Don't be a faux-indie.

                         
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.]

29 Interesting Articles

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

No work? You're still self-employed.

Hi June;

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

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

Glenn
NH


Hi Glen,

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

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

-- June

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

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

Self-employment is about credibility.

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

International Freelancers Day

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

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

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

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

The Wealthy Freelancer

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

Think about tomorrow: It's Monday

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

Songwriters: Please take a look at this.

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

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

Assess the situation. Then make the right choice.

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

How To Handle More Than One Indie Business

In my book Self-employed Tax Solutions and on this blog I have said:

Define your business as broadly as you honestly can.The more multi-faceted and inclusive your field of endeavor the more wide-ranging your expenses and thereby the less taxes you’ll end up paying!

• A photojournalist can deduct a more extensive variety of expenses than can a wedding photographer.

• A technological consultant’s expenses will be more diverse than those of a computer repair person.

• A generalist writer – someone who might write about anything – has more assorted expenses than a sports writer.

Not only does a legitimately broadly defined business allow you more deductions it also simplifies your recordkeeping. By using a broad definition you may be able to combine two or more of your indie ventures into one.

If you have two separate and distinct indie businesses you must keep separate records for each business. That means you need to split phone costs, a trip to OficeArsenal for supplies must be allocated, same with computer use. A hassle, I'm sure you agree. But what kinds of businesses may you treat as one? Here are some questions on that from your fellow indies. Let my answers -- in red -- be your guide. I've highlighted the various professions each wishes to combine.


Hi June,
I know you say to define your business as broadly as possible -- but what about this: I do mostly editing and writing. Some layout, book design, this-and-that. Could call it all "communications." This past year, I've begun developing a photographic print sideline (yet to produce income, but generating expenses), and experimenting with monetizing a blog/website--well, maybe communications still applies to all that. June says: yes, this all fits as "communications."

But (what with the awful economy and all) I've also made about 40% of this year's income doing interior house painting. (Rolling on wall paint equals communicating with my client's future guests? I think not.) Also a little animal care and cleaning on the side. The truth is, I've really been scrambling to make ends meet.... June says: These could be combined into their own business, something like "home care services" but cannot be part of your communications business.

When it comes time to do my 2009 taxes I'm going to have to figure out how many businesses I "am" and how to handle that. Do I do multiple form Cs, Yes, two. one form SE? Only one. Separate out my expenses for each? Yes, for your two businesses: Communications & Home Care Services

I've pulled out your Self-employed Tax Solutions book but I don't see advice about running multiple, disparate lines of business as a sole proprietor. AND I'd bet I'm not the only Indie among your fans who has made ends meet this year by using other skills -- maybe older skills or lower-paying or less preferred skills -- and offering them as an independent professional. You are so right. I've received many emails on this topic. Maybe this could be a topic for your blog? And here it is.

Wishing you all the best,
Martha
Evanston, IL


June --
I've worked full time as a radio creative services director since '95 (W2). I freelance on the side... I have a parent company that consists of voice-overs and sound design, online advertising, and DJ/MC entertainment. I am trying to be as broad as possible by having these "sub-companies" all under one sole proprietorship / EIN. They're all related in the sense that I'm a Marketing and Entertainment Solutions company with various divisions. June says: They all fit very well as one business.

I'm also planning on being involved as a real estate investor - which I know would be a "separate" venture. Correct.

I've been freelancing part-time since 2002. I'm in the process of getting a new tax preparer (possibly CPA for the first time). "CPA" doesn't mean he or she is indie-savvy. Read these posts tax pros - tax prep fees - tax returns .

For many years, I relied on a guy who handles tax returns for a lot of media people and freelancers and got some ideas from him... Usually anytime I travel, I "talk business" part of the time - so I deduct a portion of air, hotel, food, etc - just not sure what specific portion I can deduct. Whoa. Talking business does not make it a travel expense. Read these posts expenses -- travel .

Also, before going in to work everyday I go to the Post Office to pick up mail so I count this as biz miles. Allowed if you are leaving your home office and picking up or dropping off your business mail.

Appreciate your advice - just purchased your CD and Book.

Thanks!
Jamie
Baltimore, MD


Hi June,
I love your book, Self-employed Tax Solutions, your site, and your super-helpful emails. June says: Thank you!

I've been pursuing (i.e. not getting paid) a career in journalism for the last, oh, 8 years. I have finally been getting paid semi-regularly for the last 2 years. For my journalism work, I do assignments and contribute to stories for radio programs.

During the time I wasn't getting paid and to-date, I have simultaneously pursued a career as a personal assistant As a PA, I do personal shopping, make suggestions for restaurants, resorts and hotels, manage and produce parties, and manage properties and household staffs around the country. I am a PA both to develop contacts for my career in journalism and to pay expenses. June says: Massage therapy also develops contacts but you couldn't combine it as part of your journalism business.

My question is whether I can lump both of my positions together into one business? No you cannot.

