Owner's draw is not for indies.

Hi June,

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

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

Have a great day,
Jennie


Hi Jennie,

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

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

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

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

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

Please add a comment letting me know if this helps.

Best,
June

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

June --

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

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

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

Thank you!
Lou Ann
WayAppleton, WI

Hi Lou Ann,

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

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

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

Best,
June

Recordkeeping-Quicken-QuickBooks

June- I'm at wits end finally trying to get my books in order. Wondering if you are able to help or if you have recommendations for someone out here in Los Angeles. Found your site after google search. I'm writing this after spending the day, yet again, trying to figure out how to set up my QB accounts and after buying YNAB to try and get myself on a budget. AAAAhhhhh!!!! I'm no closer than I was 6 hours ago and need pro help on this. I'm a Freelance Multimedia Producer ... 5 years

Thanks
Mike
Sherman Oaks, CA


Hi Mike,

I understand. I really do. First, forget about QuickBooks. It's way too complicated for a newbee. If you want to keep records on computer use Quicken. Buy the easiest, cheapest version. Go here for my free list of Quicken Categories For Indies .

I really should have listed that as second. Because first comes: What do you want your recordkeeping to do for you? If it's simply to give you income and expenses at year-end in preparation for your tax return, you can do that manually or on computer. If you want to go the easy, simple, manual route, take a look at The Confident Indie: Five Easy Steps . It explains a manual system and has worksheets for your 2010 tax return. Most of my indie clients prep for their tax returns using this method. It really works.

If you want monthly or quarterly reports of income and expenses, or you are really comfortable with #s and computer data software rather than prose and audio software then use Quicken.

Also, if you are going backward and redoing 2010, then I suggest manual. If you are starting to do 2011, then either/or.

Hope that helps.
-- June

Worksheets For Your 2011 Tax Return + Easy Recordkeeping

.
Fellow Indies --

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

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

Downloadable PDF
62 pages + 13 pages of additional information

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

Maze subscribers be sure to check out your discount.

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

Quicken for Recordkeeping

June --

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

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

-- James


Hi James,

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

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

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

Best,
June

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

Easy Recordkeeping

Hi June,

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

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

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

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

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

Many thanks,
Mara


Hi Mara,

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

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

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

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

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

First comes the recordkeeping; then come the worksheets.

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

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

Hope that helps. Please let me know.

Best,
June

Alert!! New Recordkeeping Burden for Indies

Hi June,

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

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

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

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

Thanks for your consideration.
Elle DeeCompany: Indie Graphic Designer


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

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

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

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

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

-- June

No Mix or Mingle for an LLC

Hello June,

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

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

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

Thank you so much for your reply.
Peggy


Dear Peggy,

Pleased to know that Five Easy Steps has helped you.

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

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

Your paycheck should be deposited into your own account.

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

Best,
June

Quicken Records & Business Meetings

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


Hello, June.

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

Pub was great, BTW.

Marianne


Hi Marianne,

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

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

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

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

Best,
June


Hi, June.

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

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

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


Hi Marianne,

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

Best,
June


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

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

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

Cheers,
Marianne


OK, Marianne, first things first.

I agree on Mike’s work.

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

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

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

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

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

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

Best,
June

Audit potential?

June --

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

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

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

Many thanks,
Kristine
Walnut Creek, CA


Dear Kristine,

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

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

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

-- June

Meals & Entertainment Deduction @ 100%

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

I found you because I was looking for information on business checking online today. The fees, beginning at $12 monthly (for the least expensive option) seem unnecessary, and as I have been keeping solid records since beginning my consultancy last year, think I’m going to stick with the personal account for now. Nice to see someone provide a good rationale for what seems a rational choice. [Ron refers to this post: You Do Not Need A Business Checking Account .]

