Friday, August 29, 2008

Assistants Working Abroad

Hello June,

Thank you for the great site! I've just ordered your book, Self-employed Tax Solutions, from Amazon and cannot wait to read it.

I've read almost every post on your blog and found a question similar to mine, but there is a difference so i still wanted to ask. I do freelance web and graphic design. I order illustrations for my projects from an artist friend. She is not US resident, she lives in Israel. I pay her through PayPal or sometimes cash. Can i deduct the fees?

And if yes what kind of receipts/records do i need? Are PayPal receipts enough?

In your answer to Charles (Cruise Entertainer...) you say: "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."

But in my case, while her part of work is performed outside the US, me and my clients are in the US... What should i do?

Thank you so much,

New York

Dear Rina,

Glad you like my site. Thanks for letting me know. And I'm sure you will get lots out of my book.

Yes, you may deduct the fees. Print out your PayPal receipts and also keep a written record, of what you paid her for -- perhaps a copy of the illustration.

There is paperwork to do -- but of course! Be sure to read my post When your subcontractors are in India for guidelines.


Expenses Must Be Separated by Profession


I am have just gotten my first role in film as an actor & stunt man and I imagine I will be having more roles.

I have also been accepted in to the teamsters union. Both acting and trucking for film pay about $800 / day. However the jobs only last a short duration. I will be taxed at a very high rate and it want to get it back. I pay a fortune for classes, associations, union affiliations, agents, head shots, wardrobe, travel associated with classes or interviews, and all sorts of other things.

I have just set up a bank account named "sag and teamster" can I put all of my deductibles on that and send in the bank statement and use the whole thing as a deduction?

I have never filed an itemized tax return.

Thank you,
Angel Fire, NM

Dear Jonathan,

Congratulations! Hope you get a lot more acting work.

Where or how you track expenses does not determine whether the expense is a business deduction.

You must keep acting expense separate from trucking expenses. Also know that acting expenses go on a different part of the return than do trucking expenses.

Your question indicates that you know very little about taxes. So to get the best tax benefit you should not prepare your own tax return.


You cannot deduct the price of something you did not pay for.

Dear June,

As an independent composer, one of my revenue sources is from the sale of my sheet music. I occasionally give away copies of my sheet music as a way of nurturing relationships with prospective commissioning clients. Digital technology makes this a simple and inexpensive way for me to reach out and keep my name out there. Can I claim a deduction for the retail value of the sheet music I give away?

Thanks so much!
State College, PA

Dear Rick,

No, you may deduct cost only.

The same would apply to musicians who give away their CDs as promotion.

The same would apply were a musician to give a free performance for a charitable organization. The only deductible expense would be any out of pocket costs.

The reason. You cannot deduct the price of something you did not pay for.


Wednesday, August 20, 2008

Warning about Quicken 2008! and more.

Good day.

I bought both of your books through your website using my husband's PayPal account. We are both indies and I was wondering when setting up categories on quicken if we should have two major categories of Diane and John and then subcategorize like entertainment - all this to make sure that we know who has what deductions. Also if you could send any updates or information to my email in addition to my husband's as i am the one responsible for bookkeeping and I am sure my husband won't even open an email about all this!


Hello Diane,

I just returned from a business trip in NJ where I worked with a client helping her set up her medical practice. I spent close to 11 hours on the phone with Quicken tech people. So, had I responded to you before that experience, my answer would be quite different.

I have worked with Quicken for 20 or so years. I have found that there is rarely a reason to upgrade to a new version of Quicken other than the Quicken Big Boys forcing it upon us. The new versions with their bells and whistles create more work and cost more money for us indies with no benefit.

That said, there is an insurmountable problem with Quicken 2008. The tech people insisted that it wasn't the program but with my experience I know they're wrong. The problem lies in what used to be called classes and is now called tags. In the 2008 program Quicken changed the procedure on classes and messed up the works. Stay away from 2008! [ A search on the web shows many many other problems with 2008, too.]

I'll give you two methods for your situation, one for an older version of Quicken and an alternative to use for 2008.

For 2007 or earlier:
When you have a reason to separate expenses by business or clients the class method is easiest. You set up a class -- similar to setting up a category -- for each business, in your case Diane and John.

Let's say you split supplies up into software and general office and some were for you and some were for John. Entries would look like this:
Supplies:Software/Diane .................. $200.23
Supplies:Software/John .................... $103.45
Supplies:General/Diane ..................... $20.40
Supplies:General/John ...................... $101.33
When you look at any of your reports you can customize by heading the column as "Class." You'd have a column for you and one for your husband. It works like a charm.

For 2008:
Classes, now Tags, don't work. One alternative is to make Diane and John a sub-sub category of every expense. That could be redone when Intuit fixes the problem
The above would look like this:
Supplies:Software:Diane .................. $200.23
Supplies:Software:John .................... $103.45
Supplies:General:Diane ..................... $20.40
Supplies:General:John ...................... $101.33

Another alternative would be your suggestion, making both Diane and John a major category and then make everything else subcategories.

I have tried to upgrade 2008 but every time Quicken's server has been down. If I find out there's a solution I'll post it.


Monday, August 11, 2008

Working for yourself by any name is still self-employment.

June --

Advertising; New York, NY; 8 years.

What is the point of registering as a sole proprietor business (thus paying self employment tax) versus just being a freelancer and paying regular taxes on 1099s?

All of the sudden there's an item on the tax return that has me paying $13k in self employment tax - beyond the regular taxes!

Should I just forget the "company" and just be me? (FYI, there are no employees in the company - it's me).

Many thanks.

Oh, Katie, you are so mixed up!! Read this response carefully and also check out and read some of my posts under business entity and here employee vs. self-employed

First of all: A sole proprietor and a freelancer are the same thing.

Your choices are: Employee or a self-employed. There is no middle ground where you work for yourself but pay no self-employment tax.

"Company" does not have a specific meaning.

Whether you call yourself a 1099 worker, sole proprietor, freelancer, subcontractor, free agent, or or independent professional you are self-employed. As a self-employed you are subject to self-employment tax.

If you work as a self-employed and do not form another business entity such as a partnership or a corporation then you are a sole proprietor. You do not need to register as one. You are one. And no matter what term you attach to your self-employment, be it freelancer or 1099er, you must pay self-employment tax!

-- June