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

Hi June!

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

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

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

Many thanks,
Michele
Colorado Springs, CO


Dear Michelle,

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

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

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

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

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

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

I wish you success in your new venture!
June

PS: Is that the answer you expected?

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

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

June --

Re federal schedule c: business profit or loss

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

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


Hello Lisa,

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

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

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

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

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

-- June

When To Deduct An Expense

June,

I have very much enjoyed your posts and blogs and will be purchasing your book.

I have a question about inception vs separation. My accountant told me that I am able to claim expenses when I actually put an expense in service and that its independent of when they were actually purchased.

The example I'd like to speak of is my wife's business of a kennel. She has purchased animals in the year previous years but never claimed the expenses of those purchases. Recently some of these animals have passed on ( this I am calling separation ). Since they were not claimed on any returns prior is it acceptable to claim the loss now, even if it was several yrs back that they were put into service?

Best Regards,
Mark


Dear Mark,

For a cash basis business, you deduct an expense when incurred, meaning when you paid for it. You claim income when received.

I will assume your wife's business is cash-basis.

Equipment must be deducted -- when available for use in the business, not when it is used.

Supplies for general use -- when purchased.

Supplies for inventory -- depends on the kind of inventory method you have setup.

What your accountant is suggesting doesn't seem correct. All animals should be treated in the same way on the tax return. You may not pick and choose for your tax advantage.

Your accountant must do the research to get a definitive answer. If he is not already a member recommend http://www.natptax.com/. That organization is great with tax research.

Glad you like my posts. Thanks for letting me know.

Best,
June

Good Questions About Income, Expenses & Audits

Hi June,

Just finished listening to your CD and I thought it was good but rather short. I had hoped it would have been more of a version of your book less the worksheets. I much prefer an audiobook since as an indie I spend most of my time in the car and like to use the time to learn.

You have a great reading voice and may want to consider a more extensive audiobook version.

I do have a question I hope you may be able to answer. When one receives large amounts of cash as a gift at various times of the year how can you deposit this and make sure it is seen as personal? With a large immediate and extended family this can add up to thousands of dollars and I am not comfortable asking family to write notes saying they were nice enough to give me and the kids generous gifts.

Also, when I quote a job I include all expenses and there may be many varied expenses to complete the job ranging from nails to build a set to nail polish for a model sitting in the set.

I keep a docket for the jobs but an auditor who did not understand my indie lifestyle seemed to think the invoice should have had every nail and screw on the invoice and if I bought lunch for those at the shoot I should have the client and those around sign a meal log.

There is no indication in the code that this needs to be done and in the end I won in the appeal but the blood, sweat and tears only made me resent the CRA/IRS more.

The other issue I had was with unique gifts I give clients as a thank you for the work. If a client tells me they love hockey I will send an expensive stick to them and so on. What I have learned from an audit is if you think some accountants don't understand the work of an indie it pales in comparison to a government auditor.

Last question is if an indie is audited do you suggest they go it alone or get a representative to deal with the government. I understand if you can not answer all or any of my questions but they may make for good blog posts for you.

All the best,
Cliff


Dear Cliff,

I am trying to catch up with a huge backlog of emailed questions and some of this I may have dealt with already. But, a refresher never hurts.

First of all, thank you so much for your comments on my CD -- and my reading voice. I cannot do a CD of my book -- publisher constraints and the like. I do have additional CDs in the works but time is limited and client work comes first. I do have a new petite publication -- 75+ pages -- coming out very very soon -- The Confident Indie: Five Easy Steps. More about it soon.

On to your questions ...

Family gift money coming in: Make copies of the checks. Keep a list with specifics -- from whom, why, date -- of gifts by check or cash. Get pictures of family members. Make copies. Staple the family member's photo to the copy of the check. Save the birthday cards or anything that would help you prove where the money came from. And, I'm sure you always send a thank you note -- mom brought you up right! Well, copy the thank you note, or keep the dated emailed thank you. If the money was not a gift and not income, then send an acknowledgement of receipt of the money and keep a copy. That way you don't have to request anything from the giver.

If you are asking about reimbursed expenses, there's a lot on this blog about reimbursed expenses -- expenses -- reimbursed . If you are asking about expenses in general: Save receipts, of course. Photos do wonders as proof. Take a picture of the model with the polished nails sitting on the thing that was built with nails. Make notations -- including the date -- on the photo. Keep it with your receipts. Use your creativity in your recordkeeping.

