June Walker: Tax & Financial Advisor to the Self-employed

I've moved!

2011-11-30T19:50:00.000-07:00

I told you it was going to happen and sure enough it did.

Follow me to my new blog address at
http://junewalkeronline.com/category/blog/.

See you there ... June

From One Work Place To Another: It's business mileage.

2011-11-29T12:10:00.000-07:00

The questions below about deducting auto expense were sent to me by our fellow indies. Here's a really simple answer to all of them: You may deduct the cost of going from one work location to another. A work location is any place you must be for your work.

Check out my bracketed [notes] to see if you can figure out the answer.

I have retired and moved to central Illinois. However, my previous employer in Chicago wants to hire me as part time (2 days a week) consultant. Is my mileage from my home [not a work location] in central Illinois to the office building in Chicago [is a work location] a tax deductible business mileage expense?

Kenneth
Chillicothe, IL

Answer: No

Hi June,

My name is Rick from Keytesville, MO. I've gotten several answers to my questions today just by reading your blogs.

Being in the clergy I have a difficult time finding someone who really knows about my tax situation. I work for an association of 26 churches. We have an associational office 40 miles away in a larger town and in that office I have an office. [is a work location] I also have an office in my home [is a work location] which I work from so I don't have to drive the 40 miles to town. I work both places about the same amount of time. I also have to drive to my churches [are a work locations] and various other locations for work [obvious work locations]. I understand that when I drive from my home office to my associational office that it considered a commute.[Not a commute unless you are going there solely to get that day's work assignment.] but if I drive from my home office straight to a different work location can I still get reimbursed for that mileage even if the work location is within 5 miles of the associational office. At the end of the day do I get to count my mileage back to my home office [is a work location] as reimbursable. Sometimes I go back to work other times just to go home [is not a work location].

Rick

Answer: All driving as described is deductible business mileage expense except the drive home.

Hi June!

I found your site just in time to file my 2008 taxes and have been bragging ever since. My friends continue to love your straightforward advice too!

OK, so I move. A lot. and always have my main office in the home. [is a work location] My current home (and for the last part of 2010 tax year) is a rented room and a separate rented studio/office/shed in the backyard. I rent both from a couple. I pay a set rate for the bedroom, we split utilities for the house that we share, and they just added $200/month for the shed space (which is only used for work). This is currently spelled out in the lease.

I travel frequently for work, and once or twice a week drive to an office for one of my main clients [is a work location]. My question: How should I claim my studio? I would like to be able to deduct miles driven from my office [is a work location] to stores [are work locations if you are buying items for your business], to meet with clients [is a work location] , or to airport to travel for work [is a work location].

Of course, I don't drive from my house to the office (I just walk a few steps).

Amanda
Asheville, NC
artist - arts administrator
4 years as an indie

Answer: All driving as described is deductible business mileage expense.

No Mileage Rcords

2011-11-28T10:00:00.003-07:00

Dear June,

First I would like to say thank you for sharing your tax expertise with so many. We need the help! Especially me. This is my first year working my own business and I'm quite lost with tallying up all the business expenses and which ones I can tally up being appropriate.

One of my main questions I need help with is mileage. Earlier in the year I worked as an independent contractor for a photography company which required me to put a ton of miles on my car driving to and from different customers homes to show them the photos. My husband told me I should have kept a book logging each and every mile from every day, including my mileage for my new business (permanent makeup).

Needless to say, I didn't realize I was supposed to keep such a log, however, would like to write off the miles. Could you please advise me and tell me if there are any other options?

Thanks so much for your help! It is very much appreciated.
Kristina

Kristina, your husband is correct but why didn't he tell you sooner?!

You will need to reconstruct your time as an independent. Pull out your calendar, receipts, phone records, anything that can help recall where you went and when. Keep in mind errands that you did. A post office receipt means a trip to the post office. Same with an office supply store receipt. Then go to mapquest or the like and start charting mileage.

Every 20 business miles may say you about $3 to $4 in taxes. So you decide how much your time is worth and whether the reconstructing will be of value.

-- June

Please Take Note

2011-11-27T17:00:00.001-07:00

Important Notice!!!!
I am moving this blog to my new website.

On or before December 1st my blog address will change to: http://junewalkeronline.com/category/blog/. Please visit often.

There's other news: My eLetter, Ways Through The Maze, will be back on track. And my website has had a revamp.

Thanks to some wonderful people my new site will be up and running within days. We can all hope for no glitches.

Cheers,
June

Don't be a faux-indie.

2011-11-27T10:00:00.021-07:00

I receive so many questions asking whether someone should choose to work as a self-employed or an employee. The simple answer is: It is not a choice. It is circumstance that determines your work status.

The complication arises because everyone wants to manipulate the work situation to his or her best tax advantage. More often it is the person doing the hiring who wants to cheat. Yup. It's cheating. It's fraud.

Who gets screwed: The one who does the hiring or the one who does the work? More often the one who does the work.

Do many get away with it? Yes, they do.

Do they get caught? Sometimes.

Are taxes, interest and penalties assessed when caught? More often, yes.

Why do workers accept an unfair and fraudulent work status? Because they need the money. If they question or complain they will not get the work because someone else will step right in to do the job as a faux-indie.

Be sure to read Employee vs. Self-employed for more info on how the IRS determines work status.

Below are four worker situations that my web visitors questioned. And there's one question from someone doing the hiring.

BTW -- I've shortened their queries a bit.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Hi June,

I graduated from dental school and found 2 part-time jobs working as a dentist in Queens, NY. Both employers are classifying me as an Independent Contractor and will file a 1099 at the end of the year.

I get paid $500/day. I think I'm supposed to be an employee since they are dictating the days and hours I'm that I'll be working and they are supplying their patients, office and supplies for me to use to treat their patients.

The thing is this seems to be the norm for dentist jobs in NYC. Every interview I've been on has only offered a 1099.

-- Jennie

[Jennie then listed many questions on how to avoid this situation, including incorporation, forming an LLC. None would be to her advantage. She is an employee.]

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Hello,

I work in Farmville, VA as an office assistant for 3.5 years. My problem is this: The IRS defines me as an employee. The company I work for would rather list me as a self-employed person which I have done for the past 3 years. I need to know how they should record reimbursements I receive so they do not show up on my 1099 as income. They use QuickBooks and I am the one entering the bank statements monthly. What is the best way to record these reimbursements?

Tahirah

[The company would "rather" list you as a self-employed. Rather?! Tahirah is an employee. The reimbursed expenses are expenses of the employer.]

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Hi,

I'm debating on either becoming a w-2 employee for my Dad's company or an Indie and charge his home health care business a consultant fee. I've kept my self up to date with Medicare laws for home health care and have been training individuals for Medicare billing as well as setting up their organizations. My dad's company (who has two other partners) are requesting my help and I need to let them know how I want to get paid.

Please help me in this ordeal, would this profession be considered self-employed or would it constitute a relationship. I will inform this agency the guidelines and audit patient charts and will propose a corrective action. I have never worked independently so I'm a little worried about calculating my own taxes.

I would appreciate all your help.

Thanks. Fahad
West Chester, OH

[Were Fahad to offer his services to only his father he would be an employee. But since he offers similar and related services to many others it appears he is self-employed.]

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
June,

I came across your site and it's very good. I'm trying to determine if I'm an Indie. I started working for just one mortgage processing company that had only 1 client.

I signed an indie contractor agreement. So I got a 1099-MISC.

The mortgage company was my only source of income. I have a lot of freedom to do my job but all my business was paid by one company who had 1 client. They did have some control as to what banks business was done with. I had expenses but of course no taxes taken out. It will make a huge difference as far as my tax bill this year since not having worked as a 1099 person, I didn't set much aside in quarterly payments, oops!! What am I??

HARVEY
Broomfield, CO

[How much is a "lot of freedom?" What is "some control?" A contract does not change or negate tax regulation. This should have been discussed with the mortgage company before Harvey started to work for them. He is an employee.]

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Hi June,

I'm a Self Employed Website Designer living in Ocala, FL. I started my business in 2009. I haven't the income to hire any employees at this time.

I have considered inviting a private contractor in to help out with sales and client services. He would get a percentage of any work he brings in. I've found someone with sales experience who would like to do this, but he's not self employed. What steps does he have to take to become a private contractor? And, what steps do I need to take to have a private contractor work for my business?

Thank you,
Sandra
Ocala, FL

[Only if the worker offers his services to others in addition to Sandra and he also meets the relationship-control criteria may he be considered an independent.]

Good to be back!

2011-11-26T19:00:00.015-07:00

Hello My Fellow Indies,

I’m back. Sorry for the hiatus. My long absence was unavoidable, unprecedented, and unique – unique in the sense that it won’t ever happen again.

I have a financial and tax consulting business with an extensive list of clients, all of them self-employed. They take a considerable portion of my time. This past year the issues of one client took over much of my professional life. As a responsible hippie I did what was needed which meant months of additional work.

Now one of my clients told me that in all the lyrics ever sung by Janis Joplin he did not find "responsible" and "hippie" in the same line. But, believe me, 'tis true.

I know that so many of you have sent me questions about your tax and financial quandaries. I can say only that I hope you have found answers from competent professionals during my absence and also that I will get to your questions ASAP. They are staring at me from my email DO folder.

Thank you all for hanging in there wih me. You've been emailing and telling me how helpful my material is. My goal: To make a lot more of it more easily available to you.

And a Happy Thanksgiving weekend to all of you.

Best,
June

Federal Budget 101: Your money; Where it goes

2011-04-22T20:48:00.001-06:00

The following from a client-friend in Red Bank, New Jersey

How much do you know about the federal budget?

If your answer is "not much," you're not alone. In fact, very few people have an in-depth knowledge about the federal budget process or its impact on their daily lives.

"Federal Budget 101" is designed to give you a guided tour of the budget. We outline how the federal government raises revenues and spends money, how the President and Congress enact the budget, and how much money goes into the many different federal programs. Please visit our site.

-- June

Owner's draw is not for indies.

2011-04-22T20:28:00.000-06:00

Hi June,

Thanks for sending me the Quicken Categories For Indies List. I will go back and get your books later.

I am having a little trouble with how to categorize a Business Draw in Quicken 2011. I keep my business account and home account as separate Quicken files. So there isn't a way to "Transfer" the money. I usually write a check from one and deposit it in the other. I will try the X Change-In category on your list when I record the deposit of the Business-Draw in my personal account.

Have a great day,
Jennie

Hi Jennie,

This really calls for a lengthy explanation, but I'm going to try to make it short and clear.

Sole proprietorships don't have an owners draw situation. That's a transaction within a corporation.

A sole proprietor transfers money from one account to another. In your case it may be from a business checking account to a personal checking account.

In Quicken you may simply [hard bracket the account] in the category field.That will show the transfer in both the out and in accounts

But, if you want to give the transfer a category of its own at each side of the transfer try this:
From the going out side make it an expense category MONEY TO PSL ACCT
At the receiving side make it an income category MONEY FROM BUS CKG ACCT

Please add a comment letting me know if this helps.

Best,
June

Travel Expenses Made Simple

2011-04-22T13:51:00.000-06:00

June,

I just received your checklist for expenses [Thank You] and I'm eager to order your book. My main confusion/challenge is categorizing travel expenses. Any suggestions &/or checklist for that?

Thanks in advance,
LoriAnn

Dear LoriAnn,

For tax purposes, categorizing travel expenses can be very simple. The costs fall into two categories: meals & entertainment, and everything else. That's because everything else can be deducted at 100% while you may deduct only 50% of your meals & entertainment expenses.

Here is a list of typical travel costs:
PLANE & RAIL FARES
TIPS & BAGGAGE
TAXIS & PUBLIC TRANSPORTATION
AUTO RENTALS
LODGING
TELEPHONE
LAUNDRY & CLEANING

TRAVEL MEALS
TRAVEL ENTERTAINMENT

You may read more info on travel expenses in these posts expenses -- travel

-- June

Time is not a business expense.

2011-04-20T13:02:00.000-06:00

Hello June,

I heard about your business from The National Psychologist. I am a psychologist in private practice.

Here's my question:

How do I calculate maximum deductions for Continuing Education expenses? Someone told me that for each hour spent in a CE pursuit it is allowable to deduct my hourly fee. This would be in addition to the actual cost of the CE course offering.

Also, can I deduct my hourly fee for each hour I spend in reading or pursuing informal, and therefore undocumented, Continuing Education knowledge?

Thank you for your materials and information and your focus on us indies.

Patricia, PhD
Dear Patricia,

I bet that "someone" was a psychologist, not an accountant. Or else someone who just does a lot of wishful thinking.

Your time is not a business expense. Whether you use your time to learn, to treat a patient who has no money, to volunteer at that battered women's center, or to cut the grass at the church.

Generally, you may deduct as a business expense the cost of the education, the supplies for the course, the transportation to and from the course. There are many regs regarding the deduction of education costs. And there are many ways to take advnatage of education expenses, for instance, as a tax credit rather than as a business expense. Which works best for you depends on your total tax picture.

Here are some posts you might want to read:
expenses -- donated services or products
and also some on
expenses -- education-study-research

Please send this post to someone.

Cheers,
June

Creative Freelancer Conference

2011-03-31T12:00:00.013-06:00

Hello indies,

Please take note that the Creative Freelancer Conference this year will be held in Chicago on June 23 and 24.

Unlike a lot of conferences we've all been to, this one concentrates on the business side of your indie business. It's not filled with lots of "you-can-do-it" encouragements but actually tells you how to do it.

Ilise Benun, the talented head of Marketing Mentor and author of The Creative Professional's Guide to Money, along with HOW magazine offer this two day conference for creative indies.

Ilise starts off the conference with a session on the future of freelancing and explains how you can respond to the changing needs of the marketplace.
There's much more on why indies need a business plan, how to balance work and home life, money management for people who don't get weekly salaries, how to choose a target market, using social media for success, and how to learn from mistakes of your fellow indies -- and your own mistakes.

The conference is $525. However!!! but you can save $30 if you sign up by April 1 -- uh-oh, that's tomorrow -- and you can get a $50 discount if you input in the discount code box during the online registration.

Check it out here Creative Freelancer Conference.

-- June

29 Interesting Articles

2011-03-06T18:36:00.004-07:00

Indies --

The following was sent to me by a fellow indie. It has some good info.

-- June

Hi June, I just posted an article on my site entitled “29 Financial Articles Every Freelancer Must Read” ( http://www.accountingdegreeonline.com/29-financial-articles-every-freelancer-must-read/ ). I thought the article was potentially something that would interest your site’s audience

Best,
Kimberly Lee

One day does not an indie make.

2011-03-04T07:21:00.001-07:00

June --

I'm in Burlington, KY and I was last a director of operations at the Creation Museum (Answers in Genesis) but have been laid off for two years. I THINK I've been an indie for 1 day.

