Meals Included

Hello June!

I am a sole proprietor.

Currently, I travel to a different city during the week and get back home on the weekends. I was going to use per diem rate for my meals and incidentals while traveling but have a question. Most of the hotels include complimentary breakfast. And when you book, you cannot decline it and get a different room rate.

My question is whether this can prevent me from using per diem meal deduction and if yes, then how do I split room rate into lodging and meal parts (the hotel has no price for the meal part, as it is complimentary)?

Thank you.
DD


Hello DD,

You may still use the per diem amount but were I your tax pro I would deduct the value of the breakfast from the hotel cost. Coffee & a donut being of less value than a full breakfast, of course.

For those of you unfamiliar with per diem for indies, here's how it works:

Instead of using as a business deduction your actual meal costs while travelling, you may use the federal per day amount. There are different rates depending on city and date.

If you tend to eat on the cheap when traveling for business you often get a bigger deduction by using the federal rate.

Here are more of my posts on travel per diem and how to use the charts.

Here is the link for the rates in the USA.

Here's the link for foreign travel rates.

-- June

Do a lot of things? Put it all under one roof.

June --

I do several things for work. Right now, I'm calling myself a technology consultant, since that seems to be the broadest range...
I'm a Software Developer
I'm a Website Designer
I'm a Search Engine Management specialist (I do online marketing to find customers for your website)
I'm an author (LEGO Robotics currently, more robotics and educational aspects of that field soon).
I do reviews of User Interfaces (for software and websites) and Business Process Automation.

I think all of those can be lumped under the "technology consultant" aspect. Everything is technology based...

What do you think?
Eric
RLI Solutions http://rlisolutions.com/


Eric --

Technology Consultant is what you are. Technology Services are what you offer.

Good question. And for others with a similar question: Ask yourself if you could easily separate one thing that you do from another thing that you do. If not, then they are likely the same profession.

-- June

Home work area must be used exclusively for your business in order to be deductible.

Hello June,

Thanks for your business expense list.

My husband has a catering business run from home. Our house is his office, manufacturing place and also storage for the business. I remodeled the house to expand the kitchen and total cost is more than $ 200,000. How can I deduct the cost of the remodel?

Thanks.
yamin


Dear Yamin,

You cannot deduct any part of your home that is used for both business and living. The exception is any area used for storage/inventory. That area may be used for both and still be deductible.

Any capital improvements made to a home office or workshop are depreciated over 39 years. That means if you spend $39,000 renovating your home office you get to deduct $1,000 per year.

However, even though you cannot deduct the kitchen because it is used for both business and personal does not exclude your deducting equipment that is used either exclusively for your catering business or for both business and personal. For instance, a $4,000 refrigerator if used 80% for business is a $3,200 business equipment deduction.

If you work with your husband, and he is a sole proprietor then the most tax advantageous business structure is for you to be his employee. You might want to read these posts payroll -- spouse as employee .

Best,
June

More Questions about LLCs & Corporations

I get so many inquiries about LLCs and corporations that I again feel the need to give some general instruction on question asking and doing a little research on your own.

Were you to search "LLC" on my blog search facility in the upper left corner of your screen you'd get about 20 posts on LLCs. Read them all.

Perhaps the most complete for a general understanding is LLC? Incorporate? It states, as do many other posts: An LLC is not a tax entity. It is a legal entity. And so an LLC may save you from some legal difficulties but an LLC in and of itself will not save you anything on taxes.

So the question, "If I'm an LLC will I pay less tax?" is sort of like asking, "If I have the roof repaired will I still need a new sofa?"

An LLC provides protection against lawsuits. A corporation also provides protection against lawsuits. Insurance protects you if you are sued. So, from what do you need protection? Decide that first. Then choose the appropriate protection.

You wouldn't get auto insurance if you didn't own a car.

If you renege on a contract or miss a deadline are your clients likely to sue you for your house and its contents? If your lawnblower breaks your client's pink flamingo will she sue you for all your landscaping equipment?

Both an LLC and a corporation provide protection against lawsuits. Do you need the expense and hassle of both? Does the coverage overlap? If you are looking for protection against lawsuits then talk with a lawyer to help you decide what's best for your business.