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

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

Thank you – Ron
Long Beach, Calif


Ron --

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

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

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

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

-- June

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

hi,
I'm from Portland, OR and have been self-employed as a guitar tech with my own shop for 3 years, and was paid as an independent contractor working through another shop for 2 prior to that.

i have been digging myself a hole with my record keeping and tax knowledge (lack thereof) and dread doing my books and preparing taxes, so I'm behind.

one thing that makes my situation complicated is that i have income from 2 and sometimes 3 or more sources in a year-- i tour as a guitar tech and am paid as an employee by the bands i work for, mainly one band but in some years 2 or more. i have income as a sole prop in my repair shop, with all the bills, ordering, and so on to juggle-- and i sometimes also have income as a performer.

since my expenses often overlap, I'm not sure of the best way to claim deductions-- if i buy tools that i use at the shop, and also when touring, how can i best make that deduction work for me? i know there are options-- I've even heard of some people setting up as an LLC, buying their tools through the LLC, and renting them to themselves for traveling or specific jobs-- but that's very confusing to me. I'm trying to decide which book to buy-- should i get "the confident indie" or "self-employed tax solutions?"

thanks,
Brian

Dear Brian,

Take a breath. I am going to simplify all this for you right now.

If I understand correctly you:
* are a guitar tech
* repair guitars in your shop
* play guitar as a performer alone
* play guitar in different bands

Those are all part of the same indie business. They do not need to be kept separate. You use related knowledge and experience in all aspects of your business. You may use the same equipment. Your clients likely overlap from one area to the next.

You are a musician. Or you offer music services. Or you offer guitar performance and instruction and repair.

So keep it simple. Keep it honest by claiming all income. And keep accurate records. Which brings me to your question: Which of my books should you buy? Since you mention a lack of knowledge about taxes you need to start with Self-employed Tax Solutions. It will give you the foundation you need to understand income, deductions, taxes, and basic recordkeeping. Before you can keep records you must understand the basics.

BTW -- you say that the bands pay you as an employee. Are you sure? Typically bands that you play for irregularly pay you as a self-employed and they do not withhold taxes. If they send you any income statement it's a 1099 not a W2.

Best,
June

Checking; contributions; dining; home storage

Because Ron sent several questions look for my answers after each question.


Hi June,

I initially found you because I was looking for information on business checking online. The fees, beginning at $12 monthly (for the least expensive option) seem unnecessary, and as I have been keeping solid records since beginning my consultancy last year, think I’m going to stick with the personal account for now. Nice to see someone provide a good rationale for what seems a rational choice.
Ron refers to these posts on business checking accounts.

So now I’m writing because I’ve just finished reading your book Self-employed Tax Solutions (terrific – thank you! everyone should follow your New Year’s Eve/Day tip!). I agree. I’ve been tracking all my expenses and incomes meticulously, but you gave me some other good points to think about. Here are some questions I have, based on the book scenarios:

1) My kids’ sports leagues all solicit team sponsorships from local businesses. But in your book, you suggest this might not be a wise write-off for indies. Can you elaborate? Should I not do it? And what about sponsoring the softball team that I play on myself?
A quick overview on charitable contributions made by sole proprietorships -- indies: They are not deductible as business deductions. They are personal deductions. Advertising is deductible. So $100 to your daughter's soccer team -- not deductible. $100 for an advertisement in your son's concert program -- deductible. $500 for hockey uniforms that have the name of your business visible to the public -- deductible.

2) I’m still hung up on the “if you have dinner with your wife …” point, primarily because you’re describing exactly what happens to us: The only real time we get to talk about the business, strategy and planning is when we dine together! Permissible deduction, right?
Dinner with someone with whom you have a personal relationship is deductible only if the reason for the dinner is business. Not that you happen to talk business while at dinner. There must be specific business goals that you work on achieving at dinner: spouse reviews brochure; spouse sketches designs for an ad. Things like that.

3) Currently, I can’t take the home office deduction because we don’t have “exclusive space” to work from. But, we do have some space that is exclusively used for storage of business books, files and materials. Can I claim that area? Yes.

Thank you – RA in L.A.
Ron
Long Beach, Calif.

Recordkeeping and Receipts for Items Paid by Check

Hi,

I've been reading your book Self-employed Tax Solutions and I get your email. Thank you for what you do.