A former co-worker (lecturer/author) just left the same organization that laid me off (I was there 11 yrs)and started his own ministry. He has asked me to do some part-time admin support for him from home using his laptop and cell phone. Does that make me an Indie?

Ted
Burlington, KY

Hi Ted,

No, you're not an indie if you work for only one day. That's considered incidental income because you are not engaged in a business nor motivated by profit. You must include the income as "other income" on page 1 of your 1040 tax return.

If, however, you mean that this is the first day of working on a regular basis, albeit part-time, for a former co-worker it sounds to me as if you are an employee, not self-employed.

Take a look here Employee vs. Self-employed for more info.

-- June

Designer needs a saner way to organize taxes for her preparer.

2011-03-02T07:35:00.006-07:00

June --

I do any sort of 'design' job someone ask for. Initially schooled in graphic design (pre-computer) then fell into Photostyling. That led to jobs that required architectural drawing know how, and took that to do home remodels and interior design. Have taught myself computer graphics and do some of that now too. Been doing this all for 35 years...only 15 of those as someone else's employee. Sole Proprietor status now for 13 years.

I am on your contact list and devour your newsletters. Needing a saner way to organize my taxes for my preparer. Why does this seem so overwhelming??

Thank you for the deduction list in advance. Hoping this helps. One thing I would love is a checklist or 'method' that I could use as I begin 'the big receipt sort'. I know there are computer software/programs and am willing to commit to one if I knew what was best for someone like me.

Thank you!
Lou Ann
WayAppleton, WI

Hi Lou Ann,

Way, way back when computers took up almost your entire desk top everyone was gung-ho to do their bookkeping on computer. They thought it meant an instant solution to the pile of receipts stashed in the shoe boxes. Well, doesn't work that way. A computer program doesn't work if there isn't a manual system first.

My manual method is The Most Simple System. Clients have been using it for decades. It works regardless of amount of income. It's simple. It misses no deductions, It does not require a computer. Your tax preparer will love the results. It will take her less time to do your return so her fees may be less.

I've put the entire system into a 75 page PDF that includes worksheets for your 2010 tax return. It's The Confident Indie: Five Easy Steps. Check it out.

Best,
June

An Etsy seller asks: Bought in 2009 can I deduct in 2010? Yes.

2011-03-01T08:58:00.008-07:00

Hi June!

I am just starting out with an online crafts store through etsy.

Your website is very helpful--answering questions I had and didn't know that I had! I got your list of deductible business expenses, and I think I probably know the answer to this, but wanted to check: Can I deduct the purchase of my computer from 2009 as a business expense?

I have just begun my business in January 2011. Does it have to be an expense purchased within 2011 to claim on my 2012 taxes?

Many thanks,
Michele
Colorado Springs, CO

Dear Michelle,

The years in your question are a bit confusing so just to be clear: What happens between January 1, 2010 and December 31, 2010 are all part of your 2010 tax return. Even though that return is not completed until 2011 it is your tax return for 2010.

Yes, you can deduct something you bought in 2009 on your 2010 tax return. Here's how it works:

Let's say you started a new business on January 1, 2010 and needed a computer. You bought a used MAC from the guy next store. Paid him $3000. He had paid $5000 for it new a couple of years ago. You get to deduct the $3000 computer purchase.

The same holds for equipment, supplies, a library, etc. you already have prior to going into business. Think of it as buying something used from yourself for your business.

So if in 2009 you bought a computer for $2000 and on January 1, 2010, when you became an indie, you could have sold that computer to a willing buyer for $1400, then you have a $1400 computer that you "bought" for your business and you get to deduct that purchase.

This is called converting from personal use to business use. I cover it in my book Self-employed Tax Solutions where Caitlin Caterer goes from cooking for her family to starting an indie business and even before going into business already has much of what she needs .

I wish you success in your new venture!
June

PS: Is that the answer you expected?

No work? You're still self-employed.

2011-02-28T19:11:00.004-07:00

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

2011-02-17T11:58:00.005-07:00

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

2011-02-17T09:03:00.006-07:00

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.

2011-02-15T12:57:00.005-07:00

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.

2011-02-10T08:22:00.000-07:00

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

2011-02-08T11:32:00.005-07:00

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

2011-02-07T12:47:00.004-07:00

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.

2011-02-06T09:51:00.004-07:00

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 !!

2011-02-05T08:26:00.002-07:00

Hi Indies,

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

-- June

Worksheets For Your 2011 Tax Return + Easy Recordkeeping

2011-01-29T09:50:00.006-07:00

.
Fellow Indies --

Here are your Five Easy Steps toward becoming
A Confident Indie.

This is the second edition of Five Easy Steps
and it includes
Worksheets for your 2010 Tax Return
and
Simple Manual Recordkeeping How-to.

Downloadable PDF
62 pages + 13 pages of additional information

For More Info Including a Table of Contents
To Learn More About The Worksheets
How To Purchase

Maze subscribers be sure to check out your discount.

Been told to “keep good records?” … Now you’ll know how.
Ready to tackle your 2009 tax return? … Here are the worksheets to guide you.
Simplify, save time, reduce stress, miss not one business deduction.

Intimidation ... no way.

2011-01-28T11:26:00.006-07:00

I just heard from Annette, a cosmetologist in Santa Rosa, Ca. Annette said: "My accountant knows more than I do about my own self-employment taxes, and I have always felt intimidated by her. I need another tax person/advice! Thanks, Annette"

Let's think about this a moment ... the woman knows more than you do but we can assume that she's not carrying a big club to knock you over the head nor threatening you with expulsion from the swim club. So where does the problem lie?

If your third-grader came home from school and said she didn't understand the teacher but was afraid to ask a question because the teacher knew more than she did and besides the teacher scared her, what would you say? What are the alternatives for you and your daughter?

You have similar alternatives with your tax pro -- a paid professional. You are a professional business woman. You need advice on your taxes and you are paying a pro for advice.

If you have a problem doing that, here's a mental exercise: Put your tax pro in your profession. Get a mental picture of her with the lotions, ointments, steam machine, hot towels and everything else needed for a facial including the 55-year-old customer who asks that you make her look 45 for her son's wedding. A pretty absurd scene when you see your tax pro standing over the customer without a clue what to do next. Keep that picture in mind and maybe the intimidation lessens.

If that doesn't work, bring a friend or business colleague to your tax meeting.

Or, prepare a list of questions on paper and present the list of questions in writing to your tax pro.

And most important: Learn more. Read my blog, my site, check out my book from the library or buy a copy here Self-employed Tax Solutions.

And by all means, remember that you are a professional woman in business. It is your "indie job description" to learn about the business side of your profession.

-- June

There is no limit on the # of years you may have a loss in your self-employed business.

2011-01-18T09:21:00.010-07:00

Hi June,

Since 1980 my husband and I have had two home-based businesses, plus he works from a home office for his job with the state.

We jointly own both businesses. The appraisal & consulting has never lost money and has very low expenses. I haven't done any appraisal or assessment work since 2000 because of health problems, but my husband has continued to do part-time property tax data collection (except for the past two years).

I have been on Social Security disability since 2007, and also worked part-time at a church until May 2009.

I resigned from that position because our middle daughter was diagnosed with terminal cancer. (She died March 8th, 2010.) My own home business, arts and photography, has never made a profit.

During 2009 and 2010, neither of our home businesses were in operation because of the need to care for our daughter and keep my husband's state job going. Now that we have had almost 10 months to process our daughter's passing, we are again trying to work in our home businesses.

My husband's work doesn't create any problems for our tax accountant, but my art & photography business does. I did not sell anything in 2010, and sold under $200 in 2009. However I did continue to purchase some supplies, books and office equipment in 2010. How long will IRS allow me to continue trying to make a viable business? Our CPA thinks she can defend the lack of sales for the past two years, as long as she can prove intent to continue the business. Do you agree?

Thanks for your help.
Cyndy
Jeffersonville, VT

Dear Cyndy,

My sincere condolence for your loss. It is a testament to your strength and resilience that you and your husband are back at work.

There is no limit on how many years you may have a loss in your self-employed business. As long as your goal is to make a profit and you handle your art and photography endeavor in a business-like manner you may have a loss forever.

Here are some posts that give a short explanation as well as an argument for you to present to your tax pro. Your situation is more fully explained in my book Self-employed Tax Solutions.

Self-employment is about credibility.

You must have a profit in 3 out of 5 years: Hogwash!!

Hobby or Business: Are you a professional artist?

Profit Motive: You're OK as long as you want to make a buck.

Best regards,
June

A well-crafted question gets a better answer.

2011-01-03T09:34:00.004-07:00

An article that I wrote recently for

http://nationalpsychologist.com/ brought me many requests from psychologists for my expense list. Some also sent questions. The most frequently-asked question was this one, as expressed here by Dr. David from Santa Clara, CA.

How do I know if I'm paying too much year after year? Thank you.

Hello David,

Your question is similar to my asking you, how do I know if I handle personal relationships well? You wouldn't have enough information to give me an answer.

Am I referring to my relationship with my mother, my kids, my husband, my friends? Do we fight a lot? Have other people noticed and commented? What specific things are on my mind about this? Do I just feel that things aren't right? How long have I felt this way?

With taxes, as in any situation, you need to know the particulars in order to make the right choices, or give correct answers.

I would start by looking at David's last three tax returns. If they were not available, I'd ask what his gross income was last year and what was his net income for that year. Based on his answer I'd ask the next question and then the next.

Dr. David's question is often asked by indies in all professions. You might want to check out this on my website -- How To Ask A Question.

June

What kind of insurance should an indie have?

2011-01-02T10:25:00.005-07:00

Hello June,

How are you? I'm glad to have found your site. It is a great asset to us indies.

I have one question I need to ask. I need indie insurance. How do I go about getting this insurance? Is this general liability insurance or something else?

Secondly, how much does sufficient indie insurance coverage cost? Thanks for your response in advance.

Tameko

Happy New Year, Tameko!

I am pleased that my site is of value to you. Thanks.

Asking how much insurance costs is similar to asking how much will my taxes be? Many factors are part of the calculation.

It depends on the kind of insurance and how much insurance you want. For instance, a policy covering a home valued at $300,000 is probably going to cost less than a policy covering a home valued at $500,000. Liability coverage for a graphic designer who never meets with clients in her studio will be less than that for a massage therapist who actually touches the body.

Insurance covers different assets, liabilities and situations. For instance:

** Liability insurance generally covers injury to another person. For instance, if a client walks into my office and trips.

** Property insurance (often combined with liability insurance) covers damage to someone's property. For instance, you break a window while cleaning it.

** Errors and Omissions policies cover mistakes in your work that impact your client.

** Workers Compensation covers injury to an employee.

** Media Liability insurance will protect you against lawsuits over what you say in your publications.

** Health insurance covers medical costs.

** And the list goes on ... life ... disability ... long term care ...

I think taxes are easy. Insurance is difficult. Think about what you need protection from. Then start by having a conversation with the insurance agent who handles your auto or home or health insurance. He or she may be able to direct you to other insurance agents. Also check with local business organizations for recommendations. I do not recommend NASE -- the National Association for the Self-employed.

More of my posts on insurance are right here insurance .

Also, for those of you who do not subscribe to my eLetter, Ways Through The Maze check out this one #32 for info on the new rules on health insurance deductions for indies.

-- June

Indies Pay Less SE Tax In 2011

2010-12-29T08:42:00.006-07:00

Hi June,

Wondering if the Payroll Tax Cut will affect Indies, too--i.e. will our Self-employment taxes go down for 2011? I think your readers would like to know!

Thanks,
Jolene

Hi Jolene,

"Enjoyed" my morning coffee reading the regs on the new tax act. We in the tax business know it as "Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, H.R. 4853." I would much rather have been reading Harpers or The New Yorker. Or even The Economist.

Anyway, to your question:

For 2011 only the social security rate is reduced by 2% for employees and for the self-employed.

For example, if you are self-employed with net income subject to SE tax, instead of paying $1,530 SE tax, you will pay $1,330.

If you have employees, you must reduce the Social Security withholding from his or her paycheck by 2%. So instead of withholding 6.2% you are to withhold 4.2%,

That means if you pay someone $100 and for Social Security and Medicare Tax you were withholding $7.65 [the employees 1/2] you will now withhold $5.65. The employer's share is still $7.65. The total = $13.30.

Time for more coffee!
June

Sometimes I just have to show the question.

2010-12-09T20:42:00.004-07:00

Hi June Walker,

My name is Copeland and I have a Franchised Cleaning Business and I've been in business for 2 years and my question to you is the food I buy from the Grocery store is that a tax write off.

Copeland
Middletown, DE

Copeland --

Why in the world would you think your food is a business deduction? everybody has to eat.

-- June

Where To Get Health Insurance

2010-12-09T20:21:00.003-07:00

June --

Psychotherapist since 2000. I welcome your comment

After COBRA, where do I find the best health insurance for the Indie???

Kathryn
Rolling Hills Estates, CA

Dear Kathryn,

Taxes are easy. Insurance is difficult! Start by asking for a recommendation from the insurance agent who handles your auto or home insurance. He or she will know the recent changes in your state and which coverage is the best for you.

I do not recommend NASE -- the National Association for the Self-employed.

-- June

Deductible Refinancing Costs

2010-12-09T20:09:00.003-07:00

June,

I was wondering if refinancing a mortgage loan - points, appraisal fee, broker fee, escrow fee. are those deductible?

Thanks,
Justin

Justin --

Non-finance charge costs when refinancing are added to the cost-basis of your home.

Finance charges -- "points" -- are amortized as a mortgage interest expense over the life of the loan.

For instance, a 30 year mortgage refi taking place on January 2 with $3,000 in points gets a $100 [3000/30] mortgage interest deduction per year.

-- June

No Deduction For House-sitter

2010-12-09T19:59:00.002-07:00

June --

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?

Patricia
Toledo, WA

Dear Patricia,

No deduction for the house-sitter.

-- June

Selling A Website or Business Equipment

2010-12-07T17:35:00.006-07:00

June,

I contacted you 3-4 years ago regarding my website business that is a sole proprietorship and 1099s. I have another question. I sold my main revenue generating website. It used to make me money through advertising. I'm going to give a simple rundown to clarify things. Let's say it made $1,000 every year. This was posted with a yearly 1099 by my web sponsor. [I think he means that the guy who paid him the $1000 per year sent him a 1099 stating the income.] However, this year I got a buyer that wanted to pay me $10,000 for it. So I sold it.

My question is: the website includes the domain, website assets, and full ownership of the website. Does that $10,000 become a capital gains tax? Also, I've worked on this website and filed taxes on it since 2006, so does this mean it becomes a long term capital gains tax?

Thanks!
Justin

And another …

June –

I do music composition/instrument sales. Question: I re-sell some instruments and sometimes there is a profit other times a loss. End of the year I have a net loss. Do I owe social security tax [I think he means self-employment tax] on those items sold for profit.