No matter how much you spend on a hockey stick you may deduct only $25 as a business expense.

In an audit it depends on the tax pro and the taxpayer as to which one, or both, should handle the audit. I've had some clients who, with my coaching, did great by themselves. Other clients I would not let near the IRS. Years ago a client went to her own audit. She told the IRS auditor that she paid more in taxes in a year than the IRS auditor earned in a year. That audit did not fly well.

-- June

No indie business means no indie business expenses to deduct.

Hi June,

Structural drafter for 20 + years , I have been self-employed for the last 6 years up till June 2009 when I lost my self-employment business and had to seek a part-time as a temp employee.

I lost that job in August, now I am unemployed.

My question is, will I still be able to write-off any expenses after losing my self-employed business while I seek work?, Like supplies, transportation for interviews etc.

cesar
fairfield, ca


Hello Cesar,

First, be sure to read this post Unemployment Compensation .

You may deduct self-employed expenses that occurred only during your period of self-employment. If you were no longer self-employed you may not deduct any indie business costs.

-- June

Recent Grads Need Help With Taxes and Recordkeeping

This is from Jess and came as a comment to my post Designers Dozen: Tax Saving Tips for the Graphic Artist . Since it is typical of questions I receive from recent graduates I decided to give it more attention.

Graphic design students head out upon graduation, most of them toward freelancing, without a clue about how to handle income and expenses.

From Jess ... Thanks for this great article. I graduated from a graphic design school 3 weeks ago and have just started working full time as a graphic designer.

I have the receipts from the expenses during school, my mac, books, the course itself and going along to design based events. Can I claim any of these items? I use the same mac bought at school in my current position and I look at the books I have? I was also wondering if you knew about phones and phone bills if used for business?

THANKS HEAPS for your time! It is wonderful being able to access this information.
Jess


Congratulations, Jess, on both graduation and the work you got.

If you were not working or actively seeking work while in school you cannot deduct as business expenses any of the costs you incurred.

You can, however, deduct assets. In your case, assets are things -- computer, books, any kind of equipment. Your cost-basis for deducting these things -- in other words, the amount considered your business expense -- is not what you paid for them but their fair-market-value on the day you started your business. That means the day you started looking for work.

For instance, the fair-market-value of your Mac would be what some other graphic designer would pay you for it on that day.

The same with your books. Think of it as: On the day you tossed your cap in the air and said you were ready for clients, what would an incoming freshman pay you for your books? That amount is the fair-market-value of the books and your basis for deduction.

Hope that helps.

And thanks. Happy that my is helpful.

-- June

Freeworld and Aquent

Hi June,

I'm a graphic designer from Los Angeles, CA and I've been a freelancer for 3 years. I had a question I was curious if you could address on your blog. I recently discovered a site through a motion graphics forum called Freeworld (http://www.hellofreeworld.com/) that claims to allow freelancers to change their work status from 1099 to W2 while enjoying the benefits of both (in other words, they claim you are still able to take business deductions). From everything I've read from you, it seems like this is some sort of scam or perhaps the found a hidden loophole? I remain skeptical, but the guy who started it is a rather respected individual in my industry. What do you think?

Frederick
Los Angeles, CA


Hi Frederick,

A little skepticism is good.

I don't know Freeworld but I do know Aquent. I assume they are similar in structure . Aquent is a reputable organization and has been around a good while. I wrote for them about 10 years ago.

If I remember correctly Aquent was started In Boston by a guy in college hiring out his fellow students who were well versed in MACs to businesses in need of people who knew what they were doing. From that Aquent grew into a multinational corporation. Aquent screens the talent -- graphic designers, ITs, etc and matches them with businesses that need that talent for a long or short period of time. Very similar to temp agencies, however, their workers -- the talent -- are in specific areas of graphic design, technology and marketing.

The talent is an employee of Aquent not of the company for which the work is done.

As an employee the talent can deduct all business expenses BUT the expenses cannot be deducted in the same place that indies deduct their expenses. So, although in theory they are deductible the expenses are always reduced and often lost completely.

Best,
June

Child Care Expense

Hi June,

I ordered your book yesterday and can't wait till it arrives.

Question: My spouse and I deduct for child and dependent care expenses for our joint return. The care providers were out of the home, primarily day care or day camp facilities. I have also used someone to care for my children after school in our home, while I am working in my home office until my spouse gets home to take over the care. Is this expense deductible for my business. I wouldn't double count it of course for both my business and the child and dependent care expense IRS form 2441.

