1099 As Last Resort

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

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

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

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

I appreciate any feedback you have.

Thank you sooooo much.
Cheniah

AK


Hi Cheniah,

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

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

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

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

Best,

June

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

New Mexico Gross Receipts Tax

Hi.

I'm writing for state specific advice. I've been a freelance part-time alternative builder, sometimes handyman for years. I've been out of the tax system for years also, but now I'm going to reenter. That's not the question though.

My residence is here New Mexico and I did a few small jobs this fall. I have already e-filed my federal (only SE tax due), and was starting to do the same for state when I saw, to my horror, that New Mexico appears to charge a "Gross receipts tax" Gross is the word ! It's a tax on all services (not just goods), it appears.

My question is this: Do micro biz independents really have to pay this too? No exemptions that I'm missing? I earned $4000 last year and it appears that even though I'm at half the poverty level, I have to pay 7.25% on every dollar I charged, BEFORE my expenses. I'm shocked. I'm already paying the 15% SE tax. That brings up my second question: Do you know how the state determines one's presence here? I travel a lot (mostly recreation) and one could say I'm here more or less, depending on what's best... do they have a way of checking?

Thanks, Steve
New Mexico


Hi Steve,

New Mexico Gross Receipts Tax -- NMGRT -- is a bit like sales tax and it gets paid to the state of New Mexico only once on a service or product.

Think of it this way: If you fix my window you charge me NMGRT on your fee for labor. You send that tax to NM.

If you purchase a new window to install for me then you would charge me tax on both the window and your labor. However, when you bought the window, were you legit, you would give the window seller a certificate to show that his selling you the window was not the final sale because you were then going to sell it to me so you would not have to pay NMGRT on that purchase.

And, yes, you do have to pay the tax. If you intentionally don't pay it it's fraud. How will they find you? Well, what if that window repair you did for me was for my office and I wrote off the expense on my tax return? And then I was audited. Besides, you drive on the roads that that tax helps to maintain.

My friend, Shirley George Frazier, has a good blog post on state sales tax in general. Check it out here.

Cheers!
June

A self-employed NEVER receives wages for work performed!

June --

My question is for a friend who is in construction.

My friend earned wages as a sole proprietor. Now the fellow he worked for says he's not a company or corporation and will not be furnishing him with a 1099-MISC. How does he report his wages?

Rheta from Hickory, NC


OK Indies: What's wrong with this picture? Right you are. A sole proprietor does not receive wages. Only employees receive wages.

The friend in construction is self-employed and whether he receives a 1099 or not his income is self-employment income.

Check out my book Self-employed Tax Solutions. It will simplify your tax and financial life, and save you money!

Deducting Health Insurance Premiums

Hi June,

Love the site but I didn't find what I was looking for. my husband has recently started his own cabinet business. We are still in the making and will probably set up as a sole proprietor with wife as employee.

I am currently employed full time and have medical insurance coverage. I have included him on my plan since he left his job to become self employed.

Am I correct that we cannot use the insurance payment deducted out of my pay as a company expense/deduction? My insurance is covered by my employer but I have to pay for his on a monthly basis,

I have read so many different scenarios but am still confused.

I appreciate your help in advance.

Susan from Goldsboro, NC


Hello Susan,

I'm pleased you like my site. Thanks for letting me know.

I assume then that you have already read all the posts on health insurance. If not check out the category insurance -- health/medical on the left. You will see that you may deduct health insurance premiums only if you are your husband's employee and an employee medical benefit plan has been set up for you.

Best,
June

Where & How to Get State Info on Indies

June --

I am from Summerville, SC. I've been a handyman for 7yrs.

My question is: I do work for 2 local companies. They are independent and have workers compensation insurance. I do just about anything for them. I have never had workers compensation insurance because it costs so much. They are now saying that I need to have WC insurance myself because their wc carrier says so.

Where do I find out the 'law' of SC so that I don't spend money that might not be needed.

Shannon


Dear Shannon,

Every state differs on it workers compensation regulations. Every state differs on a lot of regulations affecting indies. There are many routes to getting information.

Contact your local what used to be called the Department of Labor. Read my post Homeland Security or Jobs 'n' Things which was about the NC Department of Labor and you'll see what I mean about the title of the agency.

If nobody there can help call your local Small Business Development Center -- often located at a community college, or your local chapter of SCORE.

I googled "South Carolina Workers Compensation " and came up with South Carolina Where Business Connects . There are many sources there.

Hope this points you and other indies in the right direction.

-- June

Wife Helps Plumber Husband

June --

We have had a plumbing business for 3 years.

My husband does the plumbing and I do all the scheduling of jobs, and bookkeeping. We have no employees. We each take a salary, this year our tax preparer wants me to do a W2 for myself and my husband, I'm not sure about this. Wouldn't this put us in the category of a employee?

Diane in Payson, AZ


Oh My Goodness!!! Diane. If you are giving me the straight scoop -- meaning you are accurately telling me what your tax preparer said, then there is a whole lot wrong here.

Since you did not say that you are incorporated I assume your plumbing business is your husband's sole proprietorship. He cannot be his own employee in a sole proprietorship and so he does not get a salary and would not get a W2.

If someone is an employee then certain registration must be done at the start of the employee relationship. And various payroll forms must be filed with the feds and often the state as well during the year. You don't decide at the end of the year, oh well, guess I'll do a W2.