If there is a profit from the total sale of instruments BUT after including business expenses there is a net loss - do I owe social security tax on the profit sales?

Thanks for your time.
Jeff
St. Louis, MO

Hi Guys,

Earned income is money you receive for services you perform or products you sell. It is on your net earned income that you pay self-employment (SE) tax.

Justin, you sold a website. Unless you are in the business of selling websites or domain names the income from that sale is not earned income. It is gain from the sale of an intangible -- can't pick it up in your hand -- business asset. It is long term. It is not part of your self-employed income.

Jeff, you say that you are in music composition and instrument sales. If you write music and then simply sell instruments that you don't use anymore then the sale of that "equipment" is not part of your earned income. You would have a capital gain or loss on your tax return. That gain or loss is not part of your self-employed income.

If,however, you are in the business of buying and selling musical instruments, then they are the products you offer for sale and any income or loss is part of your self-employed income. It is subject to SE tax.

-- June

Your Vote Is Needed

2010-12-01T07:59:00.005-07:00

Hi Indies, a quick note:

Please take a look at my earlier review of The Wealthy Freelancer .

I just heard from author and colleague, Ed Gandia. The book is in the running for the "Small Business Trends Reader's Choice."

Please take a moment to read my review and if you like what you've read, vote for Ed's book right here: http://bookawards.smallbiztrends.com/entrepreneurship/the-wealthy-freelancer/ . Just hit the vote button. It really takes only 2 seconds to vote.

Thanks.
June

Self-employment is about credibility.

2010-11-05T10:23:00.011-06:00

I work with retirement plan advisors to help my clients set up complex self-employed pension plans. In correspondence about a client that I said is no longer self-employed I received the following question from one of those pension guys and decided to bring you in on my response.

Pension Pete asked: So when you say the client is no longer self employed I’m wondering what you mean. In other words, if he delivered newspapers in the morning or sold pencils in the park wouldn’t he be self employed? Isn’t the notion of being self employed more of an intellectual exercise rather than factual (although maybe deductions wouldn’t be allowed if zero net in 2 out of 5 years???)? I am both self-employed and a common-law employee. Although I usually earn a little in my SE practice annually, allowing me to deduct other stuff, even if I don’t have any net earnings I would consider myself to be SE.

I answered Pete: Someone may be both an employee and self-employed. So, yes, he may be an employee of a pension company and legitimately sell pencils as his indie business.

However, self-employment is absolutely not an "intellectual exercise." There are specific IRS regs that determine self-employment. Take a look here for an overview: It's all about relationships: Are you an employee or are you self-employed?

The corporations that are kicking out employees through the front door and then bringing them back in through the rear door as "consultants" are breaking the law. Saves the corporation a whole lot in payroll taxes and benefits -- approximately 25% to 30% of salary. The IRS is trying to crack down on that but not doing a good job at it.

Or, let's look at -- wife earns $300,000 a year at her corporate job. Hubby is into photography. Wife pays for all the expensive photo equipment and the travel to the Amazon, New Zealand, and Peru for nature photo shoots. Oh, says their CPA, Sammy Segar, I think hubby is in the business of photography. Get him to sell a couple photos to friends for a few hundred dollars and we can write off all his photo expenses because he is self-employed. Here we've got a home-made tax shelter -- albeit a fraudulent one.

Sammy's shenanigans damage the credibility of legitimate photographers who happen to have a bad financial year. Why? Because it's much easier for the IRS to go after individuals than to pursue entire companies or industries. And the IRS lumps hubby together with the legitimate wedding photographer, Billy Bridesnapper.

And, any of you who follow my writing know that any 2 or 3 year profit rule is ... well You must have a profit in 3 out of 5 years: Hogwash!!

Cheers,
June

Quicken for Recordkeeping

2010-11-04T17:15:00.016-06:00

June --

From Olathe, KS. ... Automotive Training Consultant ... 20 years as an indie.

What bookkeeping software do you recommend? Or do you recommend using software for bookkeeping. I have the Dome software which works somewhat. Would Quicken be better?

-- James

Hi James,

If you want to keep records on computer then I strongly recommend Quicken. It is the easiest and most flexible of all the bookkeeping software I've used. It was introduced to me by an electrician 20 or more years ago, back when very few indies were using software for recordkeeping.

Since then it's developed a lot of unnecessary bells and whistles. I have not yet used the 2011 updated version. I recommend the basic Quicken Starter Edition 2011. You can always upgrade if you really get into all the added features.

For a guide on adapting Quicken's expense categories to an independent professionals business go to my website and under Places To Visit select Quicken Categories For Indies.

Best,
June

International Freelancers Day

2010-10-28T15:07:00.006-06:00

If your life has been as hectic as mine over the last two months you may have missed the International Freelancers Day Conference. It was loaded with free, yes, free, information for indies.

Here's your final chance to check it out and listen to all the presentations. Really, at no cost. My fellow freelancer Ed Gandia of The Wealthy Freelancer reminds us that:

The presentation replays for "International Freelancers Day" are available for 4 more days only! They'll be pulled down on October 31.

You can access the presentations here: http://internationalfreelancersday.com/full-replay-access . Your password is: replay2010.

And... Just in case you thought that this whole thing was a once-a-year thing know that the teaching, training and learning of "International Freelancers Day" is going to continue - all year long - right up until next year's celebration!

After listening and learning, please also pay a visit to The Wealthy Freelancer . Let me know what you learned from the book. Here's my review of it: The Wealthy Freelancer .

Cheers,
June

Be damn sure you know what you're doing and why BEFORE you incorporate.

2010-10-25T09:44:00.008-06:00

June --

I live in Columbia SC, I'm 68 years old and may never be able to retire but thankfully my health at this juncture is not an obstacle to working as a 100% commission salesman. Would you comment on a 1099 person incorporating as a business advantage and whether there is is any advantage to doing so in Wyoming or Nevada as websites in those states strongly suggest.

If there is a reference or a site that elaborates on this would you refer it to me.

John

Hi John,

I assume you are asking because of tax consideration not liability concerns. No matter in which state you incorporate the federal tax laws and regulations and requirements are the same.

States differ on laws and regulations and requirements. For instance, there may be no state tax, lower fees, and less oversight in some states.

Before considering incorporation you must first look at whether or not you are taking advantage of all the business expense and heath insurance deductions and pension contribution plans available to a sole proprietorship.

If you are taking full advantage of being an indie -- which, if you haven't read my book, Self-employed Tax Solutions, I assume you are not -- then you need to compare the cost of incorporation, the accountant fees for preparing corporate tax returns, the hassle and abundance of a more elaborate recordkeeping of finances as well as corporation activities against the amount of state taxes saved.

And, keep in mind: As states struggle in the current economy today's tax rates may not be tomorrow's rates.

If you are going to incorporate be damn sure you know what and why you are doing it. After you've spruced up your knowledge on indie taxes then read my posts on incorporating.

And a request of you and anyone else sending a question to me: Please send me the link or the source of your info.

Best,
June

Everybody's got to eat.

2010-10-21T17:50:00.008-06:00

Hi June,

(Things are going well using your system, keeping everything organized for my indie tax preparer at year's end. Although I did break down and open a free business checking account because I didn't want to be paying vendors from the joint, home account. Still, I figure it's the tracking and not the checking account that is going to matter.)

Here's the question for the blog:
I'm confused on where to categorize costs for luncheons that I attend for service organizations (i.e., Kiwanis) and professional organizations. I know the memberships are deductible, but how to classify the weekly meeting costs?

Also, in general, can one categorize fees for attending any networking events - where meeting people for business leads is the objective - as an advertising expense?

Thanks - Ron in Long Beach, CA

Hi Ron,

Good. Happy to hear that you are following through with my recordkeeping system. I love success stories. And you are correct: It's the tracking not which checking account that matters.

When attending a business meeting where lunch is served you cannot deduct as a business expense the cost of your lunch. Were you to pay for the lunch of a a business colleague as well as for your own then you would be allowed to deduct the cost -- but only 50%.

The reasoning from the IRS: You'd be eating lunch anyway so the cost of your lunch is not really a cost of business.

Fees for any networking event can be categorized as advertising; or as dues if you pay a yearly fee. Remember to include transportation costs to and from the event.

I see from your site that your business works with local and community policy. You might want to take a look at the piece I wrote for New Mexico Business Weekly on deducting lobbying expenses.

Best,
June

To barter is to earn & spend.

2010-10-21T15:23:00.004-06:00

Hi June,

I've been reading your newsletters. We are having a debate on whether I, as a sole proprietor, have to declare a barter.

I understand I cannot make a donation claim, but do I have to declare a trade on my state and federal taxes? Does it make any difference if I trade time vs trading a $$ amount?

Thank you in advance,
Susan

Hi Susan,

A barter, whether in time or service, is income. Whether you're a sole proprietor, partnership, or corp doesn't matter. I am not sure what you mane by "donation claim" but let me give you a little more info on bartering.

Self-employed income is compensation you receive for a service you have performed [your time]or a product you have provided. Does the source of the income matter? No; it could be paid by your sister or the Government of Egypt. Does the form of payment matter? No; it could be cash, or check, or you could be paid in camels.

Here's an example: Syd System receives two massages from Rob Rolf in exchange for setting up the massage therapist's computer. The fee generally charged by Rob the masseur, let's say $200, is the amount Syd the IT consultant reports as income.

Likewise, Rob shows $200 in income and also $200 computer expense.

Each of these transactions results in income for a self-employed person. Don't be fooled into thinking that because the payment you receive is out of the normal course of your business or is not in good ol’ American currency that it is non-income. However unorthodox, it is still self-employed income.

Rob had income equal to an expense, however, his gross income may be subject to state tax and so he must include it on his tax return. before the deduction of expenses.

Now you know the rule. End of debate.

June

Forced to incorporate is a quirk of the company.

2010-10-20T12:23:00.008-06:00

Hi June,

I'm a New York City Indie Sound mixer for TV, 10 years. Thanks so much for your very informative web site.

I'm so confused this is the second company that has sent me an email with this content. "Hi Sheila, Helen forwarded your invoice and w-9 form to me – however, we cannot pay you via a w-9 form. Because you are not incorporated, we need to pay you via a w-4 and withhold payroll taxes. You will be issued a w2 for 2010 tax reporting purposes. We are obligated to follow the instructions of New York State Department of Labor. Please complete the attached, including a signature and a withholding exemption amount on line 5. You may email it back to me, mail, or fax." I have not sent a reply to this request.

I am wondering if i should incorporate (which you don't suggest). Some years ago I used a DBA. I could I use the name I used then to get a tax id number and set up a bank account and ask this company to issue me a 1099 to the DBA?

If all my vendors start doing this will I lose my ability to deduct.

I welcome your comment.
Sheila

Hi Sheila,

If you are legitimately self-employed then there is no New York state department of labor law that says you must incorporate or you must be an employee. That demand is a quirk of the company.

Here's my post with good overview of the requirements for self-employment: Employee vs. Self-employed. And here's a post of someone in a similar situation: Forced to be an employee!

If the company will accept a federal ID # or a DBA [doing-business-as meaning a name other than your own] or even an LLC then by all means do one of those rather than work as an employee or even more cumbersome and expensive, forming a corporation.

Would be great if you could get me a copy of the instructions of New York State Department of Labor that Helen says they are obligated to follow.

Pleased that my site is helpful. Thanks for letting me know.

-- June

Income is what you actually receive.

2010-10-20T12:12:00.004-06:00

Hi June,

I have been a self employed massage therapist for three years. My question is, I just ran a promotion with a local company. The company sold vouchers of my services for 50% off my regular rate and I get 50% of the sales.

How do I write this off on my taxes at the end of the year?

Jessica
Boylston, MA

Hi Jessica,

Congratulations on setting up promotion.

This is a simple situation. The discount or coupon has no impact on how your income is taxed. If you generally charge $100 for a massage and instead, with the coupon, you now receive $50, then your income is $50.

-- June

Learn how to deduct medical costs as a business expense.

2010-09-30T08:52:00.016-06:00

Hi June,

I'm a software/controls/simulation engineer. Indie for 6 months.

Your web site has been a fantastic resource for me. Thank you. I read recently about deducting medical expenses and I contacted TASC about setting up a plan, which I expect will save me a good chunk on taxes.

I wanted to let you know your link is not working on your page http://junewalkeronline.com/index.asp?sPG=80.

Here's a link that works: https://www1.tasconline.com/buytasc/bizplan/page/whatisbizplan.

Thank you for the great web site !

Regards,
Rob
Pleasanton, CA

Hi Rob,

The guys to talk with at BizPlan are John Gill and Marino Alcorta-Narvaez.

How much you'll save depends on your total medical costs. There have also been some changes due to the new small business tax act that may have an impact on medical insurance deductions.

Thanks about the link -- been fixed -- and for your generous comments about my site.

Please let me know how BizPlan works out.

I just signed with Xynergy to develop my a new website and online marketing. Hope to have things up and running by Christmas or earlier. As a one-person info source I need to figure out how to spread the word more efficiently.

-- June

Indies: Stand up for yourselves

2010-09-27T15:26:00.006-06:00

Hi again, June,

Well, today is a big indie day, isn't it? The President signed the Small Business Jobs Act.

But I, for one, am confused about capital expenditures vs "bonus depreciation".

I am a consulting psychologist in private practice [for 25 years], and was going to buy a new computer. I seem to remember that the IRS has had a maximum amount of business expense you can write off all at once, as opposed to having to depreciate it. I have always depreciated my computers/printers, etc. How does the new law affect us indies?

Can I now write off the whole thing in one tax year?

Thanks,
Mark
Fairfax Station, VA

Hi Mark,

I gather you are the same Mark who sent me this Q&A Software Cannot Replace Experience a while ago. And, I gather you did not take my advice -- still doing your own tax return. Right? Big mistake unless you absolutely cannot afford a pro or there is not one available to you.

You can write off the cost of your entire computer as long as the cost was $250,000 or less. You get a better deduction if ,instead, you take advantage of the bonus depreciation feature. However, the deduction must be spread out over time. Which method is better for you depends on your entire financial picture at the moment and predicted for the future. Which is why you need a pro.

Go back and read that experience post of mine. Please. I think it might save you some money.

And while you're reading I suggest this one too, What's a small business? Yes, it is an important day for small business. Could have been a lot more important had we had some more congress people willing to help the likes of you rather than the likes of those who make a lot more money than you.

I don't know yet how the new Small Business Act will impact indies. Once it's signed it then must be interpreted. Then the interpretation must be understood and agreed upon.

Indies, please pay attention to who votes for what and who advocates for which kind of tax change. That you can now deduct 100% of your health care costs and may deduct for a home office as well as have another work location are tax changes that came about because of the work and attention of your fellow indies.

You are 40 million strong. You have the power and the clout.

