Tuesday, June 29, 2010

New to indie life? Where To Start -- #2

Hi June,

Analyst (Business, Systems, Data, Information, etc.) ... 2 months as an indie. I am new to the SE world, and really don't know much about it.

My headhunter said he had a job lined up for me, but it was 1099. I said, 'Sure, I'll take it', not really sure what he was talking about.

Well, now I'm beginning to understand exactly what I'm signed up for, and I must say I'm rather excited at the entire prospect of the 1099 world. It sounds like the freedom and control I've been searching for.

What I need is to get up to speed quickly and see that your book may be just what I need to do that. I'm going to order a copy today.

Thanks, Arthur
Pasadena, CA

Dear Arthur,

Just like Mark who sent a question only minutes before you: You're new to self-employment and you need info.

Take a look at my answer below New to indie life? Where To Start . You're right. Self-employment does give you freedom and control. In order to have control and the confidence to know you are doing things right you need to educate yourself in the business and tax basics of being an indie.

I wish you much success,

New to indie life? Where To Start

June --

Computer Consultant Only 2 months.

Few things i have going: Recently married on May 22nd I worked part of the year as a W2 and my wife has always worked w2. I recently started working as a 1099 contractor on May 3rd. Basically i receive $9200.00 every two weeks and my expenses run about $1300.00 every week. Expenses include Flight, hotel, meals, car service. I have kept and recorded all receipts.

I am not sure how much i should be withholding or pre-paying in taxes every quarter. Also how does my w2 income and my wife's w2 income play into calculating a correct tax.

Orlando, Florida

Dear Mark,

Congratulations on your marriage and your new indie venture.

You're in a new situation. You need information, too much for me to provide in one blog post. I recommend you start by reading a short column on my website, such as: I Am A Business and also Is it a deductible business expense? . Also read Estimated Taxes, a post on my blog which will help answer your questions about how much and how to pay quarterly taxes and how your W2 earnings come into play.

If you like what you read there, I encourage you to read a copy of my book, Self-employed Tax Solutions. Take a look at the Table of Contents to see the topics covered. Solutions answers many of the most common self-employed questions in the same easy-to-understand style you'll find in my columns.

And more than just answering those taxing questions, the information in Solutions will give you a firm foundation on which to build your solo venture!

I wish you much success.
-- June

Saturday, June 26, 2010

Mistakes With Reimbursed Expenses

Ms. Walker: Please help me!

I am an Adult Education Practitioner. Been an indie for 11 years.

My 2008 tax returns inflated my modest earnings because my company pays me as a 1099 contractor and included all the money paid as if it were earnings, when in reality, about 58% was nothing more than reimbursed up-front expenses.

I am still paying the federal government for that tax bill and was wondering if there is anything I can do retroactively to ease the burden going forward.

Reading over what you've said to others I take it that it was my primary responsibility to take along all my actual invoices where the difference between travel, hotels, etc. from speaking fees was clearly noted but I did not. Is there any way I might do that this year in an attempt to, if nothing more, lessen the burden of what I still owe the "feds"?

Thanking you in advance,

Dear Hopeless,

There are a few things you said that I don't quite understand. When you say that you've read what I said to others, if you don't mean all my posts here, expenses -- reimbursed, then be sure to do so.

I don't know where you were taking your actual invoices. To an IRS audit? To the people who hired you? Are you asking if the past can be fixed or just what to do for the future?
In the posts about reimbursements that I mentioned above there is an explanation of how to list reimbursed expenses on your tax returns in the future.

This is what you can do about the past: If you have proof that the income was expense reimbursement then have a tax pro file an amended return deducting those expenses. You will get a refund for the overpaid tax. You may file an amended tax return up to three years after you originally filed the return.

It's not hopeless.
-- June

Friday, June 18, 2010

It's only words ...


thank you for taking the time to get back to me , how ever the vocabulary and life lessons were a bit much..i am quite clear on what the word rape means, and i am very, very clear that aanxiety, anger and depression are not going to reduce my taxes.
this is just the way i choose to speak and write, and it is certainly no bodies business but my own. i did not want a mother or a teacher, i simply wanted some tax advise and Nothing more.

Above is Sara’s response to the post below: Learn more. Reduce stress and reduce taxes.

I want to take a bit of your time to comment because when you dig down, these afterthoughts are related to taxes and to being a professional indie with an indie-business mindset.

