $5000! Did I do this right? Are exchanges "sales"? I'm just not sure if I'm doing this right, and, ironically, I don't have the money to pay an accountant. I'm an artist, I do my own taxes, I get $300 a month from the trust, and I made $0 in 2007 (I moved to Mexico, where I can live more cheaply). I

I know this is totally not what your site is about, so thank you for listening. It's hard in Mexico to find someone face to face who knows about US taxes. If you have any other site/person to send me to, please please do so! I've been trying to read as much as I can online to figure it out.

Best wishes from Baja California Sur


Hello Baja California,

Your dilemma is not unique to you. Many artists have tax questions about the non-indie part of life and don't have the resources to hire a tax pro.

Here's a little general tax info about income statements received at year end from different sources:

An employee must get a W-2.
A self-employed may receive a 1099-MISC.
An investor with interest or dividend income receives a 1099-INT or 1099 -DIV.
An investor who sells a stock or other product receives a 1099-B.
A partner in a partnership receives a K-1.
A trust beneficiary [one who receives money from the trust] receives a K-1.

Your first step should be to go the source. By the source I mean the accountant who prepares the trust tax return. Unless yours is an unusual situation, you should not be receiving 1099s from the trust. You should receive a K-1.

You don't say what kind of artist you are but for my purpose I'll think of you as an accomplished watercolorist. Just as putting a paintbrush into the hand of your neighbor doesn't make him a skilled painter, nor does putting you at the keyboard of TurboTax make you proficient or even skillful in taxes. Over and over in my writing I warn about the inexperienced using tax programs.

A 1099-B is sent when there is a sale. If you receive a 1099-B showing a sale of $2,000 you might have a gain or you might have a loss. If you bought the stock for $500 you would have a $1,500 gain. If you bought the stock for $3,000 you would have a $1,000 loss.

An exchange is just that, one thing is exchanged for another. In your case maybe one trust for another trust. For instance if a $50,000 trust is exchanged for a different $50,000 trust there is no gain nor loss. Thats's why you need to call whoever is handling the trust. If you get no help there call the IRS directly at 800.829-1040. [The # may differ when calling from Mexico. If it is, please let me know.] Don't be afraid of contacting the IRS. The new IRS is friendly and often helpful. Don't use a tax program for this situation.

Best,
June

Actors

Hello June -

I am writing for my son who is nine and has been an actor for 4 1/2 years. I read your answer regarding W-2's not being allowed as "self-employed" income, as there is not a self-employed business. Understood.

You mentioned that you can possibly write off the expenses as an "adjustment to income" on the front page of the tax return depending on the income and expenses. What are the "depending on income and expenses" and if he meets that, how do I let my accountant in on this big secret!!

We are having a fight with Social Security regarding his income and it seems your answer may be a big help!

Thank you and I look forward to hearing from you.

PS
If I sign a W-9, not a W-4 for every job he takes with a production company, be it commercials or screen, why does he receive only W-2's and is there anyway to insist that they send 1099"s? I am enjoying the information on your site, my husband is self-employed also and your recommendations are right on!!

Thanks again ---

Veronica
Springfield, MA

Dear Veronica,

I have been so busy with clients that I have not been able to answer questions from readers as quickly as they and I would like. I hope you and others who are awaiting answers have filed an extension for your 2007 tax return to give you more time to sort things out.

All actors are paid as employees. My former husband, an actor, received numerous W-2s, often with piddling amounts on them. All my actor clients have the same situation. I assume it is a union regulation. You might want to ask the Screen Actors Guild [SAG].

On your specific questions regarding income, I am sorry to disappoint, however, it is my policy not to provide tax preparation instruction online. If your accountant is not aware that actors can deduct expenses on the front of the return, you need to find a tax pro who is. It's not a "secret." It's pretty basic staff. Contact the SAG office and ask them to recommend a tax pro or call several local accounting offices and ask if anyone is familiar with tax returns for actors.

You don't say what is your fight with Social Security, but I wish you success.

