Worksheets For Your 2011 Tax Return + Easy Recordkeeping

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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.

Intimidation ... no way.

I just heard from Annette, a cosmetologist in Santa Rosa, Ca. Annette said: "My accountant knows more than I do about my own self-employment taxes, and I have always felt intimidated by her. I need another tax person/advice! Thanks, Annette"

Let's think about this a moment ... the woman knows more than you do but we can assume that she's not carrying a big club to knock you over the head nor threatening you with expulsion from the swim club. So where does the problem lie?

If your third-grader came home from school and said she didn't understand the teacher but was afraid to ask a question because the teacher knew more than she did and besides the teacher scared her, what would you say? What are the alternatives for you and your daughter?

You have similar alternatives with your tax pro -- a paid professional. You are a professional business woman. You need advice on your taxes and you are paying a pro for advice.

If you have a problem doing that, here's a mental exercise: Put your tax pro in your profession. Get a mental picture of her with the lotions, ointments, steam machine, hot towels and everything else needed for a facial including the 55-year-old customer who asks that you make her look 45 for her son's wedding. A pretty absurd scene when you see your tax pro standing over the customer without a clue what to do next. Keep that picture in mind and maybe the intimidation lessens.

If that doesn't work, bring a friend or business colleague to your tax meeting.

Or, prepare a list of questions on paper and present the list of questions in writing to your tax pro.

And most important: Learn more. Read my blog, my site, check out my book from the library or buy a copy here Self-employed Tax Solutions.

And by all means, remember that you are a professional woman in business. It is your "indie job description" to learn about the business side of your profession.

-- June

Indies: Stand up for yourselves

Hi again, June,

Well, today is a big indie day, isn't it? The President signed the Small Business Jobs Act.

But I, for one, am confused about capital expenditures vs "bonus depreciation".

I am a consulting psychologist in private practice [for 25 years], and was going to buy a new computer. I seem to remember that the IRS has had a maximum amount of business expense you can write off all at once, as opposed to having to depreciate it. I have always depreciated my computers/printers, etc. How does the new law affect us indies?

Can I now write off the whole thing in one tax year?

Thanks,
Mark
Fairfax Station, VA


Hi Mark,

I gather you are the same Mark who sent me this Q&A Software Cannot Replace Experience a while ago. And, I gather you did not take my advice -- still doing your own tax return. Right? Big mistake unless you absolutely cannot afford a pro or there is not one available to you.

You can write off the cost of your entire computer as long as the cost was $250,000 or less. You get a better deduction if ,instead, you take advantage of the bonus depreciation feature. However, the deduction must be spread out over time. Which method is better for you depends on your entire financial picture at the moment and predicted for the future. Which is why you need a pro.

Go back and read that experience post of mine. Please. I think it might save you some money.

And while you're reading I suggest this one too, What's a small business? Yes, it is an important day for small business. Could have been a lot more important had we had some more congress people willing to help the likes of you rather than the likes of those who make a lot more money than you.

I don't know yet how the new Small Business Act will impact indies. Once it's signed it then must be interpreted. Then the interpretation must be understood and agreed upon.

Indies, please pay attention to who votes for what and who advocates for which kind of tax change. That you can now deduct 100% of your health care costs and may deduct for a home office as well as have another work location are tax changes that came about because of the work and attention of your fellow indies.

You are 40 million strong. You have the power and the clout.

-- June

Don't cheat yourself. Use a tax pro.

June,

I always find your expertise invaluable!

I recently got beat in an audit and I know I really did not get beat I just did not know how to represent myself so the end result is I lost.

I do have another question, last yr I had to leave the area for over a yr. I lived in an extended stay to the tune of about 2800.00 a month on top of that I had my normal expenses for supporting my home in another state as well as living expenses in extended stay like groceries and occasional eating out. Should these items be on a Schedule 'C' or is there somewhere else it would be best to show these expenses?

Mark


Hi Mark,

Based on your question, I gather that you prepare your own tax return. I assume that means that you faced the audit on your own. I see that you have been a follower of mine since 2008 so I'm sure you know that I think most indies should not prepare their own tax returns. Help with an audit is another reason to use a tax pro.

As to your question: All business expenses for a self-employed must go on the Schedule C. Your question shows me that you don't know a whole lot about indie tax returns. My guess would be that if you're like most indies -- you try to be legitimate with your tax return and you are probably cheating yourself. I am really pushing you to at least check out an indie savvy tax pro.