-- June

What's the difference between a tax bracket and a tax rate?

2010-09-15T16:25:00.012-06:00

We are all hearing a lot of hype about tax cuts and tax hikes for the middle class, for the rich, for everybody, for nobody.

But, has any pundit or pol explained how taxes work? No. No more than anyone explains what is a small business?

So here's something with which to regale your friends at the next cocktail or tea party -- a little tax savvy.

What’s your tax bracket? It's the same thing as your marginal tax rate. As your taxable income increases so does your federal income tax rate. The rate at which you end up is called your tax bracket. Another term for tax bracket is marginal tax rate.

Tax bracket and marginal tax rate both mean the percentage at which your next dollar of income is taxed. If you’re in a 15% tax bracket, for instance, on the next $100 of taxable income you will pay $15 in income tax. If in a 28% bracket, then $28 of the next $100 taxable income will go to the Feds.

Advancing to a higher tax bracket does not mean that all your taxable income is taxed at the higher rate. It means that any income from that point on is taxed at that rate.

Gross income, age and filing status -- married, single, widow(er), etc. -- determine whether you must file a tax return.

Taxable income is what's left after all deductions have been subtracted. Taxable income determines the rate at which tax is paid

Let's look at Gary Graphic -- single, owns a house, gives a lot to charity.

Gary grossed $250,000 in his design business [Wow! that's a lot.] After deducting business expenses his net income for the design business was $195,000.

Among the deductions from the $195,000 were Gary's self-employed pension contribution, mortgage interest, real estate taxes, and charitable contributions. After all subtractions he had $100,000 taxable income.

Here's how his tax is calculated:
The first $ 8,350 …… is taxed at 10% = $ 835
the next $ 25,600 ….. is taxed at 15% = $ 3,840
the next $ 48,300 ….. is taxed at 25% = $12,075
the last $ 17,750 ...... is taxed at 28% = $ 4,970
Total Income: $100,000 Total Tax: = $21,720

Gary is in a 28% tax bracket. That is his marginal tax rate.

Gary's real tax rate -- we tax pros call it his effective tax rate -- is: just about 22%. Meaning that about 22% of Gary's taxable income went toward federal income taxes.

How did I get that: Divide 21,720 by 100,000

Keep in mind that in this example Gary started with $250,000 income. The tax talk about taxing the rich who make more than $250,000 is not about Gary or most of you unless you are one of the top 3% earners in the country.

If Danworth Design's taxable income were a half million dollars his federal income tax would be $152,684. That is a little more than 30% of his taxable income.

End of today's tax lesson.

June Walker

What's a small business?

2010-09-14T21:29:00.008-06:00

Indies, you know that I frequently tell you that you are a business. That you must think like a business. That you must have an indie-business mindset. You also know that your business is small. Your business may be you and only you. You may call yourself a "small business" because you are.

There’s lots being said right now about tax credits, tax hikes, what’s good and what’s bad for small business.

Well, what exactly is a small business?

I think it will come as no surprise, that there is no "exactly." Let me give you some examples from our ever-present source: The IRS.

If Caitlin Caterer, who has three women working for her, or Lorenzo Landscaper, who has a couple guys help him out, were looking to take advantage of the "health care credit for small business," they’d qualify because, for this tax credit, small business is defined as any business having 25 or fewer employees.

If graphic designer Victor Visual wanted to carry-back the business loss he had this year in order to recoup some of the taxes he paid in previous years he’d be allowed to do that as long as his small business had gross income of not more than $5,000,000 per year over the last three years (yup, that’s five million dollars). Doesn’t matter how many employees Victor has as long as he didn't gross five million dollars.

If Sid System wanted to set up a medical savings account for the two techies who are his employees he’d be allowed to do that. Why? Because for the Archer medical savings plan the definition of small business is 50 employees or less.

And then there’s a whole lot of other “definitions” of small business. And this is where size really counts.

Based on the North American Industry Classification System (NAICS) the following are considered small businesses if their income is equal to or less than:
agricultural industries ---------------- $750,000.
heavy construction industries ----- $33,500,000.
trade contractors -------------------- $14,000,000.
retail and service industries -------- $7,000,000.

Or their number of employees is equal to or less than:
for most manufacturing and mining industries -- 500. employees
for all wholesale trade industries ----------------- 100. employees

(For complete list of size standards, see the Small Business Administration's Table of Small Business Size Standards.)

So indies, please be careful when people with an agenda throw around terms that have different meanings.

According to the IRS, in 2007 [most recent statistics available] 94% of businesses were S-corporations, partnerships, and sole proprietorships. I don’t want to boggle your mind but all those business entities pay taxes at the individual tax rates. Yes, that is so.

I’m a sole proprietor. I pay tax at an individual rate. If I hook up with another accountant and we form a partnership and split the profit, then we each pay tax at an individual rate. The same would be true if we formed an S-corp.

Randy Neugebauer, a Republican who represents the 19th District of Texas, as a guest blogger of Townhall.com, wrote on July 29, 2010, that "Ninety-four percent of small businesses will face higher taxes under the Democrats' plan."

Randy is using 94% to confuse us. You and I are part of the 94% of small businesses out there. So is just about everyone who visits my site. And! Most of us do not have at least $250,000 in taxable income.

I see Randy as intentionally muddying the water. Some may say it’s a lie. The Democratic plan is to keep individual tax rates as low as they currently are, except for those individuals with taxable income over $250,000.

Unless Mr. Neugebauer refers to small businesses such as retail manufactures with gross receipts of $7-million or trade contractors with a gross of $14-million he is deliberately misleading indies.

Indies send me lots of questions about the fear-instilling emails they receive that threaten tax hikes that will wipe them out. Don’t listen to that propaganda. Tell your indie colleagues not to be terrorized by this intentional misrepresentation. Get more information.

June Walker

Stage Mom -- sort of -- asks the questions for child model

2010-09-05T16:44:00.006-06:00

Ms. Walker,

I bought your book Saturday night (Self Employed Tax Solutions - 2nd Edition) and highlighting stuff as I go, LOVE IT!!!!! I am only on page 52, soaking up every word you say!
Great to know. Thank you.

I HAVE TWO MAIN QUESTIONS:

I am in a really strange situation and can find ABSOLUTELY NO BOOKS ON THE SUBJECT MATTER! I have a daughter who is 13 and studying to be an actor/model. All the contracts we have signed say she is an "independent contractor". I understand that means she is responsible for own taxes, at the age of 13. ??? Yes.

Okay her taxes? or my taxes? Her taxes.

If she does a job for a client, the client pays the agent, the agent pays my daughter and then daughter has to pay a percentage (as stated in our contract) to her talent manager. Is there book on this stuff? Not sure what you're asking. If you're asking is there a book on this subject. yes, mine. The one you are reading. Your daughter is self-employed.

If you are asking about expenses, then the payment to the talent manager is a business expense against your daughter's self-employed income paid to her by her agent.

Holy cow! My head is spinning. This is our first year and how no idea what to expect when tax season rolls around.

And since I am paying the Talent Manager a commission, no taxes removed, is there something I need to worry about there? Your daughter, that is using her name and social security #, must send a Form 1099 to the talent manager at year-end. Here's some info 1099s W2s W4s W9s .

And are they deductible in the year occurred or year actually paid, When paid because your daughter is a cash-basis taxpayer. Read this post Cash vs Accrual Recordkeeping .
as most of the work here in South Florida is done October through March.

If for some reason she gets no work this year (2010) and I am told most of her work will probably be in January (2011), do I have expenses I can deduct? Yes. 2010 expenses are deducted in 2010 even if there is no income.

I am keeping records best I can but now after reading only half your book, I see I missed a lot of expenses - DUH! Keep on reading.

Thank you.
Annette

Annette, you had many, many more questions. Stop spinning. After you've finished reading my book, go talk with a tax pro. Ask your daughter's agent or talent manager to recommend someone.

Best,
June

Lots Of Travel Expense Info

2010-09-05T16:19:00.009-06:00

Katie had requested my Self-employed Business Expenses list. On the request form I ask: Where do you get most of your tax advice? Katie's response was "I don't... :( "

My response: "Please don't say 'I don't ...?' Your homework: Read my site or blog 15 minutes a day!"

I advise that to any indie who doesn't get any simple and accurate tax or recordkeeping advice.

Katie sent the following:
Thank you so much for all the information you have provided me! I've been reading your site everyday for a good 15 mins... or more!

I'm still confused on travel expenses for my field of work. As a free lance stage manager, I often go to other cities for weeks at a time. (Mobile, AL for 4 weeks, Tulsa, OK for 9 weeks, etc.). They often house me, but I drive there and around the city as well as provide my own meals when out of town. There usually is not much or no kitchen available to me and I end up eating out most of my time there. Can I deduct my mileage while I am there and driving around? Also, am I allowed to take the IRS per diem? I was unclear what exactly I am able to deduct while I'm out of town.

Thanks for any help that you could provide! (I'm working on getting your book at the library and look forward to reading it!)

Katie
Shawnee, KS

Dear Katie,

Take a look at these posts expenses expenses -- travel (17) and these expenses -- travel-per diem-temporary worksite (10) . I think you'll find you answers there. If not please let me know.

-- June

Writers, beware: A royalty is different than a royalty.

2010-09-04T18:17:00.005-06:00

June,

Thank you for your wonderful book. It has been a useful resource in the past year since I purchased it.

I am writing to you with a question I hope you can answer. Early this year, I published my first book. I am receiving royalty checks for the book this year. I am also working on another book (no advance or payment for the text--I'll just get royalties for that one too).

I have been an indie for many years first as a performer and more recently running a martial arts school, but writing is new for me.

I am quite puzzled about how to report royalty income. The IRS schedule E is for reporting income from royalties. However, there is a single sentence in the instructions that says "if you are self-employed as a writer, report your royalty income on a schedule C instead." My question is, what standard does the IRS use to determine if I am self-employed as a writer? On the one hand, it seems that anyone who is receiving royalty income from a book is, sort of by definition, self-employed as a writer. Is the difference whether or not I write off my writing expenses as business expenses? Is the difference whether I have another stream of income? This point has me quite confused, and it seems likely that it could make a difference of hundreds if not thousands of dollars in my tax liability, since schedule C income then gets reported on a schedule SE, whereas schedule E income does not. Any feedback you have on this would be most welcome. I welcome your comment.

Jonathan
Saint Paul, MN

Hello Jonathan,

Congratulations on getting published!

My "wonderful book." Oh, how I love to hear that. Thank you.

I don't usually get into tax preparation and tax forms on my blog but because so many accountants screw up on just the question you ask I want to address it here and alert writers to know at least this much about the actual preparation of their tax returns. So here goes:

How much income you make, whether you have other income, whether you write off expenses -- none of those come into play regarding the classification of royalty income. Read these two examples.

With a very little amount of money a regular Jon or Jane could invest in an oil well. Many do through their investment brokers. Many who do don't even know that they've invested in an oil well. At year end they get a Form K-1 from the oil company that says, hey Jon, you made $700 in royalty income. That royalty income goes on federal Schedule E. John didn't do anything to get that $700 other than invest some money.

With a whole lot of blood, sweat and tears Jon writes a book. It is published. Jon's publisher receives the money from the sales of the book. Then the publisher pays Jon his portion of that sale income. At year-end Jon receives a Form 1099 saying that Jon made $700 from the sales of his book. That income goes on federal Schedule C. Because Jon worked his butt off for two years writing the book that royalty is self-employed income and Jon will pay self-employment tax on whatever is left of that income after business expenses are deducted.

Royalty income from a publisher is the same kind of income as a fee for writing a magazine piece or a column for a blog.

The same applies to musicians who get a royalty on their compositions.

It's all self-employed income. Be sure your tax pro treats it as such.

Best,
June

Easy Recordkeeping

2010-09-03T20:11:00.004-06:00

Hi June,

I live in Philadelphia, PA. I'm a calligrapher and journalist and I've been an indie for 5 years (and I'm originally from Santa Fe!)

I wanted to ask about the worksheets you provide on your website. What format are these in? Excel? PDFs?

Are they meant to replace an accounting method or are they intended to use at the end of the year for tax time?

I'm having a hard time finding simple accounting software and was wondering if you have any suggestions for Excel spreadsheets (other than me making my own). I was going to go in any copy the system you suggest in the book but I just wanted to make sure these sheets don't already exist for purchase.

QuickBooks is just way too complicated for my needs...

Many thanks,
Mara

Hi Mara,

Just returned from vacation in Jemez Springs. Being an ex Santa Fean I assume it's an area you know And, BTW, my daughter lives in Philly.

I am not sure what you refer to when you say worksheets that I provide on my website. On my site I offer for sale my 2010 manual recordkeeping how-to guide:The Confident Indie: Five Easy Steps. It has my worksheets in it.

Five Easy Steps shows indies the most simple way to keep records -- manually. In the 75 page publication are the worksheets which I developed over more than 20 years of working with indies.

The worksheets are PDFs; they are not in Excel. They are your means of presenting your self-employed tax information to your preparer.

Accompanying each worksheet, if necessary, is a description or instructions. Some of the worksheets follow the format of an actual IRS form but modify it in such a way as to make it more understandable and useful to you and your tax preparer.

First comes the recordkeeping; then come the worksheets.

Excel is not a recordkeeping program. It is simply a spreadsheet. Just like those old systems that had you putting things in little boxes then adding them up. Excel does the addition for you. It does nothing more regarding recordkeeping.

I agree with you, QuickBooks is too complex. It's for professional bookkeepers and accountants. It's a double entry system not for the layman. If you want to keep records manually, I strongly recommend you buy Five Easy Steps and follow my Most Simple System method. If your want to keep your records on computer I highly recommend Quicken -- just ignore all the latest bells and whistles. As one of my Learning Tools I did have a pub on adapting Quicken for indies. [Quicken is really is for W-2 people and small businesses.] However, it's out of date re the Quicken version I reference and I haven't yet revised it.

Hope that helps. Please let me know.

Best,
June

You are what you speak.

2010-08-13T16:18:00.032-06:00

Dear Indies,

I think you all know that I don't applaud tax pros who speak a specialized tax jargon that leaves the indie puzzled and frustrated. Or as a Russian friend used to say: "Lost in a dark forest."

Well, it's not just tax pros who are guilty of using goobledygook that is meaningless and incomprehensible to the layman. What follows is my response to an email I received from Rackspace. Rackspace is what I use to get my email smoothly moving in and out. It's my host but what else it does exactly I am not sure.

It is obvious from Rackspace's emailed announcement that it wants to tell the world about its new accomplishment. The problem is that I, and my guess most other non-IT indies, don't even know what that accomplishment is or what it means to me.

Here's what I wrote to Rackspace. The original email from Rackspace is below my response. Please let me know if you'd like to see Rackspace's reply.

