Selling A Website or Business Equipment

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

Learn how to deduct medical costs as a business expense.

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

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

You are what you speak.

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.

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

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

Hi June,

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

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

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

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

Thanks, Arthur
Pasadena, CA


Dear Arthur,

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

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

I wish you much success,
June

New to indie life? Where To Start

June --

Computer Consultant Only 2 months.

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

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

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

Keep It Simple: Round Off

Hi June,

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

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

Thanks, Billy
Arlington, VA


Hi Billy,

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

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

-- June

Deductions in a Fifth Wheel

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

Capital Gains Consequences of Home Office Deduction

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

Missed estimated payment: Not a big deal

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

Partenerships may not be simple.

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


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


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

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

Self-employeds receive 1099s.

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

Partnership tax returns are complex.

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

-- June

1099 Not Necessary for the Recipient

June --

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

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

Eric


Eric --

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

-- June

IRS owes you money. A BIG BUT as to whether you'll get it or not.

Hi June,

I have been a software developer for 15 years in Oklahoma City, Oklahoma. Loved your book and I have a question about the statute of limitations for refunds that maybe you can address in your blog.

Here is a direct quote from the tax code section 6511:
"Claim for credit or refund of an overpayment of any tax imposed by this title in respect of which tax the taxpayer is required to file a return shall be filed by the taxpayer within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later, or if no return was filed by the taxpayer, within 2 years from the time the tax was paid."

It clearly states "within 3 years from the time the return was filed". There is no use of language such as "timely filed" or "due date" etc. My interpretation of this would be as follows: I file my 2003 return on April 15th 2009. I can take a refund until April 15th 2012. After all, the IRS can assess taxes against that return until April 15th 2012! Obviously, the IRS does not see it this way, but I cannot get anyone on their side to give me a reasonable explanation as to how they arrived at their application of Section 6511. In this case the code isn't acting as code should from a developer's perspective :).

Perhaps you have some insight, like a related section that provides guidance which I may be missing?

Thanks,
Matthew


Well, Matthew. Don't know how insightful I can be. But, I can explain it.

Correct, no matter how late you filed your tax return, you may file a claim for refund for up to three years after you have filed your tax return. But -- BIG BUT -- that doesn't mean you can get the money owed you!

Here's how it works:

*** To be considered for a refund you must file a claim for refund within three years from the date you filed your return.

*** How much of your refund that you may receive depends on whether you filed your return on time or not.

*** Amount of refund received also depends on when you paid the taxes for the year for which you are claiming the refund.

If you filed your return on time, meaning due date plus extensions, then your refund can be up to any amount as long as it was paid during the tax year plus the three years after that.
For example:
If you file your 2007 tax return on October 15, 2008 and you file a claim for refund on October 15, 2011 your refund may not be more than the taxes paid and applicable credits for 2007. The taxes for 2007 must have been paid during 2007, 2008, 2009, 2010 through October 15, 2011.

If you filed your return after the due date plus extensions then your refund can be up to any amount owed you as long as the taxes were paid during the two years prior to filing the refund claim:
For example:
If you file your 2007 tax return on October 16, 2008 -- a day after the deadline -- and you file a claim for refund on October 15, 2011 -- same day as my previous example -- your refund may not be more than the taxes you paid for 2007. But, [this is the BIG BUT] only those taxes paid from October 17, 2009 through October 16, 2011 are eligible for refund..

If you want to read how the IRS explains this, see IRS Publication 556 pages 13 through 15 and IRS Code Section 6511 -1B(2)a.

Since most people pay taxes for a particular year in that year or a little into the next it pretty much means: forget about filing for a refund if you didn't file your tax return on time.

The exception: You receive a notice from the IRS a year or so after filing. You pay additional tax then find out you didn't really owe that tax and you file a claim to get the additional tax refunded.

Best,
June

Home Office: Neither Reasonable nor Unreasonable.

Hi June,

I'm planning on doing freelance programming from my apartment full time and I'm wondering exactly how much of this I can write off as a home office.

I've got a 1 bedroom with my desk and computer gear in the living room. Can I write off the area of the living room (say 50% of the apt)? What if I also watch TV or have people over in that space?

Am I only allowed to write off the 5% or so that the desk occupies? What if I use the computer for non-programming activities? I guess I am wondering what a reasonable deduction would be...

Thanks.
Mark
Boston, MA


Hello Mark,

For home office use there is no reasonable nor unreasonable.

Either using your home for business fits the regs or it doesn't.

The use must be exclusive. In other words you can do nothing in the home office area other than work. That means no friends in to watch TV, no emailing Mom or your girlfriend from your home office computer [everyone breaks that rule].

The area does not have to be an entire room. It can be a small area of one or more rooms.

Here's a more complete explanation of home office expense.