Thanks,
Dan
Atlanta, GA


Hello Dan,

Doesn't matter where child care takes place -- in or out of the home. It is deductible on your tax return if both spouses have income and if it is legitimately paid. In other words paying the babysitter "off-the-books" does not get you a deduction.

Child care is not a business deduction.

Were you a corporation there are some provisions for deducting child care. However, child care alone is not a reason to incorporate.

Best,
June

Is this what they mean by "do the math?"

In response to my post To deduct or not to deduct. Jamie sent back the following really good question:

Thanks for responding June.

In regard to your comment about it being a confusing question, let me explain. Say my business grosses $100,000 a year. After payroll, vendor bills, utilities, supplies, and other business related expenses, I'm left with $40,000.

The government is going to say "Okay, you have $40,000 left over. We're going to take a percentage of that." My concern is choosing between lowering my taxable income, and saving the money that I make.

So if I buy tissue paper for my office bathroom, should I be conservative and get the cheaper brand? Or should I buy the name brand because any money I would have saved getting the cheaper brand will be taxed by the government?

Or if there is a business convention coming up and the entire trip costs $3000, should I take the trip and not get taxed on the $3000? Or should I "save money" but still get taxed on it by the government?

I guess it's like a catch 22: If you spend more of your income, you may not have much left over for other interests. But if you're "saving money" by not spending it on legitimate business deductions, then the IRS will take a larger percentage of the unspent money.

I hope this made some sense. If it does, then my question is: Is it wiser to spend more through your business to reduce your taxable income than to try to save money and get taxed on the unspent money?

Thank you.
Jamie.


OK, all you indies. Follow this for I hope it will give you insight into answering your own questions because I think Jamie could answer his own question were he to simplify it.

What if I said to Jamie: Would you want me to give you $100 to deposit into your savings account or would you prefer I give you a percentage of $100 for you savings account?

Or if I gave Jamie, or you, the following choices, which would be the better pick? Keep in mind that you pay approximately 30% of your net income to taxes or reduce your tax by 30% of every business deduction.

OK, Jamie. You've got $200 in your pocket.

First choice: Spend $200 on a large supply of soft expensive toilet tissue. You save $60 in taxes. You put the $60 into your savings account.

Second choice: Spend $100 on a large supply of scratchy cheap toilet tissue. You save $30 in taxes. You put $130 -- that's the $30 tax savings + the $100 you did not spend -- into your savings account.

The smart shopper or the smart indie-business chooses to buy the less expensive toilet tissue -- the second choice -- unless there is a business reason to buy the more expensive toilet tissue. The Hilton buys the more expensive the Heartbreak Hotel buys the cheaper.

Jamie mentions a $3,000 conference. You do the arithmetic. If you choose to attend the conference there better be a really good business reason why that conference will make your business more successful or more productive because if you go it's $2000 out of your pocket. [Did you get the correct answer?]

OK. Math lesson over. By the way, I used to tutor math in the old days back when they thought girls could count but weren't quite up to multiplication and division.

Cheers,
June

More on Business Expenses

I sent Christine my complimentary list of business expenses. She received it and here are her questions on business expenses. As most of you know I have a full-time accounting practice which serves wacky, wonderful indies. And so, because it's tax season, I am going to do the quick-answer mode for Christine. I EMBEDDED my response below ... June


Thank you very much.... YOU ARE WELCOME!

I plan on purchasing your book so I can look further into what I may deduct. SMART MOVE.

My main job as a Nurse Practitioner I am employed at a private practice but I also sub-contract for a physician at a local prison and I need to find some deductions for that. UNLESS YOU COMPLETELY SHUT-OFF WORK WHEN YOU ARE NOT AT THE PRISON YOU MUST HAVE SOME DEDUCTIONS. AND WHAT ABOUT TRANSPORTATION WHEN GOING FROM ONE WORK PLACE TO ANOTHER?

I have an office in my house with a computer and furniture that I do my research and continuing education in. WOW! I SEE LOTS OF DEDUCTIONS RIGHT THERE.