Both positions require me up-to-date on news, current events, what's in style, and basically any and everything else. Same for a hair stylist or a realtor. Do you think you could combine either of those with your journalism venture? You are stretching things too far.

1) Can I legitimately call myself a "Lifestyle and Multimedia Consultant" or "Lifestyle and Multimedia Producer"? No.

Do you have a better idea? You have two businesses.

Thank you!!
Briana San Francisco,

Drive: The Surprising Truth About What Motivates Us

Indies, I would like to bring to your attention "Drive" a new book by Dan Pink.

In Drive: The Surprising Truth About What Motivates Us, Pink argues that the best workplace motivation is internal, the desire to excel and improve, rather than external, based on rewards and punishments, carrots and sticks. He cites scientific experimentation, largely ignored by the big business model corporations, that provides convincing evidence of this psychological/economic truth.

Dan's work follows in the tradition of his earlier books, Free Agent Nation and A Whole New Mind, which also take a fresh approach to the changing 21st century workplace.

Much of what Dan, who has been a client for several years, says about the workplace is related to businesses like BestBuy and Google, but it also has wide application to the indie life, where fulfilling one’s potential has long been a principal motivating force (yes, of course, making a living rates up there as well).

Please take a look at Drive. I think you will find it valuable, especially in these difficult financial times when indies need to harness the power of their internal motivation.

-- June

Reimbursements/Reimbursements/Reimbursements/Reimbursements ....

OK Indies, you must be a little resourceful. And I don't mean to pick on the indie who sent the following email it's just that V from Katy, TX happened to hit at the right moment.

I get the same question about reimbursed expenses over and over and over. I usually skip the emails and go on to the next one hoping that the creative, intelligent, resourceful indie who asked the question will either come back to the blog and go down the list of Topics/Categories/Labels on the left and find expenses -- reimbursed . Voila! there's the answer. Or, even try one of two search tools on the blog: One at the top left -- note the magnifying glass; the other middle left, cleverly worded, "Search This Blog." Just try variations of what you are looking for -- reimburse, reimbursement, reimbursed expenses. You get the picture. Right.

Indies you must think on your own. Remember my urging you to have an indie-business mindset. Unlike employees, you have no big daddy taking care of you. And as much as I'd like to answer every one of your questions it's just not possible. You need to do a little of the legwork. V made some of the right moves by going to the IRS publication.

So here's V's question:


Hi June,

I enjoy reading your tax solutions, mail and newsletter for Indies. I had a couple of questions. I am an Indie and this is my first year as a self employed. I get reimbursed for my travel and meals expenses from my clients. I provide accurate accounting to my client for all the expenses. I have read Publication 463, page 32 regarding this. It clearly states that if you do not account to your client for the expenses you have to include it in income.

Now my question is: First, if you account to your client for the reimbursements, do you still have to include it in the income? Will it be on Sch C? If I have to include it in income, can I claim the expenses on Sch C as 100% deductible?

Second, for the month of December, I relocated to the city where my client is located and the client is reimbursing my rent. Is this reimbursement taxable?

Thanks,
V
Katy, TX


V --

Do take a look here for the answer to your 1st question -- expenses -- reimbursed .

The reimbursement for rent is income. It is an expense only if it qualifies as a home office deduction and then only part of it will be deductible. Check out my posts on home office here home office or studio .

Thanks for being my "example."

Best,
June

Indies Don't Receive Salary or Wages or Dividends

June --

I Have been a self-employed audiologist for 3 months. Where can I find current info about paying my self-employed self a salary vs salary+dividends and the tax implications for each option?

Specifically, how do I set that up now as I begin the business?

Thanks,
Brandi
South Lebanon, OH


Hello Brandi,

Your question shows that you are new to self-employment and that you need a lot of information.

Indies do not receive salary. They receive gross income from clients, subtract expenses and are left with a net profit. I suggest you read some of these posts on being self-employed .

This, directly from my book, Self-employed Tax Solutions, explains a bit more:

YOU'RE THE BOSS. PAY YOURSELF WHATEVER YOU WANT.
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 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 himself have no bearing whatsoever on his 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.

I wish you success,
June

Take Charge

June --

After an extensive web search fiasco, it seems you are "the best-of-the-best" when it comes to answering tax questions for the self-employed artist! (CONGRATS! lol) I'm trying to learn ASAP what I need to do in my situation. I am a graphic artist.

I worked for the same company for 10 years. W-2 / $1000 every 2 weeks ...some months had 3 pay periods. I brought home approx. $850 every paycheck. NOW they want to 1099 me for a straight $2000 each month. So that's a pay cut.

I do work from home in my own office, but never took the deduction. I haven't a CLUE where to begin.

I bought a better house & cars not too long ago, so don't have a lot of money set aside...2 little girls...live-in fiancé altho the IRS doesn't know he lives with me because he owes them.

I was able to receive a decent earned income credit my accountant says. She's never charged me more than $100 to do my return.