#1. I am a teacher. That is my goal: To teach indies how to handle the business side of their taxes, recordkeeping and finances more accurately, more simply, using less time and possibly saving more tax.

#2. I have four children and am not looking for any more. That mothering takes enough of my time and love.

#3. And this is the most important: Words have meaning. In #1 above I say “possibly” save you on taxes. I can’t assure you that you will pay less. I can’t omit “possibly” just to get your attention. I can’t use “always” because that is not so.

BTW – watch out for those guys promoting self-employment and promising you’ll “pay no taxes.”

Using words like “rape” or “Nazi” to indicate something unpleasant or someone you don’t like or someone with who you disagree is not only inaccurate but does an unimaginable disservice to those who have been raped or someone whose family has suffered at the hands of the Nazis.

Words are important in taxes and in life.

Indies, you're my favorite people!

Wednesday, June 16, 2010

Learn more. Reduce stress and reduce taxes.

Dearest June ,hello my name is sara, i am a mixed media artist living and working in new york but selling my work all over the world and getting taxed like crazy in new york.. I'm getting taxed like 30% ..and i feel like i don't know my rights and am getting raped as a result...

i wrote basic things off like; travel , supplies, shipping and so on..but it doesn't seem to make much of a difference.. do artists have a different set of rules that apply to them, or do we just get taxed like everybody else depending on what tax bracket we fall into.

are there important loop holes that i am missing and don't know about and should know about that could save me a lot of money ..?

i would appreciate any advise or guidance that you could give me, as every time i pay my taxes i have an anxiety attack right after, and am angry and depressed..and i know that there has to be another way..:(

with kind regards

Dear Sara,

First, you are not really being raped. I wouldn't throw around that word. It has a very different meaning.

Artists must abide by the same rules as any other self-employeds. That means they get the same kinds of deductions and pay the same taxes as plumbers and psychologists and IT people and anyone else who works for him- or herself.

You said you are paying 30% on your income but you don't say whether that's 30% of your gross income or your net income.

Gross income is what you are paid for your work.
Subtract from that all business expenses.
You are left with net income.

It is on net income that you pay tax.

You pay approximately 15% self-employment tax + federal income tax + state income tax. And in New York City depending on your income there could also be New York City Unincorporated Business Tax and Commuter tax. All that can easily add up to more than 30%.

My guess is that your problem lies in not taking advantage of all business expenses. You must deduct every possible business expense in order to reduce your net income.

Start here by requesting a complimentary List of 100+ Indie Business Expenses . Also read Is it a deductible business expense?

That will be your starting point to educating yourself as an artist in business. Anxiety, anger and depression are not going to reduce your taxes. Learning about the business side of your art will.

For a complete understanding of the basics of income, expenses, taxes and recordkeeping for an artist, check out my book Self-employed Tax Solutions. If you can't spend $13 it should be at your library.

Knowledge will give you the confidence to come to grips with your indie business.

I wish you a less stressful indie life!

Sunday, June 13, 2010

Single Mom in a Messy Situation

June --

The sole practitioner attorney I work for didn't want to put me on "payroll" and have me technically be an employee for tax and other reasons.

He helped me get incorporated as I also had a brief (craft shows) side business I wanted to start, which failed. He pays me an extra $2.75 hour towards the taxes.

It has messed me up with some things -- As a single mom and trying to get help and having to provide proof of income; Costing $300 a year to the accountant; Extra extra steps in getting mortgage financing. Even now in my attempt to modify my loan, he signs a paper saying I'll continue to provide administrative services.

Now, I am considering applying for SSI disability benefits and realize that this is going to put a huge damper on things. Especially since it goes by past pay.

I am not really an independent contractor. I'm his secretary and only an Independent on paper for his benefit and my detriment.

Any suggestions? Comments?

Legal Secretary/Assistant; 7 years as an indie
Dania Beach, FL

Dear Chrissy,

You say you're not an independent contractor. You probably knew that when you set up this deal with the attorney. So we can't blame this entirely on him. You must take some responsibility for your situation.

OK. Now that you've taken some responsibility, I really blame him. He's an attorney. You're a single mom in desperate need of income. It appears he took advantage of you.

As an attorney he is an officer of the court and is supposed to adhere to high standards of integrity, and he knows better than to stoop to this kind of tax evasion.

You need to dissolve the corporation immediately. How your accountant went along with your corporation since it's just you a legal secretary and a crafts person is difficult for me to understand. You might just want to call your local H&R Block office and see if you can set up an appointment with someone there who can dissolve the corp and file the final corporate returns. You might ask the attorney to cover the fees for this.