My husband keeps telling me that I can not deduct part of that as an expense IF THERE IS AN AREA USED EXCLUSIVELY FOR YOUR WORK THEN YOUR HUSBAND IS WRONG. AND WHERE DID YOU SAY YOUR HUSBAND STUDIED ACCOUNTING? I beg to differ with him, my accountant in the past has not been too much on some deductions but with the sub-contractor part I need to find some deductions. I

also have cleaning ladies that clean my house but also they clean my office how do I deduct that as part of an expense? I guess what I am asking is how I deduct part of the utilities, house payment, insurance or what percentage I guess would be a better question. YOU MAY FIND THE ANSWER IN THESE POSTS home office or studio (25). IF NOT THEN HOME OFFICE DEDUCTION IS COMPLETELY EXPLAINED IN MY BOOK.

Thank you I found that your website was very insightful.

Christine
Elida, OH

To deduct or not to deduct.

Hi.

I'm a small business owner online retailer for 1 year.

Is it wiser to spend more money through my business and claim legitimate deductions, than to spend less? If you spend less of your business income, or "save money", then the IRS is going to get a larger portion of the unspent money as taxable income, so why not just spend more through the business? You can spend more on what you want, while reducing your taxable income at the same time.

Any downsides to this?

Jamie
El Paso Texas


Hi Jamie,

This is a confusing question. I am not sure what you are asking. However, here is what you and every indie should do regarding business expenses: Deduct every single legitimate business expense you possibly can. Don't cheat by deducting personal expenses.

A business deduction typically saves 1/3 in taxes. So a $900 expense save $300 in taxes. Could be less. Could be more.

The upside to a low income: Helps when applying for school financial aid or government benefits.

The downside to low income: It make it more difficult to get a mortgage or other loan or credit card.

Be sure to read Is it a deductible Business Expense? on my website.

And visit here for a complimentary List of 100+ Indie Business Expenses .

-- June

Indie Time-Travel: Reconstruct 2008

Hi June --

I'm a reset merchandiser, less than 1 year as an indie. I'm frustrated and confused because I have made some serious mistakes as an indie meaning I didn't hold onto my receipts and now I don"t think I can get my write-offs. Is there anyway I can still get my 1. mileage 2. my uniform 3.tools HELP THIS INDIE NEWBIE!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Melanie
St Berryville, Va


Hello Melanie,

All is not lost. You just need to do some time travel through 2008. Open your date book or computer calendar and relive last year. Recall what you did.

Regarding mileage, you must go through calendars and appointment books perhaps phone records as well, anything that will refresh your memory as to where you drove for business during last year. You may estimate but you'll need something to substantiate your estimates -- client business cards, an invitation to an event, emails still on your computer that you could print out.

For uniforms and tools if you paid by check or credit card it is easy enough to contact the bank and have copies of statements and cancelled checks sent to you. Take pictures of the tools and uniforms to help substantiate your purchases.

Learn from your past mistakes.

Best,
June

Another Pianist's Dad

Hi June,

Helpful site!

I was lead here looking at what the valid deductions would be for self employment in the case of my son. He plays piano for Sunday School each week for the past 3 years and this year the church decided to start paying him $100/month. He has been taking piano lessons for the past 10 years and is very proficient.

Is it legit to deduct as his expenses items that technically were paid by his mother and me (like piano lessons and tuning and music)? Do we need to have him start paying for these expenses himself and just "gift" him money to cover these items?

Thanks,
Cliff


Dear Cliff,

Glad to know my site is helpful. Thanks for letting me know.

In order to give you an in-depth answer I'd need a lot more info. Such as: How old is your son? Do you claim him as an exemption on your tax return? Is he doing this to make money or is this volunteer work that turned into a paying gig?

Here's a general answer that may help you. If money is gifted to someone with no strings attached then that someone may use the money however he or she wishes. If the money is spent on a deductible business expense then the deduction may be taken on the someone's tax return.

Best,
June

Writer's Mom

Hi June,

My question is about a new business venture of my son's. This spring he will graduate from college here in the Twin Cities with a degree in creative writing. He hopes to one day become a novelist or comic book author who can support himself via this trade. In the meantime he has discovered an interesting business. He creates funny video reviews of bad comic books written by others.

These reviews are posted on sites that include advertising with the video, and then he is paid by the advertising revenue that is generated. He isn't making enough money to live on (yet) but it is possible he will be making enough to support himself sometime in 2009.

My question is this: he spends approximately $40/month on comic books. He has been doing this for years due to his interest in the medium. But it seems to me that at least a part of that expense is now a legitimate business expense. I'm trying to figure out what is reasonable. He has to buy a comic book and read it before he can determine that it is a good book for review (not all of them are). So should he only include the comic books that he makes into reviews? Or perhaps he should avoid claiming any of it as an expense as the IRS will probably think it is too odd to be a business?