Hello Rackspace,
I am a layman. Well, a layman re web-tech stuff, however I am a tax expert. Am I, as a layman, supposed to understand the meaning of the announcement emailed to me from the Rackspace CEO?

Here are some examples:
-- open source cloud platform
-- cloud interoperability
-- drive a deployable totally open cloud solution through this project
-- proprietary or closed platforms that create lock-in and make migration difficult

You posit: What does this mean for our customers?

"Customer" that would be me, a Rackspace user, right? Well, I don't have a clue what the following bullet points mean.
** No fear of lock-in.
** Flexibility in deployment for a highly elastic commodity cloud.
** A bigger, more robust ecosystem for more tools, better capabilities and a stronger platform.
** Freedom to decide how you want your cloud. (Freedom. Oh, wow! I can't wait.)

I write about taxes. My job is to make complex tax regulation understandable to self-employed IT people, for example.

Did any of you guys ever write for the general public? I use different jargon when speaking with fellow tax pros than I do when talking taxes with my clients. Careful I'll throw some tax terminology at you and you won't have a clue. Then you'll understand what I'm talking about.

I am copying this to some tech people who work for me. One of whom recommended Rackspace. Pass the word that it's important to be able to speak the language of your customers.

Best regards,
June Walker

Dear June,
Today is a big day for Rackspace® Hosting. We announced a new project that we believe will change the way the cloud is developed and it's called OpenStack™ – an open source cloud platform designed to foster the emergence of technology standards and cloud interoperability. In short, we will be opening code on our cloud infrastructure for public use.

The initial components being released through this project include the code that powers our Cloud Files (available today) and Cloud Servers (expected available late 2010). This project will also incorporate technology provided by other open-source projects. We expect to be joined by leaders in the technology industry and others to drive a deployable totally open cloud solution through this project.

Why are we doing this? Historically, most cloud offerings have been built on proprietary or closed platforms that create lock-in and make migration difficult. With OpenStack, any interested party – including our peers, Solution Partners and customers – will be able to collaborate with us to author, improve and expand OpenStack technologies.
What does this mean for our customers and Solution Partners?

No fear of lock-in
Flexibility in deployment for a highly elastic commodity cloud
A bigger, more robust ecosystem for more tools, better capabilities and a stronger platform
Freedom to decide how you want your cloud

OpenStack is an innovative, open-source cloud computing solution for creating, managing and deploying scalable elastic cloud services. Through the ongoing development of this project, we will be able to drive greater industry standards and help increase the speed of cloud innovation. As the leading specialist in the hosting industry, it is simply our responsibility.

In addition, we look forward to bringing enhancements made to the OpenStack project to our own product offerings in the future.

We are excited about this new chapter in Rackspace history and even more thrilled that you are able to share it with us. If you have any questions, please contact us here.

Don't abandon sole proprietorship. There are many benefits.

2010-08-12T12:55:00.000-06:00

June --

I am a Computer IT consultant 4 years. Just came back to being a contractor again after several years of W2. I have a TIN and a name but never did the LLC. At age 60 I am most interested in what structure will allow me to put away the most retirements money and allow me to deduct my HUGE monthly health insurance premiums.

Thanks,
Jeri
Eden Prairie, MN

Dear Jeri,

You have a "TIN." For the acronym-averse, that a Tax Identification Number. Also known as an Employer Identification Number [EIN] or Federal Identification Number. They all refer to a business's identification number, similar to a person's social security number. [There are other purposes for an EIN.] More on tax ID numbers here EIN-employer identification # .

An LLC is a Limited Liability Company. There's a lot of info on LLCs right here business entity -- LLC. Did I say a lot? Well, yes, really a lot. Read those posts. In them you will learn that an LLC is a legal way of forming your business. An LLC does not determine tax structure as does a corporation or a partnership or a sole proprietorship.

The pension laws were changed a while back so that now a sole proprietor has more of a choice on pension structure than does an employee. For instance, you may choose a Defined Benefit pension, that will allow you to contribute enormous amounts to your pension. Example: $100,000 contribution on $350,000 net self-employed income. A more modest and more flexible plan is a UNI-k. Think of it as a one-person 401-k.

Health insurance premiums are deductible as an adjustment to income whether you are a sole-proprietor, partnership, or S-corporation. Deducting them as a C-corporation is a bit different.

Think things through carefully, and get as much accurate information as you can before you abandon the advantages of self-employment for a different structure.

Best,

June

Tax & Marriage

2010-08-10T13:29:00.005-06:00

Hi June,

I attended your session at CFC last year. I'm a Chicago graphic designer (sole prop) and have been in business for 10 years. I recently got married and am wondering if you have any specific advice regarding how to approach taxes now that I'm married (I checked your website but didn't see anything relating exactly).

Thanks for any insight you can offer!
lidia

Hello Lidia,

First, let me wish you joy and happiness and good wishes on your marriage.

Assuming you and your husband do not work together in your design business then marriage has no impact on your sole proprietorship graphic design business tax, per se.

However, being married may have a profound impact on your overall tax. For instance, a married couple with taxable income of $100,000 will pay less tax than a single person with $100,000 taxable income. Yet, two single people each with $50,000 taxable income may pay less tax than a married couple with $100,000 taxable income.

As I explained here Taxes: Which ones and how much do I pay? and here Estimated Taxes your tax is based on yours and your husband's entire income and deductions. That includes earned income, investment income, medical deductions, etc.

-- June

Sales tax regulations vary by state.

2010-08-06T15:31:00.013-06:00

Hello June -

Robert from Sir Roberts Furniture Restoration,Repair and Design, Stow Ohio.

I am on your e-mail monthly list and appreciate all the information you provide.

My question, I restore antique pcs. build and repair furniture. What is the rule on charging sales tax and or reporting sales tax. Why for the question. I network with several upholsters in when they provide services they do not charge me sales tax on the work they complete. What is the rule for charging sales tax when completing work to a customer. Thanks for your time.

Dear Robert,

Happy to know my information is helpful to you. Thanks.

Every state has unique sales tax regulations. Some states have no sales tax. Others have a gross receipts tax. In New Mexico the rate changes depending on where you live.

Some charge for out-of-state purchases. Some do not.

Get the idea. No state is the same. You need to contact your state, county, city. And make sure you do. Since all the governments are hurting for money many are enforcing payment regulations with a vengeance. Be careful.

BTW -- the same applies to licensing and zoning laws.

-- June

Sometimes it takes a while to get it.

2010-08-04T20:15:00.002-06:00

Alana from Oakland, CA in commenting on Tax Savvy Indie Saves $850 Because Of Reimbursed Expenses On Her 1099 said:
Nice! Thanks again for the helpful posts that led me to that. I dropped my amended return in the mail last week, so I think I'm all set. Hopefully my story in turn helps a few others. Sometimes you have to hit people over the head with 10 examples of the same principle before they get it. :)
thanks June!

You're welcome, Alana, and thanks for getting back to me. You'll see from my blog that my schedule has been wicked so apologies for my late response.

I think that when something comes at you from an alien field -- maybe, financial jargon to an artist or tech talk to a plumber or explanation of a painting's composition to a realtor -- it takes a while to grasp. Reimbursed expenses are a good example. Of all the questions I get it's that topic that currently heads the list of most frequently queried.

Often something must be explained several times in different ways in order to be really understood. That's the job of the teacher -- to be understood. The student must keep on asking questions until he or she understands. Doesn't matter if the teacher is the one you had in third grade, or your physician or your tax pro.

Thanks again for the update.

Best,
June

Oh, the hype ... lies ... and edited video tapes

2010-08-03T09:12:00.006-06:00

June --

I am a writer that is still having a time finding a tax person with your indie point of view. But the good bookkeeping I have learned from you has been a plus. Can I get your updated version of biz expenses?

Also, I am hearing that massive tax increases are coming in January 2011. Can you please post what these tax increases are on your blog as you can? This would really help in my monthly bookkeeping.

Thank you, Donna
Lakewood, NM

Hello Donna,

Thanks for letting me know that my advice is a help. Expense list sent a while ago so on to your question.

So many indies write me and say that they heard such-and-such but they don't tell me where they heard such-and-such. Aunt Tillie? A CPA? The yoga teacher's husband?

And I must tell you that just about all the such-and-such is hogwash. As is what you heard.

Anecdotally, I have seen taxes go down for my clients. The refundable and non-refundable credits available have increased. The reading I must do to keep up on the new tax breaks is daunting.

And, it's not just my experience. The Center on Budget and Policy Priorities says that: "This is the second-lowest percentage in the past 50 years."

I am so pleased that you asked before acting. And, as my husband the former reporter always says: Check your sources then check them again.

Best,
June

Tax Savvy Indie Saves $850 Because Of Reimbursed Expenses On Her 1099

2010-07-11T16:13:00.021-06:00

So many of you continue to have questions about reimbursed expenses and I've written so much about them that I thought you'd like to see a really positive response from a California indie. Here 'tis:

Hi June,
I live in Oakland, CA and I worked for about three years as a freelancer for various online outlets (I'm now a regular employee). I just wanted to thank you for your very helpful posts about 1099s and reimbursable expenses!

In 2008 I was missing the 1099 from one of my clients, so I filed my return with an estimate of my income based on my pay stubs. Just now I got a notice from the IRS because the 1099 info they received had about $2k more income than I had reported. I went back to my files (thank goodness I kept very good ones!) and realized that the discrepancy was exactly accounted for by my expense reports that had been reimbursed.

At first I was mad at my client and was going to demand that they revise the 1099 to exclude the reimbursed expenses. But luckily I first read your posts explaining that the client is allowed to do that and it's MY burden to separate out how much is income versus reimbursed expenses. So I'm going to file an amended return reporting the larger amount of income from the 1099 and deducting the expenses on Schedule C. Even though some of the expenses are meals/entertainment, I'm going to include 100% of the amounts in order to properly offset the income amount from my 1099 -- as you said, the client is the one who paid the expenses, so they are the ones responsible for making sure only 50% is deducted (the instructions for Schedule C explicitly say this on page C-7!).

Since I guess the mistake is my fault, I will probably still owe some money in interest, but at least I won't have to pay the $850 the IRS was saying I owed! I know all I did just now was regurgitate the info that you already know well and have explained in past posts... but I just wanted to drop you a note, hoping that you might get some satisfaction from knowing that you helped another person understand their tax situation!

My only fear now is that filing an amended return will flag me for scrutiny and I may get audited because of other unrelated deductions I took... fingers crossed for no more letters from the IRS!

-Alana

Wasted Time = Donated Time = No Expense Deduction

2010-07-11T13:20:00.010-06:00

Hi again June,

You were nice enough to answer my question on your blog a year or 2 ago, so I'm back with another that I hope you can help with.

I have a small consulting psychologist practice in Virginia; I help the State determine whether or not disability claimants are medically eligible for SSI benefits. The biggest occupational hazard I face is people who don't keep their appointments. I work in 2-hour blocks, and when they don't show, the state government, with whom I contract, pays me next to nothing for my trouble.

Question: can I write off the difference between the little the State pays me for those "no-shows", and what I WOULD have been paid if the patient HAD shown up, as a loss? If so, I have 25 years of amended tax returns to work on.

I realize that this may be a tax attorney question, but I thought the answer might benefit your readers.

Thanks,
Mark
Fairfax Station, VA

Dear Mark,

No tax attorney needed. This is one of those really-easy-to-answer questions with a you're-not-going-to-really-like answer.

Your time is not an expense and so it is not deductible. For tax purposes wasted time is treated the same as donated time. Check out my posts on the topic right here expenses -- donated services or products .

Suggestions: Find out why they miss appointments. Do they need transportation? Have an arrangement with someone to drive them to the appointment. Maybe that could be an indie business for a friend of yours.

Do they simply forget? Hire someone looking to work from home to call each client the week before, the day or evening before, and even the morning of to remind of the appointment. What you pay the person making the calls for you is a deduction for you. If you're married and your wife can do the calling as your employee, even better. Or if you have a child old enough for the responsibility, that would work too.

Another suggestion: Have work ready to do to fill the time of the no-shows. Things like research reading, recordkeeping, learning French.

Best,
June

Be Smart By Being Legit With Your Nanny

2010-07-04T16:21:00.008-06:00

Hi June,

Any suggestions on paying the nanny tax and cheapest/simplest way to do so?

Thanks!
Kurt

Hi Kurt,

In tax talk we affectionately or not so affectionately refer to anyone who cleans our house, takes care of our children, cleans our yard, drives us around, or takes care of our real Nana who resides in our upstairs guest room as "a nanny." And so the tax we must pay on someone who works for us in that capacity is referred to as the "nanny tax."

The most simple way although often not the cheapest is to hire someone though an agency. The reason that's not the cheapest is because they are legitimate -- mostly -- and so they can charge more than illegitimate workers.

By illegitimate workers I mean both undocumented aliens as well as good ol' Americans simply not claiming the money you pay them to cook your meals or watch your children. In this way on $15 per hour they are avoiding about $5 per hour in taxes; On $30 per hour they are cheating the government -- that's us the taxpayer -- out of about $10 per hour.

Your other simple choice is to hire someone who has her own business. She is then an independent contractor and you do not have to pay payroll tax on what you pay her.

The determination of whether a babysitter is self-employed follows the same rules as those for any other indie. More on that right here self-employed and/or employee .

So, if the worker does not come from an agency, nor is she self-employed, and you pay her $1,700 or more during 2010 then you must treat her as an employee and do the relevant paperwork.

IRS Publication 926, Household Employer's Tax Guide spells out what you must do. It's available here http://www.irs.gov/publications/p926/index.html.

I strongly urge you to be legitimate with a household employee.

It is fair to her. She will be racking up social security points and she will be covered by your homeowners insurance should something happen, such as tripping down the stairs or having the overhead light fixture crash on her while she's washing it. [Be sure to check your homeowners or apartment insurance.]

It is better for you because you will not be committing fraud and you won't lose your house when she sues you after the glass from the light fixture lands in her eye.

Best,
June

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

2010-06-29T09:19:00.005-06:00

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,
June

New to indie life? Where To Start

2010-06-29T09:01:00.011-06:00

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.

Mark
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

Mistakes With Reimbursed Expenses

2010-06-26T13:12:00.004-06:00

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,
Hopeless

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

It's only words ...

2010-06-18T09:57:00.003-06:00

june

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!
June

Learn more. Reduce stress and reduce taxes.

2010-06-16T08:16:00.013-06:00

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
Sara

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!

June

Single Mom in a Messy Situation

2010-06-13T16:13:00.008-06:00

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?

Chrissy
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.
June

You can deduct some lobbying expenses.

2010-06-12T18:34:00.006-06:00

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.

Thanks,
Allison
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

Keep It Simple: Round Off

2010-06-11T19:30:00.004-06:00

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.

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

-- June

Don't cheat yourself. Use a tax pro.

2010-06-11T19:12:00.004-06:00

June,

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?