You need to talk with a tax professional who knows what she's doing. Perhaps your local Small Business Development office can help you.

Best,
June

Clothes Today, Gone Tomorrow

Hi June,

We have a small remodeling business that began in 2002. Typically one man jobs are what we do. Received "Tax Solutions" in mail 1/14/08 and now in Chap 13 (no skipping around).

My question is, how subject are we to interpretation when it comes to a given deduction i.e. work clothes "clothing must not be suitable for taking the place of your regular clothing"[from your book] in today's world anything goes, in my world today's new clothes tomorrow have paint,caulk, oil, etc. etc. etc.on them and therefore are "Work Clothes."

Do we win or lose this battle and or is it somewhat of a crap shoot? I will try to apply the spirit of your answer to other deductions.

Thank-you.

Brad from Shelton, WA


Hi Brad,

No it's not a crap shoot. It is specific.And you lose. If you can wear them in everyday situations you may not deduct them unless they have your company name or logo on them.

Were the IRS to use your reasoning then everyone could deduct all clothes worn to work because they all wear out one way or another. Whether pantyhose or ink on shirts or wine spilled at a business lunch.

What about buying a bunch of T-shirts and pants with the Brad company name on them? The extra cost of cheap printing may be more than saved if you could write off the clothes and their laundering.

Here's two blog posts on work clothes.

Any other questions that arise from my book, Self-employed Tax Solutions, please send them along.

Best,
June

Which business entity is best?

June --

I am a Mortgage Brokerage / Home Remodeler.

What is the best business entity to form to minimize tax and personal liability as a home remodeler?

-- Guy


Hello Guy,

If you use the right tax professional, and set up the correct self-employed pension, then you should be able to get get every tax break you need as a sole proprietorship. Sole proprietorship is also the easiest and least expensive business structure. .


If you need liability protection then register as a Limited Liability Company [LLC] set up as a sole proprietorship. Then look for any other potential liability and get additional insurance to cover those. Take a look at my post LLC? Incorporate? to learn a little more about LLCs.

Don't let some fast-talking accountant bully you into a business structure that you don't need! You may need to incorporate because of factors not evident in your email. If you do, be sure that you understand the reasons why and also what are your obligations regarding maintaining the protection of a corporation.

BTW -- You don't say whether or not you are married. They are many benefits to hiring your spouse.

Best,
June

Sole proprietor ... self-employed: What's the difference?

June,

My husband is a custom painter. He works as a subcontractor and pays self employed taxes, what would make more sense taxwise, sole proprietor or continue as self employed?

Marcia, Morrisville, NC


Marcia,

A sole proprietor is a self-employed.

Self-employed is a description for anyone who works for himself. A sole proprietorship is how the business is set up. A sole proprietorship is the type of business structure.

For instance, if your husband went into business with a friend and they worked together they would both be self employed and their business structure would be a partnership.

If you work for yourself and do nothing about your business structure, you are automatically a sole proprietor. You might want to read this column on my website for more info I am a Business .

If you're a sole proprietor, you do not need to file a separate tax return for the business. It's part of your personal 1040. However, were your husband in business with his friend, the partnership would need to file its own tax return.

Best,
June

Deductibility Of A New Truck Or Car

June --
I bought a new truck for my construction business and I would like to know if I can deduct my monthly payment? Or can I only deduct the interest I paid and deduct the mileage I traveled.
-- Andy


There are two ways to calculate vehicle expenses:

Mileage Method: You get to deduct business mileage as cents per mile. In 2006 it's 44 1/2 cents per mile. You may also deduct the business portion of finance charges on your auto/truck loan. For instance, if you put 10,000 miles on your vehicle per year, and 2,500 are for business, you may deduct 25% of your vehicle loan interest.

Actual Expense: Tally all expenses for your vehicle for the year and deduct the business portion of those expenses. Expenses include gas, repairs, tires, insurance, etc., and loan interest but not the monthly payment. If you use your truck only for business, then you get to deduct all the expenses, but still cannot deduct the monthly payment.

Whether you bought your truck with cash or are paying for it with a loan, you deduct the cost of the vehicle over a period of time. That's called depreciation. There are different methods for depreciating your vehicle depending upon portion of business use, and class of vehicle.

And, as always, read the book that can simplify your tax and financial life, AND save you money!
SELF-EMPLOYED TAX SOLUTIONS .

Deducting Dunkin Donuts: Meals On The Road

Hi June,

My husband is a finish carpenter, he works for one company but is considered an independent contractor and gets a 1099 so we deduct for a lot of things at tax time. My question is this: Can he deduct for food expense while he is out on the road driving to and home from work? The reason I ask is I added up all his Dunkin Donuts receipts for coffee he buys while at work and it was $1,212.00 for the year of 2006. I'm hoping we can deduct this but I seem to remember the woman at H&R Block saying we couldn't. Please help us to know what we can and cannot deduct.

Thank You!!
Julie


Good Golly, Miss Julie! That's about $24 a week on donuts. Maybe it's time for celery sticks and carrots. A lot cheaper, too, because lunch on the job is not deductible. The only time regular meals are deductible is when your husband is traveling, and travel means overnight.

And, as always, read the book that can simplify your tax and financial life, AND save you money!
SELF-EMPLOYED TAX SOLUTIONS .Best,
June