I'm wondering if the growth of online banking movement has changed your thoughts about having a checking account that returns your cancelled checks to you. I pay some of my bills directly out of my account and don't even write checks. I don't have any cancelled checks from last year and should I change banks to find one that will send me my checks back for this year? I'm thinking the IRS might have adjusted in the past 5 years. What is the current thinking on this?

I am a psychotherapist in private practice. Not a lot of transactions in a month, maybe 25 outflows at the most and about 3,000.00 inflow per month.

Thanks,
Kim


Dear Kim,

You are welcome. And, thank you for letting me know you appreciate the output. Indies do need as much clear, accurate info as they can get.

You must have proof of just about all business expense deductions. The most simple way is through cancelled check and credit card receipts. And if you follow my Most Simple System you must have backup for every dollar you spend.

Even though few banks return cancelled checks anymore most banks do provide photocopies of all checks written. You may cut them out, or copy and then cut them out. Treat them just as you would a cancelled check. A psychologist client in NJ urged her bank to provide a second, larger photocopy of her checks each moth. The bank wanted to keep her as a client so they obliged.

If your checking account is through your brokerage house you probably get a list not copies of checks. In that case I would suggest you use a local bank for your regular check writing.

If you pay bills directly you must still have something that tells you how much to pay. Print it out. For instance, if ATT emails your monthly bill print out the first page and note the date and from which account it was paid. That is your proof. And not only is it proof for taxes, it's proof if ATT says you didn't pay the bill.

Whenever possible get a paper invoice or bill for whatever you are paying by check. If you pay by check for an item purchased online, printout the purchase info. Note the check # and date paid on the printout. [BTW -- I suggest putting those kind of orders in a "waiting" bin. Pull them from the waiting bin when you actually receive the item. We are all so busy it's easy to forget about a one in the morning online purchase.]

Whenever you pay a bill by check, write the check number and the date paid on the invoice. For example, if you paid your cable bill on March 14 with check number 607, you would write √ #607 3/14/11 $234.56

File the receipts consecutively, by check number, in a folder labeled: 2011 CHECK BACKUP.

This and a complete method of manual recordkeeping is explained in my new petite publication, The Confident Indie: Five Easy Steps. It also includes worksheets for your 2010 tax return.

Best,
June

revised 1/30/11

How Long To Keep Records

June --

Can you please tell me how long I need to keep my recorded things for tax purposes. I'm a contractor on my own.

Thank you, your site is very helpful.
Jim


Hello Jim,

You're welcome. Glad my site is helpful.

Here's a quick reference. And for more info visit here on my website.

eBay Sellers: Recordkeeping For Purchases & EIN How-tp

Hello.

I have purchased your book and it has been very helpful.

I have my own ebay business. It started selling mostly things in the house I was no longer using. Now, I purchase items at yard sales and resell them on my store. If I keep a list of items that I purchase at yard sales and what I paid for them, will this serve as a receipt for expenses?

Also, I want to expand my business this year by buying some wholesale items to put on my store. Some require an EIN to purchase. Do you recommend getting an EIN? I am a little afraid to use my social security number when purchasing items.

Your advice would be appreciated. Thanks so much!

Tammie
Lewisville, NC


Dear Tammie,

It's good to hear that you business is growing. Not an easy thing in these hard times. And It's also good to hear that my book is helpful to you.

Your goal in keeping purchase records is not simply to know what you paid for items, your records also need to show that you have a "business motive." That means the more business-like your records or the more they can show that you put some time and effort into them, the better your image should the IRS take a look.

So yes keep a list. If possible get a receipt -- bring your own paper & pen -- from the garage sale seller. Save the ad announcing a garage sale. Take a camera and photograph the sign at the end of the driveway that alerts passersby to the sale. If you buy a big item then photo it. Anything that shows you're doing your best to keep accurate records.

And yes, an EIN is a good idea in your case. Here's the link to apply. And here are some of my posts on EINs.

Best,
June

Income & Gifts

Hi June!

Graphic Designer ... 3 years.

I'm in the process of reading your book, Self-employed Tax Solutions, fabulous resource!