There is more info on indie business expenses in my book Self-employed Tax Solutions .

Best,
June

Can I deduct the cost of looking good?

Hi,

Rebecca here from Long Beach CA.

I am a health coach and one on one educator, I have been in practice for 7 years. I have heard all sorts of things about write offs in my profession. I do alot of referring to massage therapists, estheticians, trainers, etc etc. I spend alot of money on the things that keep me healthy and looking good, because no one wants health advice from someone who isnt fit and healthy. What types of write offs can I use?

Thank you.


Hi Rebecca,

You can write off the same kinds of things that every other indie can write off. To learn what the are, check out my list of over 100 business expenses. And also be sure to read Is it a deductible business expense? on my website .

Now to address, what I assume is your question on the specific costs of looking good. You say "no one wants health advice from someone who isn't fit and healthy." Well, I hope it comes as no surprise to you, healthy, fit looking people are more successful and or make more money than do those who don't get a clean bill of health. Whether a fashion model on a runway, a realtor trying to sell a home, a sculptor giving a talk on his wood cutting methods, an IT guy crawling under and behind the desks to work on computers, people have more confidence in someone who is attractive and healthy.

And then of course there's the high cost of medical care for unhealthy people which impacts us all.

And the fun stuff, like a healthy grandma who runs a race with her four-year-old grandchild, climbing to the top of a peak to get the best view, the ability to stay awake and alert all night to help out a friend.

That's the long way of saying that you can't deduct the costs of staying healthy. But then again, if the government gave a big tax credit for gym attendance and vegetable consumption we might have a healthier nation.

Cheers,
June

Converting from Personal Use to Business Use

June --

I'm from Sandpoint, Idaho and am a Textile Artist. I had my first sales last year.

I am having a hard time finding info as it relates directly to artists. I've poured over IRS Publications and am still unclear as to: Inventories: The pieces of art I sold were made by me prior to becoming a business. How do I put a cost basis value on them? Are the materials that go into the pieces of art (primarily fabric and thread) considered inventory (as in raw materials) or supplies?

Is there a specific place I can go to find out more specific info for my profession?

Sheila


Dear Sheila,

Your cost of the art sold is your cost of the materials that went into making them before you became a business. What you have on hand and not yet sold is called inventory. There is no deduction for inventory. The deductible expense is cost-of-goods-sold.

Cost-of-goods-sold may be figured in several ways and the explanation is too lengthy for a blog post. Your tax pro would use the method most suitable for your situation.

There is a chapter in my book, Self-employed Tax Solutions , about just your kind of situation. I have included an excerpt below.

From Personal To Business Use
Many independent professionals migrate to self-employment from the joys of hobbyland or from work as an employee. Caitlin Caterer came to her profession when her kids entered school and by turning her joy of cooking for friends into a profitable business. Eddie Electronic went from selling himself short while working for someone else to selling his service for himself and keeping all the profit.

Both these indies started their sole proprietorships with equipment and supplies that they had purchased for private use. Caitlin had a significant culinary library that she began accumulating before she went into the catering business. Eddie had more electronic testing equipment and software than many who had been in business for years. Both Caitlin and Eddie used these things in their new business venture. And they could write off the costs of their personal-to-business-use equipment and supplies. Here’s how: They need to look at their things as they would were they buying it used from a thrift shop or on the web for example. If Eddie, over the years, paid thousands of dollars for his equipment and software but could now sell it all at a flea market for $900, then he treats these items as a $900 purchase for his business. If Caitlin, over the years, paid $2,000 for her book collection but now, because many of the books are out of print, could sell her culinary library online for $2,800. she would get a library deduction for her new business in the amount of $2,000. Why less than it’s worth? Because you get, as a deduction, the lower of your cost or fair market value at the time it went into use in your business.

In Self-employed Tax Solutions there is an EQUIPMENT WORKSHEET that will aid in calculating your deduction. My book is also the place to get that specific info you need about a self-employed artist.

Best,
June