Can't believe they are doing this to me after 10 years. I need to know how I can maximize this $2000 a month at taxtime or we aren't going to make it. I'm not sure how much to keep out for the IRS. Do I HAVE to pay quarterly or can I pay at the end of the year?

I just don't know what to do to keep my family afloat without getting punished by the IRS later. Liiving in Central IL doesn't offer much advice without a hefty pricetag. Any advice would be GREATLY appreciated.

Sincerely,
Becky
Illinois


Wow, Becky! I understand your fear, confusion, and not knowing which way to turn. Let's break this down into small pieces as you presented them. Then, as the mother of two, you need to take charge and deal with each piece.

The company you work for cannot legitimately switch you from an employee to a self-employed without making any other changes. Please read this post Employee vs. Self-employed. The company is doing it to save money and in the process will cheat you.

As an employee you were earning $26,000 per year [$1000 X 26 weeks]. As a self-employed you will earn $24,000 per year [$2000 X 12 months.] That save the company $2000. In addition to that, by paying you as a self-employed rather than employee, the company will save an additional 20% to 30% in payroll taxes and benefits. That's a minimum of $4800 [$24,000 X .2]. So the company is
saving approximately $6800.

It is fraud. Usually I suggest posts to read. I insist you read this post Homeland Security or Jobs 'n' Things . After you read it decide whether you want to pursue kicking this company in the rear or going along with it because you must keep the work. You say that you "Can't believe they are doing this to me after 10 years." People and businesses mostly do to you only what you allow them to do.

You have a "live-in fiancé altho the IRS doesn't know he lives with me because he owes them." How much does he contribute to the household? Anything? A fiancé may become a husband. His IRS problems then become yours. Yes, yours! He must take care of that now. Time for both of you -- or you alone -- to take on the responsibility of clearing up the financial part of your relationship with your future husband.

Is the father of the children paying any child support? If not, talk with the agency in your state of Illinois that will help you with that.

You also say that you may get "punished by the IRS." Where did that come from? Punished? The IRS collects the same taxes from you, from me, from every indie and from all employees. Don't blame the IRS because a company is engaging in fraudulent business practices.

If you accept the company's offer and do become self-employed you will find the answers to all the questions you asked above as well as how to get the lowest tax possible, how to keep records, and how to calculate and pay estimated taxes on this blog, on my site and in my book, Self-employed Tax Solutions.

You are not the victim. You are responsible for three lives -- yours and your two daughters. You need to review and take charge of the circumstances you are currently in. Women are tough. You can do it.

All the best,
June

You are a business. Treat what you do as a business.

June --

I live overseas and I have been working as an independent consultant for three years. in May of 2009, I accepted a job as a subcontractor to a subcontractor (a research wing of a foreign university in Eastern Europe). The project was a disaster and the lead contractor has essentially hogged every cent and has not paid the subcontractor--very shady!

I am not getting paid. I have fought and continue to fight but without taking drastic more expensive actions, I think I'm just screwed. It is ill advised and expensive to go to court here and I don't want to make this battle so public in such a small place. I am owed 10,000 dollars, which is no small money for me, as the job ended early (I was originally expecting to earn 20,000 from it). Now I am getting 0 AND it cost me some money to actually do my work as an environmental consultant.

I don't want to go to court to resolve this, as it will cost me more money and time and this is a foreign court that is unpredictable.

My question is, can I deduct my losses (the $10,000 I was supposed to get paid) against the taxes owed on the $8000 in earned income for 2009.

I have a signed contract and stop work order I issued when it became clear I was going to be paid squat. What would I need for documentation to prove I'm not getting paid? . Also, now that everything has gone so sour, no one will issue anything in writing anymore so if I need a piece of paper that says, there's no way in heck you are getting paid, that might be difficult to obtain.

Secondly, how would I claim these losses--is there a particular US gov form for losses. Thirdly, how much more likely get audited will I be by deducting big losses against my measly 2009 earnings.

Lets say I finally and surprisingly get paid next year at some point--what would I do if i had already deducted in from my 2009 taxes.

Is this common for independent contractors to find themselves in such a position, where it is too expensive and hard to go to court and the Indie just comes to terms with not getting paid.

Dejected and Taken Advantage of Indie, Jennifer


Dear Jennifer, A Dejected and Taken Advantage of Indie,

I apologize for cutting so much from your email. I wanted to make it accessible to my readers because yours is not an uncommon situation. Many indies get stuck for the bill. I am sorry this happened to you and to so many others.

What you don't want to hear is that you allowed yourself to be taken advantage of. If it were a $1000 job I could understand your doing the work before getting paid. But $20,000!! And doing $10,000 worth of work with no payment. In all that paperwork that you have you should have included a payment schedule. Something like: 1/4 of the work done, get paid 1/4 of the money. No more work until you get paid.

So, it happened to you once. Don't let it happen again. You are a business. Treat what you do as a business.

And the other thing you don't want to hear. You are a cash basis taxpayer -- explained in these posts -- so you can do nothing with the loss. You cannot deduct it. You may deduct any expenses that you incurred.

Best,
June