I have a question for you. I have a restaurant client that has wonderful food, around the holidays I typically will ask them for a few gift cards and sometimes food for my clients. I write that amount off of their invoice for the month but I'm not sure how to take advantage of the gift deduction.

Hoping I wouldn't have to bill them as normal and then pay them for the above items. Is there an easier way?

Also, I just returned home from a week stay at Disney World. I saved all of my receipts while I was there with my husband. Would it be possible to deduct my portion of the trip if it was for creative renewal/inspiration?

Thank you so much for breaking this all down to bite size pieces of information. You're the best!

Sincerely,
Kristen
Midlothian, VA


Hi Kristen,

I am so pleased you're using my book as a resource. Resource and reference for indies was my intention.

Think of your restaurant/gift situation this way...

Kate's Cafe owes you $1000.
Were Kate to pay you you $1000 in money you'd have $1000 income.
Were you then to give Kate a $200 check for gift cards -- and here it gets a little tricky -- here's how it would work.

You would get to deduct as a business expense $25 per business associate to whom you gave the gift cards. [That's per year. Yes, $25 per year, per associate.]

If you gave $25 gift cards to 8 people, you get a $200 business deduction.

A $200 gift card to one person would get you only a $25 deduction .
Deduction categories in your recordkeeping would look like this:
Business Gift .................. $ 25
Business Gift Excess .... $175

Or ...

Kate pays you $800 and gives you $200 worth of gift cards.
Your income is still $1000.
Your deductions would be the same as above.

You do not have to exchange checks with Kate but you must keep the records on the income and expenses.

BTW -- Kate would have a $1000 expense if she paid you in money and gift cards. A little less were she to pay you in money and food.

On Disney: Can't deduct inspiration.

Best,
June

Keeping a Record of Subway & Bus Costs

Dear June,

My daughter is a free-lance visual artist in New York City, who spends about $100 a month for a subway pass that entitles her to unlimited trips. The primary use of the pass is to get to work, but it is also used for personal transportation. Is there any way she can deduct part of the expense?

Thanks,
Martha


Dear Mom,

Your daughter needs to keep a transportation record for a typical month. Then, for instance, if 62% of her trips were for business she may deduct $62 of every subway pass she purchases. If there is no typical month or it changes then she needs to keep records for, let's say, seasonal months and extrapolate from there, perhaps 6 months at one % and the other 6 months at a different %.

Keep in mind that commuting from home to work is not a business deduction. Going from one work place to another is. So only if she has a legitimate home office is her trip from home to a client deductible.

I assume that since you are writing for your daughter she is young and new to the business / working world. Time for her to learn about taxes. No 21st century woman is allowed tax-ignorance. You might want to suggest that she take a look at my blog and my book, Self-employed Tax Solutions.

Here's a post I know she will find helpful, Designers Dozen: Tax Saving Tips for the Graphic Artist.

-- Another Mom with 4 kids

A Process Not a Chore

Dear June,

I feel more confident than ever about how I file my taxes after reading your book, Self-employed Tax Solutions.

Do you ever "review" past filings (especially during the off season!) to evaluate any areas of concern or improvement?

-- Lisa


Dear Lisa,

You've sent me several emails and questions and suggestions. That's you in the Bravo Indies! column. Thank you. I appreciate your input.

You're right; knowledge breeds confidence. That's my goal in my work with indies. I am putting together a series of small publications and am searching for a "confidence" title. Titles are not my area of expertise. Ugh.

On your question, a tax return is not a thing-to-do or a chore. It is a collaboration between you and your tax pro, the result of a process. That process starts with the indie getting as much info as possible, using that knowledge throughout the year, treating the work that she does as a business by being in what I call that indie-business-mindset, employing a recordkeeping method that fits her style and is also accurate, and then taking that information to an indie-savvy tax professional who will use that information to prepare the tax return.

Unless there were a glaring mistake, a later review of the tax return would not tell me -- nor any other accountant -- what went into that end result. That could happen only if there were a review of the process.

Best,
June