-- June

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

June --

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

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

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


Eric --

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

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

-- June

Husband & Wife with More Than One Business

Hi June.

I love your site. I will be buying your book from your site.

My questions is this. I setup an LLC to run my business expenses through. I have several ventures: Podcast, Web Design and support, my wife makes mosaics and sell them at Festivals, and we are working on a book.

Do I keep the income and expenses for each of these separate? Or can I track them all together?

Thank you for your support and excellent web site.
Terry
Cedar Park, TX


Hi Terry,

So glad you like my site. Please tell your indie friends and colleagues. They all need simple, clear info.

If it were possible to make all these activities fit into one business then the most tax advantageous structure is to have one of you as the sole proprietor employer and the other as the employee.

If you cannot have your wife's ceramics fit into what you do then you need two sole proprietorships. And then, depending on the subject of the book, one of you would be the employee of the other. Let's say your book were about ceramics and you were helping your wife with the tech part then you would be her employee. This would be done by setting up a payroll with all attendant forms and filings. You might want to read these posts for more info on husband/wife businesses -- husband-wife business .

Sorry, don't know what the heck you mean when you say that you "setup an LLC to run my business expenses through." An LLC is a legal entity not a tax structure. And no business entity is set up to run expenses through. I strongly urge you to read my most recent issue of Ways through the Maze. This month's column is "LLC? Incorporate?" Check it out at Maze archives here.

Best,
June

New Indies Need Basic Information

Hello June.

My name is Gilbert and I just wanted to let you know that the information in your website was so helpful to me that I just bought your $13 book thru PayPal. I just retired after 35 years at Texas Instruments and am looking to become a software consultant to TI next year once my LOA is over. I have been searching for info on consulting and tax ramifications for indies in the net, but your site was the most helpful to me. I am going thru DBM transition services but even they cannot compare to your expertise.

Thank you so much and I hope the book gives me the answers I need to start my own sole proprietorship consulting business.

Regards,
Gilbert
Sherman, TX


Dear Gilbert,



Thanks you so much for your generous comments. I am traveling in upstate NY right now but I know my staff will get your copy of Self-employed Tax Solutions to you quickly.



SOLUTIONS will give you a complete understanding of the basics of being self-employed. After 35 years as an employee you will find that being self-employed requires a different mindset as well as new knowledge of your tax and recordkeeping responsibilities. After reading my book you will have the confidence of a firm foundation on which to build your new business.


Best,
June

Check your sources BEFORE you act!

June --

IT consultant. Thank you for taking my comment.

I have been an independent contractor for 7 years.

The problem I have now is that I have been trying to purchase a house and the person helping with my loan advised me to amend my 2007 taxes and take no deductions and even had me add some income to it to make the numbers for the loan as my AGI was low due to the deductions.

He also advised me to file 2008 with no deductions and add some income to that as well.

Now my problem is that I have not received financing and am stuck with a huge tax liability as I did not take my deductions.

I am not sure where to go now.

Any help is appreciated.

Vipul
Vienna, VA


Dear Vipul,

As I alert indies all the time: Know the source of the info you use. Even though they are both trades people, would I ask my plumber to fix an electrical problem? Did the person helping you with the loan know anything about taxes? Did you ask him?

Inflating income to get a federal loan is fraud. Yup. It's really bad.

You need to go to a legitimate tax professional experienced with self-employed taxes and have her file amended tax returns for 2007 and 2008.

In my book, Self-employed Tax Solutions, I warn about just such a situation. Sammy Segar the clueless CPA advises the musician Miles Mingus just as your loan guy advised you.

Best,
June

Using Your Bike for Business

Hi June,

Quick question about deductions - if you are self-employed, in my case a freelance technology consultant, and you use a bicycle every day to do things for work (going to clients' offices, picking up supplies, etc.), can you deduct the cost of the bicycle as well as the maintenance?

I read that next year there will be a deduction ($20/month) for employers whose employees use bicycles for work, but in the IRS publication (http://www.irs.gov/pub/irs-pdf/p15b.pdf) specifically says (p. 19) "a self-employed individual is not an employee for qualified transportation benefits."

This doesn't seem fair! I've asked 2 other accountants and got 2 different answers, so i turn to you, the acknowledged master of all self-employed tax
issues... :-)

thanks,
eric


Hi Eric,

Hmmmm ...."quick question" usually requires a three page answer. And "fair." You want the tax code to be fair! Well, you're not an employee. In many cases there are different regs for employees and indies. This is one of those cases. Unless there's new regs next year.

Here's what I would do: Treat bicycle expense similar to car expense. Figure out how much you use your bike for business transportation versus your total use and deduct that % of the total cost of your bike. A $300 bike used 90% for business would get you a $270 business equipment deduction. Repairs, new tires would be handled the same way.

Hope that helps.

Best,
June