No work? You're still self-employed.

Hi June;

I have a simple question... I worked the first 6 months of 2010 as self-employed (1099), with one job with one company, from my home office, before the contract ended. I did not work the rest of 2010 because I could not find any work.

The way I look for work is internet job board searches. I do not advertise. Pretty dirt simple. My dilemma is regarding Federal taxes... Do I prorate my utilities, real estate taxes, home insurance and health insurance premiums for 6 months or for the entire year ?

Glenn
NH


Hi Glen,

Just because you could not find work as a self-employed does not mean that you are not self-employed.

If you offer your services to the general public, and your goal is to make money, then whatever your method of looking for work you are still looking. And that makes you self-employed for the entire year -- or as long as you were looking. And you can deduct indie business expenses for that entire time.

-- June

Nanny-gate

June,

My wife's nanny job brought in approximately $9K this past year, but the wealthy family she works for will not reportedly be furnishing a W2 to her.

Being as honest as we can be, how (or where) can I report this $9K without getting killed on it tax-wise??

I own my own micro-business, and I also work a corporate gig as well. Any feedback will be greatly appreciated! :)

Ryan
AZ


Have to tell you, Ryan. This kind of thing really bugs me. You and your wife are being ripped off! Now, I know that most "domestic" help -- nanny, housekeepers, dog walkers, etc. really need the work and there is a lot of competition, so they will do whatever the "boss" asks. And that usually means not treating the worker fairly.

It's interesting that this is coming from someone in Arizona, that oh-so-anti-illegal-immigrant state. And, of course, we know that many of the domestics who work for legitimate citizens are illegal immigrants whose pay and benefits and insurance coverage are not what the law requires. What happens when the nanny falls down the steps? No workers comp. What happens when the kids grow up and no need for nanny? There's no unemployment compensation. You get the picture.

So, what should you do? I assume you are not going to complain to the Arizona department of labor, now called The Industrial Commission of Arizona. So you must claim the income. It's claimed on a federal Schedule C. On your wife's earnings you must pay approximately 15% in social security tax and medicare tax [that's both the employee's and the employer's share]. You must also pay income tax.

There's no getting around it.

Best,
June

1099 As Last Resort

June, I was trying to figure out how to ask you a question on your page-but couldn't find the tab for that.

I appreciate this resource so much. I was self employed massage therapist for 11 years and now am a student RN.

My husband is a subcontractor in the construction (specifically replacing floors) field and he has a helper. His helper is not licensed like my husband is- we paid him quite a bit of money this year- he makes 25%. We never had him fill out a w-9. He is still working helping my husband. Can we still send him a 1099 and will that help protect us? He made $25,000 by helping my husband this last year.

We are going to start paying him by business check starting next week so that we have absolute accurate records of how much we pay him.

I appreciate any feedback you have.

Thank you sooooo much.
Cheniah

AK


Hi Cheniah,

Sorry my site is confusing. A new one is in the works. Was supposed to be up by Thanksgiving. Then Christmas. Switched to a different web-dev company and we are now looking at April. So please hang in there with me.

Ahem! Based on your description your husband has an employee. Doesn't matter whether he's paid by check, cash, or steak dinners. If he works for your husband using your husband's tools, on your husband's schedule, and your husband could fire him if he did a lousy job or if there were no work, and the guy doesn't work for any one else then by all appearances you do not have a sub-contractor working for you.

What to do about 2010? Well, you should set up payroll and file all the back forms and pay penalties. But, my guess it that's not on your agenda. So next best is to file a 1099 and 1096.

My next eLetter, Ways Through The Maze, due out in a few days will give you info on filing a 1099 by the 2/28 deadline.

Best,

June

Don't get hung up on having a business checking account.

June --

I am starting a side business while currently employed. Trying to stay under the radar from my boss knowing about this (so please don't print unless use a different name and state).

Due to financial difficulties, I am unable to get a business checking account so I plan to use one of my personal bank accounts exclusively for business income and expenses. I use a different business name than my real name but intend to put on my invoices to make checks out to my real name.

My question is do I need to file a fictitious name with the state?

Jane Noname
Utah


Hi Jane Noname,

First things first: Read this You Do Not Need A Business Checking Account. You'll see there that as a sole proprietor who is not an LLC that there are time and recordkeeping advantages to not using a business checking account. Also, note that There are many other posts on checking accounts in my blog right here checking account .

I do not recommend sending an invoice in one name and asking to be paid in another name even if it is your own. People often do that to skirt around claiming income and it gives a non-professional feel to things. Why not bill in your own name and use a clever tag line under your name that relates to or describes your business?

You don't say what you do so I can't give you any suggestions on a name but ask your bank if a check made out to, say, Jane Noname Services would be acceptable into a Jane Noname checking account.

Here's some posts on using a business name DBA - Doing Business As .

-- June

1099 or not, it's income.