Mark

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 .

Best,
June

Deductions in a Fifth Wheel

2010-05-30T18:40:00.007-06:00

June,

My husband is an Union Electrician and I am a self-employed JAMMON (jack of many – master of none) who works from home with my S-Corp – run solely by myself with the occasional help from a consultant. Due to the lack of construction work in the Indianapolis area (the last 18 months) we recently sold EVERYTHING that we owned, purchased a fifth wheel and will travel the country following work that my husband can obtain with the IBEW (International Brotherhood of Electrical Workers). I will continue to work from the fifth wheel as all I need to operate is a computer and cell phone (I do bookkeeping, graphic design, data analysis, high level admin, etc).

We would like to maximize our write-offs and albeit we don’t have many expenses these days aside from a fifth wheel payment, campground fees, cell phone and internet – we want to maximize.

I will be writing off my cell phone and internet as well as other office supplies and operating expenses, but what about other expenses such as the fifth wheel payment and its maintenance costs? Campground fees?

Mileage for my husband from the fifth wheel to his job site and back? Me from the fifth wheel to my clients and back (provided I am in the same State as my client at the moment),

What about items purchased for the fifth wheel such as storage bins, baskets, lawn chairs, propane, etc?

Any advise you give for the travel employee / traveling small business owner would be greatly appreciated.

My husband has associated with many other traveling electricians who write EVERYTHING off, but our small town accountant isn’t on the same page.

J What can we do? Thanks!
Courtney

Dear Courtney,

Generally I don't advise corporations via my blog, however, since much of what you ask applies to a lot of indies I'll see what I can do here to help you out.

If you live out of your fifth wheel [trailer or camper hooked to your vehicle] you must allocate any deduction for its use the same way you would for any home office -- exclusive use on a regular basis. Read these posts home office or studio . All supplies for the running an maintenance of the fifth wheel would be governed by the home office rules.

Supplies exclusively for your business, such as storage bins, would be 100% deductible.

Since you move around all the time I would allow only mileage from one business location to another. That means if you can establish a home office in the fifth wheel then driving from it to a client would be business miles. Here's some auto expense posts expenses -- auto-transportation .

If you pretty much stay in once place and move only when a job comes up, read these posts for possible deductions temporary worksite .

Hope that helps. And don't write-off "EVERYTHING." That doesn't go over well with the guys at the IRS. And, if you know better they may look at it as fraud.

BTW -- I also hope that your small town accountant had a really good reason to have you complicate your life by forming an S-corp.

Happy Trails!
June

One business deduction is the same as another -- almost.

2010-05-30T18:14:00.009-06:00

June --

Re federal schedule c: business profit or loss

i find it so tricky to sort expenses in some of those categories!
materials?
supplies?
misc?

Lisa
Branding consultant specializing in marketing and promotion for cultural creatives and small business
Portland, OR

Hello Lisa,

As long as a a deduction category has the same deductibility as another category it doesn't really matter if you choose the wrong category.

By that I mean if something is an immediate deduction, for instance, printer toner, it doesn't matter if you put it in office expense or supplies.

However, if something must be treated in a different way, let's say a printer costing $500, then that must be treated as equipment and could not be characterized as an office supply to be written off immediately.

A meals & entertainment expense is only 50% deductible. An advertising expense is 100% deductible. You must understand expenses well enough to know not to categorize a dinner with a local bigwig as an advertising expense.

Visit here to get my complimentary list of 100+ business expenses. It will help you categorize business deductions.

-- June

The Wealthy Freelancer

2010-05-19T14:28:00.057-06:00

I have a friend who is an actress. After having played leading roles on Broadway, she left the acting life to raise a family. That's when I met her and so hadn't had the chance to see her perform. What a great thrill it was for me when she returned to the stage and I saw her superb talent shine in a professional theater production.

I’m reminded of that because I just had a similar experience reading a book written by a friend and colleague, Ed Gandia. As with the actress, I have a chance to see my friend shine. The book, The Wealthy Freelancer: 12 Secrets to a Great Income and an Enviable Lifestyle -- published by Alpha books earlier this year -- was co-authored by Ed, and Steve Slaunwhite and Pete Savage.

Not only is it a really good book, as a bonus it makes a genuine contribution to the indie life. The three authors are all copywriters, and the book has the most value to others in that field, but their observations and insights hone in on many of the precepts of any indie life.

It’s a brass-tacks book about success – not a lot of inspirational baloney, but a dozen essays on how to increase productivity, how to price your services, how to use available public data to find clients, and more.

Do you know what a “buzz piece” is? A buzz piece is a useful bit of writing that you can offer online to anyone interested in your work – the 21st century equivalent of the business card. Your buzz piece should be authoritative and impressive – something that will get you noticed. Slaunwhite kicks in with a standout chapter on how an indie can create and use a buzz piece, which he regards as almost a necessity in the information age.

In the age of the Internet, free information has replaced the hardball sales pitch. Available on your site or your blog, the buzz piece creates interest, promotes your credibility and shows that you know your stuff. It can be used in direct mail or telephone calling – instead of pitching your services, you offer it up without obligation. When you submit a project proposal, you send it along. And if you feel you are hopeless as a writer, you give the information to a freelancer to ghost it for you. Slaunwhite notes that when he was checking websites to seek the services of a local plumber, he found that most of them just advised the reader to give them a call. But one offered a free guide titled “How to Find Leaks BEFORE Water Damage Is Done.” That’s the plumber what got the job.

Another excellent chapter instructs freelancers on how and why to keep nurturing prospects that have not yet become clients. This piece, the work of Ed Gandia, traces his modus operandi to his days as a salesman, when he found that keeping in touch with some prospects who had not bought his product eventually won them over. “By staying on their radar screen in a nonthreatening way,” he writes, “I was the first person they thought of when the timing was right.”

Gandia weaves this approach into a fascinating chapter about keeping in touch with what he calls his “not today” list – a list that includes anyone who has downloaded his buzz piece – and explains why you should do the same. He points out, however, that this novel approach takes perseverance as well as a feel on how to build a relationship without being pushy. In the long run, he contends that it will be more rewarding than blind stabs at hundreds of prospects who have never shown any interest in your work. “Lead-nurturing,” as he calls it, requires the compiling of resources, either your own articles or relevant pieces by others; he suggests using the U.S. Post Office to send some material, because postal mail has become more unusual than e-mail and voicemail. It also requires maintaining a schedule with notes to track the content and the date of your previous contacts and a note on when to try again.

I’ve been particularly interested in the last year or so in business writing about the growing importance in modern indie life of finding a niche. (Geoffrey Moore’s Crossing the Chasm is one book that comes to mind in that area.) In The Wealthy Freelancer, Savage comes up with interesting and helpful thoughts that advance the subject a few more paces.

Finding your focus, as he calls it, means that you can discover what you have to offer by developing a specialty. He also points out that finding a focus saves time – you don’t have to waste energy explaining to prospects what kind of work you do and how it fits the prospect’s needs. The other approach of being all things to all people so that everyone is a prospect is in the long run a losing game, he says: you deal with prospects who aren’t a good fit for you, taking assignments that lie outside your expertise and that don’t fire up your interests and passions.

With that in mind Savage introduces us to Pam Magnuson, who grew up with an interest in the power and mystery of plants, an interest that led to a two-year formal study of Chinese medicine, herbal supplements, and natural healing. (She raises more than sixty medicinal herbs in her own garden.) Less than three years later she is thriving as a writer for nutritional supplement marketers (it’s called “nutraceutical marketing,” a phrase new to me). Finding your focus, or your niche, is not only a ticket to success but more personally rewarding. Focus brings more value to the marketplace, and is more engrossing for the freelancer.

Pssst ... you can download 3 free chapters of The Wealthy Freelancer and a lot of other income explaining info right here .

-- June

It's not a business unless you treat it as a business.

2010-05-18T19:38:00.011-06:00

Hi June,

I was at the Creative Freelancer Conference in San Diego last Summer where I attended one of your classes.

I have been buying software and hardware and traveling to workshops and designing for people that never paid. I don't have a "real" business or had advertised, but had word of mouth situations.

I'm obviously new to business and unfortunately I would do the work and then clients decide to bail on me.

The only income I have is unemployment.

All my expenses toward my "business" - could I use them in my taxes? I have a desk in my bedroom of my parents house since I lost my "real" job in 2008. I spent LOTS of money on my "business" but obviously no income. Is this even possible to turn in as an expense?

And what do you charge for this?
Christina

Dear Christina,

The IRS regs allow for business losses to be deducted from other income. But, the operative word here is "business." You must be a business.

In my book Self-employed Tax Solutions I pose the the question: How do I prove I am a business and in it to make money if I make no money? The answer: You must treat your endeavor like a business. I give a list of ways that you can show that you are treating what you do as a business.

You did not treat what you did as a business and so you cannot deduct the loss from your other income.

Here's my post that will give you more info HOBBY OR BUSINESS: Are you a professional artist?

There is no charge for answers posted on my blog.

-- June

Business Phone Deduction

2010-05-18T19:12:00.007-06:00

June --

Psychotherapist, licensed & self-employed for 3 1/2 years from Sacramento, CA.

I use a cell phone as my one and only business phone for my therapy practice.

I pay a flat monthly rate for my cell phone service. If I sometimes make or receive personal calls on this cell phone, does this mean I cannot deduct 100% of the cost of my cell phone plan?

And if I cannot deduct 100%, how on earth do people manage to keep a log of every single phone call made and received and whether business or personal, in order to determine what percent of calls were business? Even looking at my monthly statements I cannot identify who all the phone numbers belong to unless I have been writing down each and every phone call and phone number and person to whom every phone number belongs.

Thank you for your help,
Jacqueline

Dear Jacqueline,

I assume you have a phone at home for personal use. Were I your accountant I would deduct a small percent of your cell phone for personal use. If there's only a non-phone-using cat at home I'd take a smaller % than I would were you to have three kids you had to check on or an aging mother in a nursing home whom you had to call twice a day. Or if you had chosen a plan that allowed for more minutes to include personal calls you could exclude the additional cost. In other words I'd find some logic for the small % or cost reduction.

As a psychotherapist you cannot list the patient calls even if you were to keep a record. However, were you able to show that in one week you used 500 minutes and 50 were to mom then you could use that as a typical week and extrapolate for your entire usage.

Of course, all those phones in The Callous Corporation offices are used for personal calls to home and the corp gets a 100% deduction. So be as generous to yourself as you comfortably can. If you feel that the personal calls are really incidental -- for instance a late work night -- then deduct 100% as a business expense.

-- June

More on Reimbursements

2010-05-18T18:35:00.003-06:00

Hi June,

I found your article on how to deal with Expense Reimbursements Included on Form 1099 ...and found your insights very helpful.

I have just started doing indie consulting (live in Bay Area, CA) and I need to bill for both services and expenses, and your article was the best one I could find!

Regarding this issue - just to clarify, do I need to ask up front that my client exclude expense reimbursements from my 1099, or will I be "okay" if they do put expense reimbursements on my 1099? I obviously don't want to get taxed on the expense reimbursement portion of what they pay me!

Thanks so much for your help!

Regards,
Chris

Dear Chris,

Good to know that the column from my website was helpful.

As long as you keep a record of payments for fees versus payments for reimbursements you will not be taxed for reimbursements.

If expenses are included on your 1099 then you will include them as part of your gross income and then you will simply deduct the expenses for which you were reimbursed.

If the expenses are not included on your 1099 then you will not include them as income and neither will you deduct them as an expense.

Example:
$4000 stated as income on the 1099 means $3000 fees + $1000 reimbursement for fees.

On your tax return when you subtract the $1000 worth of expenses for which you were reimbursed you end up with $3000 income. That is the same as if you had received a 1099 stating $3000 income.

You must have accurate records. For some states you may have to separately state gross income and reimbursed expenses income.

Be sure to read my posts on reimbursed expenses which go into more detail and explanation.

-- June

Think about tomorrow: It's Monday

2010-05-16T12:28:00.008-06:00

The following is from one of the authors of The Wealthy Freeelancer . It guides you through a great approach to your work week.

Please be sure to check the end of this post. Learn how you can receive three free chapters of the book.
-- June

How to Make Monday Your Most Productive Day
by Pete Savage

At a Pitney Bowes sales training conference years ago (yes, I was sales guy in a past life) the company's VP Sales came in from head office to speak to us sales reps.

He talked about the importance of having a strong work ethic and how, back when he was a rep, he would make cold calls and visit customers right up until 5pm every Friday.

Then he said something that surprised me: "Everybody needs to slack off a little bit, though, so I always used Monday morning as my water cooler day." He explained that on  Monday mornings he kinda took things easy... came into work  late, hung around the lunch room, drank a lot of coffee and had a good, long natter with the office staff.

He explained that slacking off on Monday morning was fine, because it was the worst time of the week to find any customers interested in talking about the exciting stuff Pitney Bowes was selling, like photocopiers and postage meters.

"Most people in the corporate world are bummed out on Monday morning, so best to steer clear of them and let them come out of their funk," was his advice.

It May Work For Sales Guys, It Doesn't Work For Freelancers

As a salesperson, I saw that this was in fact true. You could take it easy on Monday mornings and do just fine. As a freelancer, however, I discovered that a sluggish start to the work week always turns the rest of the week into a race against the clock.

When you have an unproductive Monday, it makes your entire week more stressful, daunting and exhausting. Fortunately, the opposite is also true... when you have a super-productive  Monday,you tend to have a more productive week.

Here's are six easy-to-implement tips (actually, you might find the first one a bit hard to swallow, but read 'em all... they get easier) to supercharge your Mondays and get more done throughout
the week...

How to Make Monday Your Most Productive Day  
1. Add an extra hour (or two) to your Monday.  I know, I know.It sounds crazy to voluntarily make your  Monday longer. (And if this sounds nuts to you, imagine  what your friends in the corporate world will think when  you start doing this!) But honestly, we're just talking one day a week here. An extra hour of productivity right off  the bat can go a long way to reducing your stress, so start  work early or finish late - just on Monday.

2. Let important people know Monday is your "Power Day".  Let your spouse, partner and family know about your new  office hours on Mondays. If you work from home, ask the  family to be extra-conscientious about distracting or  disturbing you.

3. Watch the clock like a hawk. On Mondays keep an especially close eye on time-wasting indulgences. Take a  short lunch.Monitor what you do on breaks. Desperate for an extra cup of coffee? Fine... give yourself two minutes to  go to the kitchen,fill your mug, then get back to work. No  surfing the net, no personal emails. Challenge yourself to  see how disciplined you can be, all day long. I promise  you'll feel like a champion at the end of the day.

4. Yes, you get to eat dinner on Mondays. But don't make a big deal about it. You need to be able to work an  extra hour or so past your normal quitting time without  feeling stressed about dinner. Ask your spouse to take care  of preparing dinner on Monday nights. Or cook your Monday  night meal on Sunday (make it something you love!) so that  all you have to do on Monday night is warm it up and enjoy  it. Or even better...

