It may look like more but it is only one business.

hi,
I'm from Portland, OR and have been self-employed as a guitar tech with my own shop for 3 years, and was paid as an independent contractor working through another shop for 2 prior to that.

i have been digging myself a hole with my record keeping and tax knowledge (lack thereof) and dread doing my books and preparing taxes, so I'm behind.

one thing that makes my situation complicated is that i have income from 2 and sometimes 3 or more sources in a year-- i tour as a guitar tech and am paid as an employee by the bands i work for, mainly one band but in some years 2 or more. i have income as a sole prop in my repair shop, with all the bills, ordering, and so on to juggle-- and i sometimes also have income as a performer.

since my expenses often overlap, I'm not sure of the best way to claim deductions-- if i buy tools that i use at the shop, and also when touring, how can i best make that deduction work for me? i know there are options-- I've even heard of some people setting up as an LLC, buying their tools through the LLC, and renting them to themselves for traveling or specific jobs-- but that's very confusing to me. I'm trying to decide which book to buy-- should i get "the confident indie" or "self-employed tax solutions?"

thanks,
Brian

Dear Brian,

Take a breath. I am going to simplify all this for you right now.

If I understand correctly you:
* are a guitar tech
* repair guitars in your shop
* play guitar as a performer alone
* play guitar in different bands

Those are all part of the same indie business. They do not need to be kept separate. You use related knowledge and experience in all aspects of your business. You may use the same equipment. Your clients likely overlap from one area to the next.

You are a musician. Or you offer music services. Or you offer guitar performance and instruction and repair.

So keep it simple. Keep it honest by claiming all income. And keep accurate records. Which brings me to your question: Which of my books should you buy? Since you mention a lack of knowledge about taxes you need to start with Self-employed Tax Solutions. It will give you the foundation you need to understand income, deductions, taxes, and basic recordkeeping. Before you can keep records you must understand the basics.

BTW -- you say that the bands pay you as an employee. Are you sure? Typically bands that you play for irregularly pay you as a self-employed and they do not withhold taxes. If they send you any income statement it's a 1099 not a W2.

Best,
June

Insurance Settlements Differ

Hi June,

Thank you so much for your wonderful tax tips -- Maze Archives.

I'm wondering if you might shed some light on a particular tax issue.

Last year (2009) my wife agreed to a (rather small) settlement for damages due to a physical injury caused by her work. She was also laid off as a result of this action. Yesterday, we received from this company a Form 1099-Miscellaneous Income from this company. The damages settlement was shown in Box 7-Nonemployee Compensation.

Do you have any idea regarding how this amount should be reported to the IRS on our 2009 income taxes--and even if it is taxable generally?

We would appreciate it if you could give us some direction here.

Thanks,
Jack


Dear Jack,

You need to talk with a tax pro -- H&R Block is the least expensive and is also equipped to handle this -- and have him/her read the settlement your wife agreed to.

Different kinds of settlements are taxed differently. The 1099 may be correct or may not.

Best,
June

A good deed is not a tax deduction.

Hi June,
I really enjoy your newsletters -- Ways Through the Maze . I've been doing my own taxes for close to 20 years using Turbotax and it's predecessor, MacinTax. For many of those years, I was an employee with a part-time business. I'm now in business for myself publishing a local home improvement magazine.

The business is now 2 years old and struggling but surviving. My dilemma is this: I sold an ad last year to Habitat for Humanity at a highly discounted rate and they've given me a receipt for a donation for the balance of the amount. However, I can't figure out where on my Schedule C to place this donation. Turbotax doesn't seem to allow for a business to make a donation but I know that this is not that uncommon.

Can you tell me how I should account for this on my tax forms. I'm structured as an LLC.

Thanks,
Alan


Dear Alan,

Glad you like my eLetters. Please tell your indie colleagues.

You can't find it on TurboTax because there in no accounting for donated time other than the feeling in your heart that you get for doing a good deed.

Read this post about Donating Time: 10 Cents A Minute .

Best,
June

Partenerships may not be simple.

Guess I'm on a roll here. Here's another question similar to the one in Assess the situation. Then make the right choice. This one from Mike, in Georgia.


June, Computer Consultant 9 years as indie. I have been an indie for a number of years, last year I started a new LLC with a good friend. He wants to have both of us treated as 1099 employees. Is this a smart move. Is it correct and legal. I have always treated my past business (also LLC) as an owner that receives a draw.
Thank you,
Mike


Well, for starters, all of you indies who know my writing and seminars are aware that there is no such thing as a "1099 employee."

Employees receive W2s; they have employers; they are not self-employeds.

Self-employeds receive 1099s.

What you probably don't know, because I pretty much keep my writing to sole proprietorships and do not give advice on partnerships, is this:
Partners in a partnership receive a K-1 stating their income or loss for the year. They do not receive a 1099 from the partnership.

Partnership tax returns are complex.