June --

I have been a self employed massage therapist for three yrs now and always received a 1099. Last year I started working directly with clients as well. my question is this... I received a 1099 from a company I worked for but how do I report the other cash and checks I received directly from clients since I don't have a 1099 for that??? do I just combine it with the 1099 ?

judy

Hi Judy --

Whether or not you receive a 1099, all income you earn as a massage therapist is part of your gross self-employment income.

-- June

Recordkeeping-Quicken-QuickBooks

June- I'm at wits end finally trying to get my books in order. Wondering if you are able to help or if you have recommendations for someone out here in Los Angeles. Found your site after google search. I'm writing this after spending the day, yet again, trying to figure out how to set up my QB accounts and after buying YNAB to try and get myself on a budget. AAAAhhhhh!!!! I'm no closer than I was 6 hours ago and need pro help on this. I'm a Freelance Multimedia Producer ... 5 years

Thanks
Mike
Sherman Oaks, CA


Hi Mike,

I understand. I really do. First, forget about QuickBooks. It's way too complicated for a newbee. If you want to keep records on computer use Quicken. Buy the easiest, cheapest version. Go here for my free list of Quicken Categories For Indies .

I really should have listed that as second. Because first comes: What do you want your recordkeeping to do for you? If it's simply to give you income and expenses at year-end in preparation for your tax return, you can do that manually or on computer. If you want to go the easy, simple, manual route, take a look at The Confident Indie: Five Easy Steps . It explains a manual system and has worksheets for your 2010 tax return. Most of my indie clients prep for their tax returns using this method. It really works.

If you want monthly or quarterly reports of income and expenses, or you are really comfortable with #s and computer data software rather than prose and audio software then use Quicken.

Also, if you are going backward and redoing 2010, then I suggest manual. If you are starting to do 2011, then either/or.

Hope that helps.
-- June

Owner's Draw

Hi, June!

Sure do enjoy your column! Am curious: when using “owner’s draw,” in QBooks, wouldn’t that be considered income to me?

Thanks for your help! If that is somewhere in your blog, already addressed, thanks for pointing that out.

Warmest regards,
Rhonda
Anacortes, WA


Hi Rhonda,

Glad you like my column. Thanks.

I will assume you are a sole proprietor. And there is no "owner's draw" for a sole proprietor. The money you take out of you business is not your profit.

Many self-employed people have a fuzzy idea about their own business profits. They think that the weekly, monthly, or occasional checks they write to themselves -- called owner's draw in the corporate world - is their income or their salary or their profit. They are wrong.The checks a self-employed makes out to herself have no bearing whatsoever on her income, expenses, profit, or taxes. Whether you write yourself a $100 or $1,000 check every week you are doing nothing other than altering cash flow by moving money from one place to another. It's called draw because you are drawing money away from someplace.

Your income, better called "net profit," is what is left after you subtract business expenses from gross income. Has no relationship to how much money you took out or put into your business.

BTW -- for indies I urge Quicken. It is much easier than QuickBooks. Visit here Quicken Categories For Indies and I'll send you a 7-page list of income and expense categories suitable for an indie business using Quicken. It's helpful even with QuickBooks.

Best,
June

Incorporation is not a tax strategy.

June --

I live in Charlotte, N.C., and have been a freelance writer for five years, although I have only done it exclusively for the last two. (Before that I also worked part-time at a newspaper.)

Anyway, I've gotten a lot of work from higher-paying publications last year, and two of them gave me mid-year per-word raises because they liked what I was doing. The result has been that my income is greater than I expected. wondering if maybe at this point incorporation makes sense as a tax strategy.

I earn $70,000 annually working 25 hours a week. (I have three kids under age 7 so I don't work full-time now but I expect to work more and see my income increase as my kids get older.)

The Department of Labor says it expects "reporters and correspondents" to make $16 to $20 an hour or $43,000 a year. What do you think?

Thanks.
Michelle
Charlotte, NC


Hi Michelle,

First, let me congratulate you on successfully freelancing as a writer. It's not easy. I think the DOL knows little if anything about reporters and correspondents or the publishing industry as a whole. Newspapers are falling by the wayside. Reporter clients of mine are being let go and they are heading onto the freelancer highway. A really good piece about this is in the December Harper's, "Bright Frenetic Mills" by Thomas Frank.

Do not incorporate. Incorporation for independent professionals should not be part of "tax strategy." So cross it off the list ASAP.

What you need to do to reduce your tax is similar to what you'd need to do if your are putting together a feature story. As my husband, a reporter for decades would say, you can't get too many facts and you can't check them too often. So here's where to start:
1. Learn what is deductible
2. You have three kids and that means a really busy life, so make your recordkeeping as simple as possible.
3. If you make more money than you need to live on, look at the many different kinds of pensions available to indies.
4. Find an indie savvy tax pro.

The most difficult is #4.

#1 and #2 are fully explained in my book. It's available at most libraries or you can buy it here Self-employed Tax Solutions.

#3 Maybe by the time you're ready to contribute to a pension I'll have an indie pension overview available.

I wish you continued success.

-- June

!! Techno Problem !!

Hi Indies,

FYI: My site is temporarily [we think!] down. And yesterday's email got all messed up. So, please try again, later.

-- June