5. Reward yourself. Give yourself a treat for working hard on Monday. Have your favourite take-out meal for dinner. Enjoy a lovely glass of wine and a long, hot bath. Or, start a "Monday night out" tradition that might include dinner or a movie with your partner or a friend.

6. Don't schedule "due dates" on Mondays. The point of making Monday your Power Day is so you can work on things that you decide are important to your business. If you're rushing all day to meet a deadline then you'll feel trapped and you won't have the energy you need to put in that extra hour or two of work.

(Extra Tip: Try to schedule any major project due dates for Wednesdays and Thursdays, so you have a couple days of runway leading up to them. With a Monday due date,you're  more likely to find yourself hard at work on the Saturday or Sunday prior, which makes it harder to follow through  with your "Power Day" commitment once Monday morning hits.)

Don't worry... working a little harder on Mondays won't leave you feeling extra tired at the end of the day. In fact, after a super-productive Monday, you'll find you actually have more energy for the week ahead. Instead of being stressed about your workload, you'll experience a wonderful  kind of mental high as you look at all the work you completed in a single day.

Pete Savage is co-author of "The Wealthy Freelancer: 12 Secrets to a Great Income and an Enviable Lifestyle" (Penguin/Alpha). To grab 3 free chapters and a complimentary copy of his Freelancer’s Income Expander Kit (containing 4 reports worth $126), visit www.TheWealthyFreelancer.com/bonus

Alert!! New Recordkeeping Burden for Indies

2010-05-13T08:53:00.012-06:00

Hi June,

Here is a current article that I thought may be of interest to you and indies such as me. The article states that the new healthcare reform bill contains a provision that requires the issuing of a 1099 to every vendor from which you make a purchase.

Quote from the article: "But under the new rules, if a freelance designer buys a new iMac from the Apple Store, they'll have to send Apple a 1099. A laundromat that buys soap each week from a local distributor will have to send the supplier a 1099 at the end of the year tallying up their purchases." Health care law's massive, hidden tax change.

This provision really annoys me. It really sounds nutty that an Indie such as myself is going to have to 1099 everyone I do business with. Is this really the case?

How can we start to prepare for this dramatic increase in paperwork? Thought this may be a good topic of discussion in one of your emails or for your blog.

Thanks for your consideration.
Elle DeeCompany: Indie Graphic Designer

Alas! Alack! 'Tis correct. What an added burden to indies.

Indies must now issue a 1099 to a corporation and thanks to the "Patient Protection and Affordable Care Act" they must also issue a 1099 for any $600 or more paid for property or services.

A 1099 was always required when $600 or more in services was paid to an independent contractor -- another indie. It was not required if you paid a corporation for services.

It appears that the IRS is trying to rein in the cash economy. I don't know how it can be implemented. To send a 1099 you must have the federal ID # of the recipient. It's difficult enough to get those #s from other indies or childcare providers, getting this info from the iMac store or Staples or your local garage sale where you bought that wonderful antique desk will be challenging if not impossible.

Keep in mind that the IRS will issue clarifying regulations. So, please. Elle, alert your colleagues. If all of us indies let our representatives know about this unenforceable burden we can have an impact.

-- June

Friend Says To Incorporate

2010-05-06T08:36:00.005-06:00

Producer ... many years as an indie ... long time producing, recently gone indie ... from Brooklyn, NY.

Thanks for your response June on Don't incorporate just because the big boys tell you to.

I think that given the necessity of a separate business account and the possible negative impact on unemployment benefits...I'm going to insist they pay me as a 1099 contractor.

Going forward, I feel comfortable remaining as that, although my friend is telling me that there are so many more income tax benefits to being incorporated...I am finding it all very confusing.

Do you recommend that I buy your book to help me sort it out? Or pay someone to consult with me?

Thanks again June,
Kelly

Dear Kelly,

If I were to say to you: Do XYZ: It will make your life more complicated; Take up more time; Cost you money ... what would you say to me? I hope you'd ask me why you should do XYZ.

Your friend said to incorporate, because there are so many more tax benefits. Ask her to name one. Name two. Name three.

The main tax benefit to incorporation is for those making a lot of money. I'll use the following scenario as an example: Let's say most producers' net income is $100,000 per year. You, on the other hand, because of your years in the business and reputation make twice that because you are paid twice as much as other producers are paid. Your fee is doubled because of your reputation not the amount of time or effort you put into your work. Then half your net income could be taxed in a better way were you a corporation. If that scenario fits you, talk to a tax pro about incorporation.

There is no need to be confused. What you need is information. Start by reading these posts business entity -- incorporation .

I do strongly recommend that you read my book Self-employed Tax Solutions . As well as the basics on self-employment it thoroughly explains business deductions. Here's a Table of Contents.

Best,
June

PS Let me know what your friend says and where she got her info.

Songwriters: Please take a look at this.

2010-05-03T17:24:00.005-06:00

The Authors Guild and The Songwriters Guild of America (SGA) told the U.S. Copyright Office on Friday that there is an urgent need to eliminate a potential “gap” in termination rights granted under the Copyright Act. The joint filing, announced today by Authors Guild executive director Paul Aiken and SGA president Rick Carnes, was in response to a request for comments by the Office on the issue. The “gap,” if not addressed, might prevent as many as 100,000 creators from being able to exercise termination rights they – and Members of Congress – thought had effectively been granted to them under the law.

In establishing termination rights for creators – allowing them to end transfers of their copyrights to publishers after a set number of years – Congress established rules for terminations for both pre- and post-1978 works. However, because of a quirk in the drafting of the law, there may be an inadvertent gap for works governed by pre-1978 contracts that were not published or registered for copyright until 1978 or later.

“The legislative drafting error dates back to a major revision of copyright law in 1976,” said Aiken. “The potential problem is serious and pressing – the time to file thirty-five year termination notices for post-1978 works commences in 2011 – but it’s a technical problem that can be resolved with a straightforward legislative clarification.” Carnes added, “We simply need to make sure that, as a matter fairness, certain categories of works that may have fallen through the cracks in drafting the 1976 Act are now clearly included in the law.”

There are various scenarios in which confusion may arise under the law as currently written. Songwriters often sign exclusive agreements with music publishers covering the transfer of all songs written prospectively over a period of several years. For example, Charlie Daniels’ classic “The Devil Went Down to Georgia,” released on his band’s 1979 album, almost certainly was subject to a pre-1978 contract and might fall into the statutory “gap.” Moreover, nearly all books published in 1978 and most books published in 1979 were subject to pre-1978 contracts and therefore could fall within the suspected gap as well. John Irving’s “The World According to Garp,” published in 1978, and Beverly Cleary’s “Ramona and Her Mother” and Tom Wolfe’s “The Right Stuff,” both published in 1979, are all likely to be in this category.

“Authors, particularly those early in their careers, frequently have little or no bargaining power with publishers,” said Aiken. “The termination right effectively recognizes that imbalance, giving authors the power to renegotiate their contracts in the rare cases where a book has a commercial life far longer than expected.”

The legislative record of the 1976 Copyright Act is clear in expressing Congress’ intent that termination rights be granted to all authors. According to the House and Senate Reports accompanying the legislation, “[a] provision of this sort is needed because of the unequal bargaining position of authors, resulting in part from the impossibility of determining a work's value until it has been exploited.” Both SGA and the Authors Guild were instrumental in fighting successfully for the inclusion of termination rights in the 1976 law.

“Our shared interests in the representation of the creative communities in our respective fields have prompted us to act together on this initiative, as we will in the future on other legislative matters of mutual concern” said Carnes. “Our organizations worked hard together in gaining termination rights for creators under the Copyright Act, and we continue to work together to ensure that all creators benefit from these hard-won gains.”

The Authors Guild (www.authorsguild.org ) is the oldest and largest society of published authors in the U.S., representing more than 8,500 book authors and freelance writers. Its members represent the broad sweep of American authorship, including authors of literary and genre fiction, nonfiction, and academic works, as well as children’s book authors, textbook authors, freelance journalists and poets. It advocates for fair contracts, effective copyright protection, and free expression.

The Songwriters Guild of America (www.songwritersguild.com) is the nation’s oldest and largest organization run exclusively by and for songwriters, with more than five thousand members nationwide and over seventy-five years of experience in advocacy for songwriters’ rights. It is a voluntary association comprised of songwriters, composers and the estates of deceased members. SGA’s efforts on behalf of all U.S. songwriters include advocacy before regulatory agencies and the U.S. Congress, and participating in litigation of significance to the creators of American music.

Feel free to foward, post, or tweet. Here is a short URL for linking: http://tiny.cc/43mez

Sent to June from
The Authors Guild 31 E 32nd St Fl 7 New York, NY 10016 US

Incorporation is not simple.

2010-05-01T10:33:00.008-06:00

June --

I am writing you from Texas. I'm helping my partner start a products business.

This is his second business, the first business is three years old. We are trying to determine whether we should incorporate to protect his assets, mainly in case we get sued (not for amounts owed, as we will pay these, but for injury). The product is not really dangerous at all, but people can come up with some strange things. Is the extra trouble of incorporation worth it?

Since I will be doing this one myself, I'd like it to be simple, but I also don't want to be at fault if someone does sue us and we lose the house.

Thanks! Jennie

To Jennie and all the indies who check out my blog, I assume you know that I can't answer all the questions sent to me. I pick and choose as time allows. I chose this one from Jennie because it is typical of so many questions about incorporating that are sent to me.

In deconstructing Jennie's question I hope to help you structure your questions in a way that will more beneficial to your indie venture.

If I were concerned whether the water pipes to the back bathroom were in good condition you'd say I had a plumbing question and that I should ask a professional (certainly not my writer husband) about the situation. You'd tell me to ask a plumber not an electrician .

Jennie has a liability situation. She did ask a pro (better than asking the new acquaintance from the spa who happens to be incorporated). But, Jennie has questions about liability. Liability is not a tax issue. Liability protection is an insurance and/or a legal issue. She needs to speak to her business insurance agent or a product liability attorney. Discuss her situation. For instance, what's the product? Is it massage oil that could give someone a rash? A power saw that could cut off an arm? A software program that could wipe out a computer?

And Jennie says: "I will be doing this one myself, I'd like it to be simple." Good golly, Jennie. There is nothing simple about being incorporated. Even though the online ads offer to form your corporation in less than 10 minutes that's just the beginning. Fulfilling all the requirements of a corporation are complicated. A corporation’s liability protection often depends on whether those requirements are met to the letter. Indies who consider incorporating should be crystal clear on why they are incorporating and whether the needs they have will be filled by incorporation. Indies should also be thoroughly informed of the hoops they have to jump through to maintain that corporate “veil” of protection.

For more info check out your local Small Business Development Agency, http://www.sbda.com/ , often located at the community college, as well as your business insurance agent and an attorney.

-- June

Capital Gains Consequences of Home Office Deduction

2010-04-30T09:52:00.006-06:00

June --

My companies HQ are in CA. Software support engineer. I've been fortunate enough to work from a home office since my daughter was 4 weeks old. She used to stand on the back of my chair with her arms wrapped around my neck while I would talk with customers. It doesn't get any better than that.

I've read your information about a home office but what are the consequences of claiming a home office? I heard that the nightmare actually occurs when I go to sell my home.

Can you provide some insight into that?

Thank you.
Paul
Hendersonville, NC

Yes, Paul. I remember those work-at-home-with-small-children days. They were great. I still work from my home.

Before I answer your question I'd like to request of you and other indies: When you say you heard or read something somewhere I would really like to know where you read or heard it. It helps me guide indies if I know whether they got wrong info from Aunt Tillie or a CPA or the yoga teacher's husband who happens to be an attorney.

As I say in my book Self-employed Tax Solutions : "Deducting OFFICE-IN-THE-HOME expense for a residence that you own may have an impact on your the amount of taxes you pay when you sell your home. The impact has been minimized by new regulations regarding depreciation of a home office, and almost always the home office deduction outweighs any capital gains tax it may trigger when the home is sold. Even so, be sure your tax pro takes the sale consequences into consideration when preparing your return."

Since I wrote that the tax regs regarding home office sale have been liberalized even more. Of course, the regs may again change in the other direction. I can say that in all my years of practice every indie client had a tax advantage by deducting home office that was not outweighed by capital gains tax at sale.

Best,
June

Don't incorporate just because the big boys tell you to.

2010-04-28T15:10:00.006-06:00

Hi June -

GREAT info, i could spend hours reading your fantastic advice!

A couple questions please: 1. I just completed a 3 week freelance job - they want me to incorporate to be paid (they have Department of Labor issues) - I think this is crazy and makes little sense, which I told them.

They then asked me to do an EIN with a DBA, I'm slightly more open to that, although I still think it's a lot to ask (and potential cans of worms for me) for just 3 weeks of pay.

They claim they can't do 1099 because of their upcoming audit, can't take chances. Any ideas?

2. Once this job is over, I will file for unemployment (I was laid off prior to this 3 week gig) from a major corporation. Will any of the above scenarios prevent me from collecting? Because I don't want to jeopardize unemployment (I'll need it to fill gaps between freelance assignments) by filing a sole proprietorship EIN, etc - that would be truly unfortunate.

Thanks for your help!
Kelly
PRODUCER, JUST BEGINNING!
BROOKLYN, NY

Wow, Kelly! What an endorsement. Hours reading tax stuff. Thanks.

Many corporations attempted to skirt around the regs dealing with employee versus self-employed so that they could save about 25% to 30% in payroll taxes and employee benefits. They cheated. Some got caught. What often happens is that they devise ways that "look good" but really aren't so good.

By that I mean, the corporation will hire someone who should be classified as an employee but instead hires that person as an indie. The corp then insists that the indie incorporate in order to cover its own rear-end should there be an audit.

Don't incorporate unless the three weeks of income is really, really a lot of money.

An EIN and a DBA is no problem for you. Just a little extra work. Check these posts on EIN-employer identification # and these on DBA - Doing Business As . If your bank won't accept payments to your DBA name then you'll need to open another bank account.

Each state's unemployment regs are different. Check New York's requirements before you take any action. Might want to read these posts first unemployment compensation .

Best,
June

No Mix or Mingle for an LLC

2010-04-27T19:11:00.007-06:00

Hello June,

Purchasing The Confident Indie: Five Easy Steps has been a great investment and I appreciate how much it is teaching me about running my LLC.

I have an opportunity to bring in additional income, supporting new moms, by working part time as a W4 employee with a company.

My question is should I have my employer direct deposit my earnings into my personal checking account or in the account for my LLC?

Thank you so much for your reply.
Peggy

Dear Peggy,

Pleased to know that Five Easy Steps has helped you.