And the question, "Should I incorporate to save on taxes?" always seems to arrive without any other pertinent info. Nothing about whether income is $1,000 a year or 2.5 million a year. Whether there are employees or not. Whether the income is profit or all for services performed.

So: Should I incorporate to save taxes? Probably not. But maybe.

June Walker

A freelancer's business expense cannot be deducted as an employee's expense.

Hi June,

I am a writer. I have a question about Schedule C deductions versus unreimbursed employee expenses on form 1040.

I'll have a significant amount of charitable donations this year, not to mention all the state tax I paid this year that I understand is deductible on the 1040. But I won't exceed the standard deduction level.

What would one need to do to treat indie expenses as unreimbursed employee expenses? I am, after all, an employee of myself, right? Is this smart or dumb? Legal or not?

Thanks! I love your book. Best $13 I've spent in a while.

Rachel
Alexandria, VA


Hi Rachel,

To set the stage:

• Everybody deducts personal expenses on Schedule A.
• Employees deduct all their business expenses on Schedule A.

Self-employeds deduct all their business expenses on Schedule C.

Both Schedule A and Schedule C are part of the Individual tax return Form 1040.

All business expenses may be deducted on Schedule C. Only home office has restrictions based on income.

There are several income restrictions as well as deduction restrictions on Schedule A. Often, depending on income or total expenses, employee business expenses on Schedule A may be lost, that is, you get no deduction.

A deduction on a Schedule C is much more of a tax advantage than the same deduction on Schedule A.

Rachel, to answer your questions:
You cannot deduct self-employed expenses as employee expenses. You may split an expense between employee and self-employed if it is used in both your work situations, a reference book for example.

You say, "I am, after all, an employee of myself, right?" No you are not. You are self-employed. Employees are people on payroll, who have taxes withheld by an employer and receive a W-2 at year-end.

You may be a freelance writer and also have a job on a magazine. In which case you would be both self-employed and an employee.

You might want to read these posts employee vs. self-employed for a better understanding.

Glad my book is helpful. Please tell your friends and colleagues.

Best,
June

Investing for yourself is not an indie business.

Dear June,

First of all, I'd like to say that your website is wonderful! Especially the blog section - I ran across your website after doing a search on google about day trading and self employment.

I was in the credit/collections line of work for about 7 years. In 2003, I decided to get into the business of trading stocks. As I learned, trading is not considered self employment ! What would make it self employment and if not what would trading (for yourself) be qualified as ?

Not sure, I've made myself clear, but I consider it to be a home based business.

Thank you for your time.
Rita


Dear Rita,

I am not sure what you mean when you say that you are in "the business of trading stocks."

Are you offering your advice and skills to the public? Are clients paying you for your advice? Is your goal to make money from the services you offer? If not then you are not a self-employed in business.

If you are simply trading -- buying and selling stocks for yourself then you are an investor. Any expenses you have, such as a subscription to the Wall Street Journal, are personal investment expenses.

Glad you like my site. Thanks

-- June

Should I form an LLC?

Many of you know I will be presenting a seminar, Tax Solutions for Creatives, at the Creative Freelancer Conference in San Diego this August. I wrote a Guest Post: LLC? Incorporate? for the Creative Freelancer Conference Blog. A reader asked the following:

June, what are your thoughts on forming a single-member LLC? (As I understand it, essentially still a sole-proprietorship for tax purposes)

Thank you!
Merry


Hello Merry,

I recommend anyone interested in forming an LLC read my posts business entity -- LLC .

Keep in mind that an LLC is a legal entity, not a tax entity.

A sole proprietor may become an LLC and there will be no change in the tax treatment of his or her business. You form an LLC for legal reasons, for instance, asset protection; or for marketing and PR reasons, for instance, LLC after your name gives you some panache.

If you have similar reasons, then consider forming an LLC.

To maintain the veil of protection of an LLC there are strict recordkeeping rules. However, once again, the rules are for legal purposes not because of tax regulations. In tax jargon, a sole proprietorship established as an LLC is called a "disregarded entity."

-- June