BTW -- before you start writing off all the expenses you mention above be sure to read these posts: expenses -- travel and temporary worksite .

Best,
June

Insurance Settlements Differ

Hi June,

Thank you so much for your wonderful tax tips -- Maze Archives.

I'm wondering if you might shed some light on a particular tax issue.

Last year (2009) my wife agreed to a (rather small) settlement for damages due to a physical injury caused by her work. She was also laid off as a result of this action. Yesterday, we received from this company a Form 1099-Miscellaneous Income from this company. The damages settlement was shown in Box 7-Nonemployee Compensation.

Do you have any idea regarding how this amount should be reported to the IRS on our 2009 income taxes--and even if it is taxable generally?

We would appreciate it if you could give us some direction here.

Thanks,
Jack


Dear Jack,

You need to talk with a tax pro -- H&R Block is the least expensive and is also equipped to handle this -- and have him/her read the settlement your wife agreed to.

Different kinds of settlements are taxed differently. The 1099 may be correct or may not.

Best,
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

Many New Tax Savings for 2009 Returns: Ask your tax pro about the Making Work Pay tax credit

As you indies probably know, I do not encourage self-employeds to prepare their own tax returns. And I don’t explain tax forms on my blog. However, I don’t want you to miss out on this goodly amount of money so I’m breaking my own rule and am giving you a little tax preparation alert.

Among the many new tax advantages that have been served up for 2009 is one called the Making Work Pay Tax Credit. Many of you have been asking about it and its form Schedule M of Form 1040.

The most important question from you: Does it apply to self-employeds as well as employees? The answer is yes.

The credit is available to any person who has made any income while working, whether as an indie or an employee, or both. You may not be eligible, however, if your income is too high.

The Making Work Pay Tax Credit is a refundable tax credit. That means it is a dollar for dollar deduction against any tax liability you have. And if you owe no tax then the credit becomes your refund.

If you are single, the credit is $400.

If you are married filing jointly the total credit for you and your spouse is $800.

Singles will not get the credit if adjusted gross income is $95,000 or more.

Married people filing jointly will not be eligible for the credit if adjusted gross income is $190,000 or more.

What’s adjusted gross income? it is line 37 of your 2009 Form 1040 page 1 and is a combination of income and subtractions called adjustments. It is the sum of all your income, such as: wages; net self-employed income; interest; dividends; perhaps some of your social security; alimony received; stock gains; pension; and more. From that total you subtract adjustments, such as: health insurance premiums for indies; ½ SE tax for indies; moving expenses; certain expenses for artists; and the list goes on.

Eligibility depends on other particulars as well. Be sure to look into it to see if you qualify for the credit.

And, here again my encouragement, or warning: There are many new credits and deductions available for middle- and lower-income taxpayers, whether freelancer or employee. Good tax pros keep up with these changes. There’s a good chance you will save money by taking advantage of a tax pro’s knowledge. Have an indie-savvy tax pro prepare your return.

Improperly prepared tax returns can impact the Social Security you receive later in life.

Hello June,

Your site has a wealth of information, thank you.

I have a small Internet business on the side with my main job as an employee of an engineering firm. I get and file the w-2 from them and I pay that self employment tax as well. The IRS sends me a statement about what I can expect in monthly payments as a retired person and they list my taxable income amounts going back to when I was a lad.

But I have noticed that the taxable income amount they show only reflects what my employer has paid me and not the other income on the side. I file jointly with wife. I just fill out a Profit/Loss from business form and pay the total 15% for the Internet business. I feel like I'm not getting credit for this. Any thoughts?

Thanks, Joe
CLEVELAND, OH


Hello Joe,

You are welcome. Glad to provide wealth in the form of information.

You say "on the side income." By that I assume you mean your self-employed business.

I also assume that you are preparing your own tax return. I also assume the problem might lie in your tax returns.You say that you paid 15% SE Tax. But on self-employed income you must also pay income tax. Perhaps your returns were not prepared correctly.

Social Security calculations regarding how much you will get when you are old and living the sweet life of retirement are based on your income as an employee and your income from self-employment.