I gather that you are an LLC structured as a sole proprietorship. I assume you formed an LLC for liability protection not just for the panache of having "LLC" as part of your business name.

That being so, you must keep your LLC records separate from any income or expenses not related to the LLC.

Your paycheck should be deposited into your own account.

Here are more posts on LLCs -- business entity -- LLC -- if you want more info.

Best,
June

Quicken Records & Business Meetings

2010-04-23T16:24:00.009-06:00

I exchanged a series of emails with Marianne, a writer/photographer, that I have abridged and am passing along to you.

Hello, June.

I just finished reading your The Confident Indie: Five Easy Steps pub. At the end, you refer to a pub you are writing about tweaking Quicken to use for business records. Is this available?

Pub was great, BTW.

Marianne

Hi Marianne,

Glad you liked Five Easy Steps. Thanks for letting me know.

No, the new petite pub is not yet ready. I previously published a how-to guide to computerized recordkeeping. It was a companion piece to my book Self-employed Tax Solutions . It explained how to adapt Solutions' manual recordkeeping method to Quicken. But it’s out-of-date and needs revision.

Do you currently use Quicken? Are you PC or MAC?

Oh. I went to your site. Doesn’t work???

Best,
June

Hi, June.

I use Mac and PC, but prefer my Mac (newer, faster, more memory and just cooler). If you have any suggestions, this struggling taxpayer will promote you to goddess level.

Yes, that was my old site. My current site does work. ‘Tis a sad tale of down payments wasted, deadlines ignored, false starts and real disasters. Do you know any good firm who can make a website for video folks???? Lots of it will link up to videos already posted on Vimeo, YouTube, etc.

Thanks for all your help, June. I will be buying other books!
Marianne

Hi Marianne,

I like goddess. I'll work on it. For your website check out Mike Hartley web designer at http://bigflannel.com. Here's a site Mike did that includes video http://www.leftright.tv.

Best,
June

Good morning, June. Thanks so much for the referral. Wow, Mike's stuff is great and he clearly works at the TopTop of the tree. My partner (and husband) and I were just looking over both sites. Again: Wow.

OK, transition:
As one small business owner to another, what is your opinion re the value of joining the Chamber of Commerce for marketing purposes?

Thank you for all your help and your ab fab site and materials. I think every small business owner/indie should read your site if only for the shot-in-the arm reminder that you ARE a business. Your message empowers -- I know that term is overused and trite now, but it is the best one this wordsmith can use.

Cheers,
Marianne

OK, Marianne, first things first.

I agree on Mike’s work.

Since I am in the process of writing how to adapt Solutions' and the Five Easy Steps' manual recordkeeping method to Quicken, could you tell me what you find are your difficulties in setting up & using Quicken for your indie business?

[If any of you are having problems with making Quicken work for your unique indie venture please leave your comments or email directly to me at june@junewalkeronline.com.]

On the Chamber of Commerce, or any other organization, you need to first determine what you are looking for. What are your needs? Does that organization fulfill that need? Who are the other members? What are the demographics of your potential market? Are the Chamber members your potential market? Is it worth 1/3 of your day to attend a meeting?

I think of my day as split in thirds – morning, afternoon, evening. And I think of a couple hour meeting plus getting out of my jeans and dressing for the meeting and getting there and back as using up 1/3 of my day.

Call the organization and see what its guest policy is so that you may attend at least one meeting before plopping down a big membership fee.

Please, do get back to me on using Quicken for your indie business.

Best,
June

Work/Live In More Than One State

2010-04-22T12:00:00.004-06:00

Hello,

I am a 26 year old male just moved to California from NYC to live with my girlfriend.

I am not on the lease and I am technically a NY state resident. I have started freelancing here in Santa Monica and was wondering if I can put the CA address on the w9 or must I put the NY address since I am not on the lease in CA.

If I put the NY address, must I pay state taxes in NY or CA for this gig if the company is located in CA?

This is quite confusing and I need to find a solution ASAP!

Thanks so much!
Francis

Dear Francis,

This is not as confusing as you think.

Either:
-- You lived and worked in NY.
-- Now you live and work in California.
-- In which case you are a part-year resident in each state.

Or:
-- You lived and worked in NY.
-- You are now in California, working in California, but have not moved all your stuff to California because you are testing the waters of living with your girlfriend.
-- In which case you are a NY resident with earnings in CA as a non-resident.

So:
-- Put your mailing address on your W-9.
-- You do not have to have your name on the lease. Your girlfriend may even pay all the rent.
-- If you have moved to CA then you no longer have a place in NY except perhaps a friend's place where you crash if need be.
-- Do not attempt a two-state indie tax return on your own. Hire a pro.

Here are other posts on multi-states taxes -- state / nonresident state .

Best,
June

Audit potential?

2010-04-22T11:00:00.005-06:00

June --

Been tracking (officially) my income/expenses from writing for just about a year now. I've actually been teaching creative writing and submitting fiction pieces to literary journals for several years (more than a decade). I have done my taxes through a software program, but I am paranoid that I have done something wrong, mostly because I haven't made any money on my authorship.

Additionally, my husband, for whom I prepare his taxes, is self-employed but hasn't made any money in a couple of years. He is a management consultant.

Will all of this trigger an audit? I would be more than willing to pay for advice!

Many thanks,
Kristine
Walnut Creek, CA

Dear Kristine,

An indie who is legitimately pursuing his or her profession should never fear an audit.

As long as you can prove the legitimacy of your business -- how to do this is explained in my book Self-employed Tax Solutions -- and as long as your records are accurate you would smoothly fly though an audit.

Audits can be random or for specific reasons. Even indies with profits year after year can be audited. They, too, must keep just as accurate records as do indies with losses year after year. Here are lots of posts on recordkeeping . And you might want to check out my petite publication on recordkeeping, The Confident Indie: Five Easy Steps.

-- June

Food Write-offs

2010-04-21T11:51:00.004-06:00

June --

I have been a freelance graphic designer for more than 2 years. I live in Boulder, Colorado.

I belong to several networking groups. I joined the groups to meet others in my field, help find potential clients, and to learn about running my business from other business people. Some groups have members in businesses related to mine (ie people who might refer clients to me or that I might subcontract work to). Some groups have members in a variety of businesses (ie potential clients).

Most of the groups do not require dues, but we meet at restaurants and each person pays for their own meal and drinks.

At the meetings, we may or may not discuss business beyond exchanging business cards and talking a bit about what each person does.

Is the cost of my meal deductible?

What about potluck networking events? Some of the groups meet at members' homes, and everyone is expected to bring a dish to share. Can I deduct the cost of the dish?

Does it make a difference if the majority of the time is spent on business related topics? I learn a lot and meet great people at these events, but I would be eating more cheaply if I stayed at home!

Betty

Dear Betty,

Good food questions.

First know that business meals and/or entertainment [M&E] are deductible if you discuss business before, during or after the meal or event. The amount of time spent on business does not matter as long as the purpose of the meal or event was business not personal.

However, you may deduct the cost of the meal or event only if you pay the cost for your business associate as well as for yourself. So it you attend a networking luncheon and pay for your lunch only, no M&E deduction. You may deduct the cost of getting to and from the luncheon if you came and went between another business activity.

A potluck? Well, if you are like most people who bring something to a potluck you bring more than enough for one person. So in that case I would deduct the cost of the potluck meal.

Here are more posts on expenses -- meals and entertainment .

-- June

Missed estimated payment: Not a big deal

2010-04-16T08:41:00.004-06:00

June --

I'm self employed. I just got my taxes back from my accountant (I was only FT self-employed for about 1/4 of 2009, so I still had a reasonable tax refund last year (don't ask, minimum wage with child credits, etc).

Anyhow, my accountant applied my refund towards my estimated taxes for 2010 (which is a good thing). My next estimated tax payment is now due, and I won't have it for a little while.

So right now, it looks like this.

Original fed refund: 2000
Original estimated payment due 4/15: 3000
I don't have the $1000 right now to pay Fed (or the $800 for state).

Can I make those payments on the *next* quarterly payment? Or am I going to get penalized by the IRS if I pay my estimated taxes later than the quarterly due date?

Either way, it's going to be late... but I need to know if it can wait until the next quarter, or if I need to pay it ASAP, and then pay the *regular* estimated payments next quarter.

Eric
Technology Consultant

Dear Eric,

You may wait until the next quarter payment and add the difference to that.

If yours and your tax pro's estimate of 2010 income is correct and you should have paid exactly $3000 as an estimated, then when you pay the missed $1000 in June instead of April it will cost you only a little bit of interest.

You will have owed the IRS $1000 for 2 months. At 5% a year that's $8.33 interest. Which is calculated later, when you file your 2010 tax return.

Read this post: A Primer on Estimated Taxes .

-- June

Net profit is subject to tax.

2010-04-14T11:30:00.004-06:00

June --

I have a question. I teach Metal Clay classes (making fine silver jewelry from silver in clay form). I charge $85 fee which includes $35 for supplies. What portion of this do I have to pay tax on as income. I am assuming I would just claim $50 as income but I wanted to be sure.

Edith

Edith --

An indie claims all income she receives. That's gross income.

Then she deducts all expenses.

What remains is net income or profit or loss. It is that amount on which you are subject to tax.

Here are more posts on income .

-- June

Meals & Entertainment Deduction @ 100%

2010-04-10T09:05:00.005-06:00

June – Not quite sure how to both post a comment and ask a question in the same fell swoop on your blog page, so I’ll try here in e-mail instead. [Ron, click "comments" at the end of the post.]

I found you because I was looking for information on business checking online today. 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 this post: You Do Not Need A Business Checking Account .]

But now I have a question. You wrote as an example to deducting a business expense: "A carpenter deducts not only the tools that she buys, but also the expense of dining out. Why? Because during the meal with her husband she talks about her new business, gets his advice on questions of scheduling, picks his brain about various proposals, and tests his reaction to her brochure. She could not have had this business discussion at the family dinner table with her three children in attendance and so the gift given to her brother as thanks for baby-sitting while she was at this dinner is also a business expense."

Is this deductible at 50% for meals and entertainment, or is there another, full deduction category to be considering?

Thank you – Ron
Long Beach, Calif

Ron --

It's great to learn that my business-checking-post will save you $144 a year.

The carpenter's business meal is a 50% deduction as are just about all meals and entertainment.

The only M&E deductible at 100% are those that are offered to the general public. For instance: If you have an open house to display your artwork and you provide wine and snacks to visitors, that food and beverage is a 100% deduction.

Meals & Entertainment expenses are further explained in my book Self-employed Tax Solutions.

-- June

Refunds & Extensions.

2010-04-09T09:57:00.000-06:00

June,

If you file an extension and know you don't owe taxes to IRS, but are due for a refund, do you just file the extension?

Thanks.

Rita

That's correct, Rita.

-- June

Talk with an indie-savvy tax pro. Use the loss.

2010-04-09T09:42:00.004-06:00

June:

To file or not to file. H&R Block tells me I had no taxable income for 2009, and that I don't have to file. My VA check is not taxable.

I spent last year researching a novel and working on a manuscript. This year will be different. I am working with an editor and a publisher. I have never been in this position.

Don't I have to send the IRS some kind of form?

Donna
Lakewood, NM

Dear Donna,

You may not be required to file a tax return but it is to your tax advantage to file a tax return.

I assume that as a writer you had expenses, such as: research; office; travel; phone; ISP; etc. With no income those expenses result in a business loss.

I will not get into heavy tax jargon but know that there is something called a "net operating loss." The regs on that have recently been expanded. What it means is that if you have a loss, that loss may be deducted from income in a previous year or in a future year. Yes! That loss can get you back some tax money on previously-filed tax returns. Or tax returns not yet filed.

File an extension. Here's a link with info -- #23 Be Smart: File An Extension. And then get yourself an indie-savvy tax pro.

-- June

Deducting Education Expenses

2010-04-01T09:39:00.007-06:00

June --

Massage Therapy 1 year as an indie.

I was wondering if I can deduct the cost of my massage therapy school on my tax return. I went to school in 2007 and 2008 but did not start working until 2009. I was told by some colleagues that I can deduct the cost of school the first year I start working. I want to make sure this is true before I file my taxes.

Thank you for your help.
Mary
Lyons, IL

Hello Mary,

I doubt you'd take advice from me on massage procedure and method. So it's good that you are checking out the tax advice given you by your fellow massage therapists.

They are wrong.

The costs of education to learn a new profession is not a business deduction. It doesn't matter when the expense occurred.

You may deduct the costs of education to maintain or augment skills in your current profession.

There are non-business tax benefits for the costs of education -- both credits and deductions. They could have been taken in 2007 and 2008. Discuss with your tax pro whether you took advantage of them and whether or not it is worthwhile to amend your back returns if you did not.

-- June

Lorenzo Landscaper's Business

2010-04-01T09:09:00.008-06:00

June --

I'm from Woodbridge, VA. I am a full time fireman who does side work cutting lawns. I've been doing lawns for 3 years. My brother and I who is also a fireman cut lawns together and split things 50/50. We don't have a business license or TAX EIN because we have never made enough money to claim until this year.

This year we will receive our first 1099MISC form ever and will be claiming our side income as well. When we get paid the check comes to me in my name as will the 1099 for the full amount we were paid. Is there anyway for me to claim half that total on my income taxes as other income and somehow let the IRS know my brother is claiming the other half?

I tried calling the IRS and got no where, but was told I could send my brother a 1099 from myself to make it happen is that true?

If so what are the logistics? Would we be better off filing for a tax# and doing a completely separate business return although we don't have records for any deductions?

Thanks for you time.
Herb The Fireman

Hello Herb,

First, let's go over a few things.

You said "we have never made enough money to claim." Know that no matter how much you make, you must claim it all.

The feds do not require you to have a business license nor a tax ID #. Although your town or county might.

The income that you and you brother earn is not "other income" it is self-employed income.

You each must claim the income on Schedule C: Profit or Loss From Business which is part of your personal/individual tax return.

Since the income comes to you then you should send your brother a 1099MISC for his 1/2 of the income. If you don't send him a 1099 it is not a big deal. You could be fined $50 for not filing that form. In 30 years I've yet to see that happen. You should give him his 1/2 via a check from you so that you have a record of payment. Since this is after the fact -- i.e. after 12.31.09 -- at least have some paperwork, such as an invoice from your brother marked paid, attesting to the transaction.

I do not give specific, line-by-line tax return instruction so I can't give you more "logistics."

One of the characters in my book Self-employed Tax Solutions is Lorenzo Landscaper. You might want to check out the book to see if Lorenzo's deductions give you any ideas on what yours might be.

Best,
June

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

2010-03-30T18:39:00.006-06:00

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

2010-03-29T10:33:00.003-06:00

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.

2010-03-29T10:21:00.004-06:00

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.

2010-03-29T09:49:00.004-06:00

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.

2010-03-29T09:10:00.006-06:00

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