I have a bad feeling that Mike and good friend may also have done the $29.95 setup-an-LLC-online kind of thing. They need to have a tax pro look at their partnership agreement and also explain the tax setup for partnerships.

-- June

Assess the situation. Then make the right choice.

No surprise to all of you, I'm sure, that my posts have been minimal these last weeks. Well, it's tax season and client deadlines take precedence. I did want to get this out to all of you as a caution about whom to ask about what.

I receive 100s of questions. The ones I find most disturbing are those that seek answers to complex tax situations that the indie expects will be resolved by a quick emailed response. They are disturbing because I am concerned that independents don't know how or where to get accurate information.


Here's an example: from Laurie:
My husband started an LLC Partnership this year. He is the active/general partner, subject to SE tax. The other 2 partners are not subject to SE tax based on their role in the partnership. Can my husband submit his SE taxes as reimbursable expenses to the LLC? The other alternative is to increase his percentage of the profits to cover the additional financial burden, but I suspect the other partners may not be too keen on that.


So, I ask: Why wouldn't Laurie ask her tax pro who is familiar with and has all the particulars of her situation? Was this partnership formed without the advice of an attorney or tax pro? Done online for $29.95? To even consider that SE taxes might be reimbursable expenses shows that the questioner knows little if anything about partnership taxes.

Indies, please, I know these are tough times and you are all trying to save money. Yet, be aware of when to call in a pro, when to rely on a quick emailed response, or when to try to handle it on your own. Just like knowing when you can handle a cold or headache on your own or when you need to see a doctor. If you don't call in the pro at the right time it will likely cost you more in the end.

-- June

When To Deduct An Expense

June,

I have very much enjoyed your posts and blogs and will be purchasing your book.

I have a question about inception vs separation. My accountant told me that I am able to claim expenses when I actually put an expense in service and that its independent of when they were actually purchased.

The example I'd like to speak of is my wife's business of a kennel. She has purchased animals in the year previous years but never claimed the expenses of those purchases. Recently some of these animals have passed on ( this I am calling separation ). Since they were not claimed on any returns prior is it acceptable to claim the loss now, even if it was several yrs back that they were put into service?

Best Regards,
Mark


Dear Mark,

For a cash basis business, you deduct an expense when incurred, meaning when you paid for it. You claim income when received.

I will assume your wife's business is cash-basis.

Equipment must be deducted -- when available for use in the business, not when it is used.

Supplies for general use -- when purchased.

Supplies for inventory -- depends on the kind of inventory method you have setup.

What your accountant is suggesting doesn't seem correct. All animals should be treated in the same way on the tax return. You may not pick and choose for your tax advantage.

Your accountant must do the research to get a definitive answer. If he is not already a member recommend http://www.natptax.com/. That organization is great with tax research.

Glad you like my posts. Thanks for letting me know.

Best,
June

An LLC what?

Hi Ms. Walker,

I was originally going to become an S Corp but recently decided to go LLC instead. With regard to record keeping, etc, would you suggest your books for an LLC? Or are they strictly for sole proprietors?

Thanks,
Mike
Las Vegas, NV


Hello Mike,

I suggest the first thing you do is read these posts on LLCs -- LLC? Incorporate? and Sole Proprietor as an LLC .

Why should that be the first thing you do? Well, because you don't say what kind of LLC you are. As you'll learn in those posts and many others about LLCs in this blog: An LLC is a state legal structure; it is not a tax entity. Once you are an LLC you then decide to be a sole proprietorship LLC, a partnership LLC; or a corporate LLC.

So, to answer your question you asked, which I am very pleased that you asked, I will assume you are a sole proprietorship LLC [a disregarded entity in tax jargon]. If that is so then all my material is for you.

I suggest you start with my book, Self-employed Tax Solutions, which gives you the basics on income, expenses, taxes and more.

Best,
June

Checking; contributions; dining; home storage

Because Ron sent several questions look for my answers after each question.


Hi June,

I initially found you because I was looking for information on business checking online. The fees, beginning at $12 monthly (for the least expensive option) seem unnecessary, and as I have been keeping solid records since beginning my consultancy last year, think I’m going to stick with the personal account for now. Nice to see someone provide a good rationale for what seems a rational choice.
Ron refers to these posts on business checking accounts.

So now I’m writing because I’ve just finished reading your book Self-employed Tax Solutions (terrific – thank you! everyone should follow your New Year’s Eve/Day tip!). I agree. I’ve been tracking all my expenses and incomes meticulously, but you gave me some other good points to think about. Here are some questions I have, based on the book scenarios:

1) My kids’ sports leagues all solicit team sponsorships from local businesses. But in your book, you suggest this might not be a wise write-off for indies. Can you elaborate? Should I not do it? And what about sponsoring the softball team that I play on myself?
A quick overview on charitable contributions made by sole proprietorships -- indies: They are not deductible as business deductions. They are personal deductions. Advertising is deductible. So $100 to your daughter's soccer team -- not deductible. $100 for an advertisement in your son's concert program -- deductible. $500 for hockey uniforms that have the name of your business visible to the public -- deductible.