The next step takes some heavy thinking on your part. Do you want to pursue your options in dealing with this fraudulent situation in which the attorney may have placed you? If you do then contact the State of Florida Agency for Workplace Innovation . Or you may email directly to peter.dehaan@awi.state.fl.us for advice.

It may be hard for you to extract yourself from this mess, but you must. Do not go along with anything that isn’t legitimate and be sure you completely understand potential consequences before making any decisions. Bring a savvy friend with you to any meetings.

Good Luck.

Saturday, June 12, 2010

You can deduct some lobbying expenses.

Dear June,

I am a professional Lobbyist in New Mexico. I am constantly asked by legislators for contributions to their campaigns. Is there any way to deduct the checks I write to the legislators I lobby as this is a cost of doing business? I have been self employed since 2006. I have never deducted these payments but am ever hopeful I can someday.

Las Cruces, NM

Dear Allison,

If you are making a political contribution it is not deductible -- neither as a business nor a personal expense.

Here's some info on deductible lobbying expenses that I think will be useful to you when talking with colleagues:

Lobbying is often thought of as a derogatory term.

Stripped of its negative connotations though, lobbying just means attempting to influence government legislation or policy. And there's nothing wrong with that. Having access to government and being able to influence its officials is an important factor in a democracy. It's just as important for a self-employed IT consultant as it is for an industry giant.

Tax laws are written for the corporate world and need to be carefully interpreted to fit the business life of a solo entrepreneur. Lobbying is a case in point.

Just about everything you read on the kinds of business deductions allowed for lobbying starts with this opening sentence: "Generally, lobbying is not deductible as a business expense." This is usually followed by a list of the lobbying expenses that cannot be deducted, such as: costs for contacting the president or for trying to influence the views of the vice president. And often the writer stops there.

But that's misleading, and here's why.
Most indies have little to do with attempts to influence the president or the vice president. On numerous occasions, however, they try to be heard on a local level. And as far as the issues that come up at the Mayor's Office or at the city council meeting are concerned, an indie business can deduct lobbying expenses.

If the local government is planning a zoning change that would be detrimental to your business, or if you want the city council to allow home businesses in the area in which you live, or if you're a restaurateur opposed to their proposed ban on smoking or live music -- all such efforts are deductible. You can argue with the building inspector, attempt to be arrestingly persuasive with the police chief, and exchange heated views with the fire marshal, and you can deduct all the expenses incurred.

To learn what is deductible and for some specific examples of indie situations continue reading here at my column for New Mexico Business Weekly on Lobbying Expenses

-- June

Friday, June 11, 2010

Keep It Simple: Round Off

Hi June,

I have been working as an IT Contractor from home for three years.

Occasionally, I have local travel expenses relating to my business (driving to the bank, post office, or home office store). I have been keeping good records and track of mileage. However, I am confused as to the rounding of mileage. If a trip is 2.5 miles, for example, should I record that as 2.5 miles or 3 miles?

Thanks, Billy
Arlington, VA

Hi Billy,

I always round off numbers, whether mileage or money. Five or more brings it up to the next whole number. Less than five does not. And I never do pennies.

2.5 = 3
2.4 = 2
$1.85 = $2
$49.49 = $49

-- June

Don't cheat yourself. Use a tax pro.


I always find your expertise invaluable!

I recently got beat in an audit and I know I really did not get beat I just did not know how to represent myself so the end result is I lost.

I do have another question, last yr I had to leave the area for over a yr. I lived in an extended stay to the tune of about 2800.00 a month on top of that I had my normal expenses for supporting my home in another state as well as living expenses in extended stay like groceries and occasional eating out. Should these items be on a Schedule 'C' or is there somewhere else it would be best to show these expenses?


Hi Mark,

Based on your question, I gather that you prepare your own tax return. I assume that means that you faced the audit on your own. I see that you have been a follower of mine since 2008 so I'm sure you know that I think most indies should not prepare their own tax returns. Help with an audit is another reason to use a tax pro.

As to your question: All business expenses for a self-employed must go on the Schedule C. Your question shows me that you don't know a whole lot about indie tax returns. My guess would be that if you're like most indies -- you try to be legitimate with your tax return and you are probably cheating yourself. I am really pushing you to at least check out an indie savvy tax pro.

BTW -- before you start writing off all the expenses you mention above be sure to read these posts: expenses -- travel and temporary worksite .