Thanks in advance for your advice!
Avonelle


Dear Good-Mom Avonelle,

As accountant and mother of four my first advice is that from now on your son should be asking the tax and business questions himself. That's an important part of his education as an indie.

I would direct him to read certain of my posts on business expenses there's about 80 of them on this blog. After a little research he would come up with the statement: Of course, I must read all kinds of comics to determine which are right for review and which are not. So, of course every comic I buy is a business deduction.

I would also have him look at his library. There may be a very large business expense deduction sitting on his book shelves. He should read this post Converting from Personal Use to Business Use .

Many of my clients and many in my family are writers. It is not an easy money-making endeavor. Your son should start now to learn about every deduction available.

Best,
June

Childcare is not a business expense.

Hello June -

I started a home business 1 1/2 years ago in Forest Park, IL. I hand paint wood items for kids rooms (plaques, frames, etc...)

I was wondering if I can deduct my babysitting expenses? I spent approx. $1200 last year for a babysitter to watch my son while I worked.

I just found your website. I plan to go pick up your book this week!

Kelly
Forest Park, IL


Dear Kelly,

Babysitting cannot be deducted as a business expense.

You may be eligible for a childcare tax credit if the following two conditions apply:

-- You have a profit from your indie business or you have earned income from a job. If you are married then your spouse must also have earned income.

-- Your sitter or daycare must be legitimate. If it's a service or school you will need an employer identification number. If you pay a babysitter then you must have a social security number for your sitter and the sitter must claim the income.

If you are a budding indie then you will find my book, Self-employed Tax Solutions useful. The least expensive place to purchase it is right here.

Best,
June

Supplies or Inventory

Dear June:

Each year at tax time we have difficulty choosing a category for products purchased for my wife's hair salon. She is an INDIE, a cosmetologist who leases her own shop. We try to put things in the categories listed in your book, but are a little confused about colors, shampoo,foils etc. that are used on clients directly, products purchased for retail and then supplies like cookies, flowers, decorations for the shop etc.

We keep more detailed records for our own purposes to tract individual client expenses, but for tax purposes we wonder what we can lump together.

Thanks for Your help,
William for Joyce


Dear William,

You may group together the supplies that are used directly on clients as well as cookies, flowers, etc. In other words, those things that you use, or use up.

Things that you sell are part of your inventory. You need to calculate the value of what you have on January 1. Add to that what you purchase during the year. Subtract from that amount the value of what you still have left to sell on December 31. That ending amount is the cost of what you sold for the year. It is called Cost Of Goods Sold ... COGS.

Best,
June

Software Cannot Replace Experience

Hi June,

I am a clinical and consulting psychologist who has been a sole proprietor for over 20 years.

I've started working on my taxes and have a question.

Earlier this year I spent $1,062 to purchase the latest version of a psychological test that I use regularly in my practice. I had thought that it would be considered an "office supply" and that I could write off the entire amount as a supply expense. But in using TurboTax, it asked me about a depreciable asset. It seems that by definition (something that has a life of more than a year but will become obsolete eventually) this test is not an office supply, it's a depreciable asset. In the end, TurboTax told me that it was a "special" depreciable asset that I could take a one-time deduction for, of only $561! How do I legally handle this - asset or supply?

Thanks,
Dr. Mark
Fairfax Station, VA


Dear Dr. Mark,

You see, I've been feeling really depressed. Suicidal actually. I bought this software program Mind-Mend. Says it has taken 20+years of psychiatric experience and rolled it up into this software program. There are 10 steps to avoiding stress. One step says do 15 minutes of meditation each day. Another step has me stand on my head for 10 minutes so that my circulation increases. My gym instructor says I should not stand on my head because of an old army injury. I am confused, what should I do?

As a doctor you might tell me that stress and suicidal tendencies call for different levels of treatment as well as different levels of urgency and that I should speak with a professional. You might also say that there is no way that 20 years personal experience could be put into a software program and have the same success rate as weekly visits with a therapist when treating something as complex as suicide.

This is my round-about of saying what I have said on this blog many times before: A software program written for the simple world of employees cannot replace a tax pro experienced with indie tax situations. Search "turbo tax" on my blog or go here for more info tax pros - tax prep fees - tax returns (21) .

Software is a supplies expense in almost all circumstances.