2) I’m still hung up on the “if you have dinner with your wife …” point, primarily because you’re describing exactly what happens to us: The only real time we get to talk about the business, strategy and planning is when we dine together! Permissible deduction, right?
Dinner with someone with whom you have a personal relationship is deductible only if the reason for the dinner is business. Not that you happen to talk business while at dinner. There must be specific business goals that you work on achieving at dinner: spouse reviews brochure; spouse sketches designs for an ad. Things like that.

3) Currently, I can’t take the home office deduction because we don’t have “exclusive space” to work from. But, we do have some space that is exclusively used for storage of business books, files and materials. Can I claim that area? Yes.

Thank you – RA in L.A.
Ron
Long Beach, Calif.

Self-employed Tax Solutions: Don't judge a book by its cover.

Most authors have disagreements with their publishers. I am no different. One of my disagreements was about the cover of the 2nd edition. A broken puzzle! No way, I said. My book helps indies put things together, etc, etc, etc. Well, also, as with most author-publisher battles, I, the author, lost.

I give you this review from Amazon, yes, because it's a review an author would die for, yet mostly because Will said he read it -- albeit last -- in spite of the cover.

Thank you to Will.

And here's what Will said. [Italics mine.] After you've read his comments you may check out Self-employed Tax Solutions, 2nd here on Amazon.

Stunned by how terrific this book is, March 4, 2010
By Will Kalif "StormTheCastle" - See all my reviews

Amazon Verified Purchase (What's this?)

Preamble: What this book is and isn't. This isn't really a book that you get because you are now doing your taxes. It is a help in that regard because it will help you sort through your receipts and expenses and utilize the ones that count.. but, this book is much more suited toward helping you keep easy and straight forward records throughout your year so you can make the absolute most out of your taxes when it comes time to do them.

Okie here is my review:

Tax season is here and I ordered six of these books. Saved this one for last because it has the least appealing cover and title. Wow, was that a mistake. I should have read this one first. I slowly and laboriously read through all the other ones, after a while I was seeing double because they all repeated the same things over and over again -- until I got to this one - wham, it was like a whack on the side of the head. This book is fresh and unique. (hard to believe when we are talking taxes huh?) Hey, good record keeping is key to getting the most out of tax time. But as a independent small business owner I don't want to spend my time as a record keeper/accountant I want to spend my time doing what I love to do. Hey, voila this book simply and easily tells you how to keep records in a way that makes sense and..

And it gives you all kinds of scenarios for what is tax deductible and what is not. Business travel? Business transportation? Is there a difference? There sure is. Business meals? Have more questions? Using your car for business transportation? Spending money on things and not sure if you can claim them? This book gives you a common sense and honest approach to what is fair and deductible. And how to easily keep track of it.

I highly recommend this book. Now don't just get this book. But get it along with any other(s) you get. Order any other tax books that seem to be right for you then tack this one onto the end. Give this book six stars if I could. Breath of fresh air in the middle of a tax season hurricane.

Buy from Amazon here Self-employed Tax Solutions, 2nd

1099 Not Necessary for the Recipient

June --

Technology Consultant. Last year I went full-time self-employed in August. I earned about 15,000 in that time frame.

How long does the company I worked for have to get me the 1099 stating I made money? They haven't sent it yet, and I'm not sure when they are sending it. I don't want to get in trouble by filing my taxes and claiming the income with no 1099 (and I wouldn't want to file the taxes and not claim the income).

Eric


Eric --

You, the recipient of the 1099, do not need to have a copy of your 1099. It is not sent to the government with your tax return as is the W-2. Just be sure to claim all the income you made. Here's more info 1099s W2s W4s W9s . Never-sent and erroneous 1099s are the reason I encourage indies to keep a record of income. I explain how in my petite publication The Confident Indie: Five Easy Steps.

-- June

Is a housesitter a business deduction?

June --

Long-haul truck driver for 25 years: We have finally hired a house sitter for when we are gone trucking. Is the $15 a day we pay her considered a deduction? We get most of advice from our personal accountant.

Patricia


Dear Patricia,

If you are not an employee of your husband or vice versa or you are not a partnership or you do not treat trucking as a joint self-employed business -- allowed in some states -- then not only are expenses for the non-business spouse not deductible, but I would not deduct any cost for the housesitter since the reason the non-business spouse is not there taking care of the house is for personal reasons. [More here on husband-wife business. ]

If you are both in the business and if you have a legitimate deduction for home office and if you have a legitimate house sitter -- not someone you pay in cash who is not claiming the income -- then you may deduct the housesitter costs at the same percent as you deduct home office. Same as you would an alarm system or a housekeeper.

-- June