Best,
June

Expenses Must Be Separated by Profession

Hello,

I am have just gotten my first role in film as an actor & stunt man and I imagine I will be having more roles.

I have also been accepted in to the teamsters union. Both acting and trucking for film pay about $800 / day. However the jobs only last a short duration. I will be taxed at a very high rate and it want to get it back. I pay a fortune for classes, associations, union affiliations, agents, head shots, wardrobe, travel associated with classes or interviews, and all sorts of other things.

I have just set up a bank account named "sag and teamster" can I put all of my deductibles on that and send in the bank statement and use the whole thing as a deduction?

I have never filed an itemized tax return.

Thank you,
Jonathan
Angel Fire, NM


Dear Jonathan,

Congratulations! Hope you get a lot more acting work.

Where or how you track expenses does not determine whether the expense is a business deduction.

You must keep acting expense separate from trucking expenses. Also know that acting expenses go on a different part of the return than do trucking expenses.

Your question indicates that you know very little about taxes. So to get the best tax benefit you should not prepare your own tax return.

Best,
June

Home office? No deduction for Thighmaster.

Hello June!

Thank you so much for your blog! The pieces of information that you put together for us are always extremely helpful for us! Thank you, thank you, thank you!

I am a Graphic Designer -- 5 years -- from Huntington Beach, CA.

I was hoping to ask you a question today about setting up a home gym for my sole proprietorship.

This comes after I found this piece of information on the Internet: 3. Your Corporate Gym: Unfortunately, the IRS won’t let you directly deduct the cost of your gym membership. However, under section 132 (h) of the tax code, you can deduct the cost of the Gym equipment. So that Nautilus set, your Bow Flex machine, even the Gazelle Trainer that you’ve seen on television – not to mention free weights, a work out bench, etc – are all tax deductible through your company. Source: http://articles.webraydian.com/article1204-Ten_Golden_Tax_Deduction_Secrets.html

Now, my question is this: I see that a corporation is able to take an expense for gym equipment that they purchase for its corporate gym for employees. Is the same deduction allowed for a sole proprietor setting up a home gym for its owners? I am not in the business of fitness, and the home gym is solely to maintain my physical fitness and well being. I also have a couple follow up questions assuming that the answer above is "not deductible." If I were to convert my sole proprietorship to a LLC, would I be able to take the home gym that I create as a deductible business expense?

Thank you again for your blog, and your considerations on this tax question.

Kind regards,
Hiro


Hiro sent the above question to me quite a while ago. Researching for the correct answer took much time and reading and analysis. The answer may seem simple, seems simple to me, too, now. But, as with so much of the tax code, there is rarely an uncluttered path to a clear understanding.

Here's the scoop:

Whether you are a corporation or a sole proprietorship, the same rules apply regarding the deductibility of gym and exercise equipment or athletic facilities, such as pools and tennis courts, for the use of your employees, their spouses, and children. If the equipment or facility is in a building owned or leased by the employer and there are no residential facilities connected to the gym, then the costs are deductible business expenses.

Here's some examples:

Callous Corporation has a gym and pool for employees in the basement of corporate headquarters. Deductible.

Callous Corporation has a gym and pool for employees in a building a block away from corporate headquarters. Deductible.

Callous Corporation owns a resort where guests may stay overnight. On the premises is a gym and pool for the exclusive use of the employees back at corporate headquarters. No deduction because the gym is adjacent to residential facilities.

Let's use those same examples for an indie with a sole proprietorship.

Victor Visual owns or rents a building in town where he has his studio and a gym for employees. One of the employees is his wife. Deductible.

Victor Visual has a home studio. He owns a building down the block where he stores supplies and also has set up a room with gym equipment for his employees. Deductible.

Victor Visual has a home studio. He set up a gym in basement for his employees. No deduction because of the proximity of residential facilities.

Under no circumstances may Victor deduct the costs of gym equipment or facilities if he has no employees.

If the setup allows for Victor to take the deduction for the gym, then that is a non-taxable benefit to his employee(s).


There were 10 "Golden Tax Deduction Secrets" on the site Hiro refers to. There are problems with a number of them. Take note that one of the two ads on that site is for home athletic equipment.

Indies, be careful. So many tax tips, tax secrets, save thousands, make millions are just a lot of hogwash -- especially on the web. There is no quick fix to low taxes any more than there is a quick fix to fat thighs.

Best,
June

PS to Hiro: Read my posts on LLCs