After April 15 take your returns to a tax pro or to H&R Block and ask if the self-employment income was handled properly. This can be done without a costly complete review of your tax returns. If the answer is yes, then take your returns to the Social Security office and get an explanation.

If your returns were not done correctly then you need to hire a tax pro and file amended returns.

-- June

Tax Pros & Tax Prep Fees

ahoy June,

happy new year!

I did some research on possible local tax preparers with experience with indies. Here are two that I just contacted: #1 XXX, name & website here. He is estimating ~$350 total, depending on how organized I am (which i believe i am pretty organized as far as possible deductions and receipts go, thanks to your book). He wants to see a copy of our 2008 returns, though our 2008 returns have no self-employed work on them (that started this year). He was recommended by a friend whose father (runs a nature tour business, not sure if he is self-employed) uses him for his taxes.

And #2 YYY, name & website here. I am still waiting to hear back from him, but recommended by another friend.

If you have any info/comments on either one, I would appreciate it.

hope all is well.
peace, wayne


Hi Wayne,

Hint #1:
You need an appendix removed. How many appendectomies did the doctor do? Are you his first? You need to ask a similar question of your potential tax pro.

Hint #2:
There no mention of self-employeds on his site. He does mention small business. Candy store? Widget makers?

Hint #3:
Site says check out our blog. However, the blog is not CPA's material but columns from NY Times, Wharton, etc.

Other point, I don't know how a flat fee of $350 or any flat amount can be given -- regardless of whether you are organized or not. Do you have a home office? Business auto? 2 business autos? An indie pension? Employees? I can do a tax return for one indie for $500 and for another indie for $5,000. Both indies; both IT consultants; very different businesses.

Before you talk with the second guy read these posts tax pros - tax prep fees - tax returns

Best,
June

When & Whether To Hire A Pro

Indies, let’s get a jump on the New Year by looking at how you look at your business.

This post was sparked by an email I received from an indie copywriter in Illinois which concluded that my seminar, website and blog provided a “vast array of resources” for the self-employed. Then she added, “but to be honest I would just like to hand over my materials to someone that I trust to do the job right.” She asked if I could I be that someone?

She didn’t ask for someone who could “help” or “assist” her but someone to whom she could hand over her material and whom she could trust.

Oh my goodness! I have a number of clients who are musicians, a career that has a long history of performers who didn’t want to have anything to do with business and were stripped clean of their money through the musician’s inattention, blind trust, or through the guile or incompetence of their managers. Haven’t you all heard one or two of those stories? The most recent: Leonard Cohen. It happens to talented, intelligent indies who don’t want to deal with the business side of their endeavors. They get ripped off. Somebody else ends up owning their copyrights. They owe Uncle Sam. Royalties are lost. I’m sure there’s no need to go on.

Indie: You are a business! Your business is you. You must develop what I call an indie-business mindset. I’ve talked about it before.

Self-employment requires that you take complete charge of all aspects of your business. It isn’t like writing copy as an employee of Callous Corp where your taxes are withheld every payday, you get paid for sick days, and if you have questions about pensions you go up to the 14th floor and ask the pension guy about it.

By taking charge I don’t mean that you can’t delegate tasks to someone else -- if you have the right person and the funds to pay that person. But you can never just hand it over. You have to be sure that the person doing whatever it is you hired him or her for is trustworthy and competent, well-informed, follows through, uses good judgment, knows when to take the initiative and when to come back to you for guidance. You can’t do that unless you understand the elements of what you have assigned to someone else.

You don’t have to be an expert on websites to hire a web designer but you’d better have a basic knowledge of how they work and what one will do for your business. Do you do it yourself? Spend $500? Spend $15,000? You don’t want to put three hours a day into FaceBook or Twitter or Google without some understanding of whether 15 to 20 hours a week will give you that much valuable business visibility and promotion.

Whether setting up your fee schedule, engaging a tech guy, or hiring a bookkeeper or a tax pro to do your taxes you must make the decisions. You have to assess whether your choice is clear-headed, sure-footed, and reality-based. Are you deciding based on the facts, on price only, on what’s convenient, on what Aunt Tillie told you? Without some understanding of and some familiarity with the aspect of your business that you're turning over to someone else, you can't make competent decisions and intelligent choices.

It’s only the employee who can just do the work and let the company make all the decisions. You are an indie. And whether you’re self-employed by choice or by circumstance due to these difficult times, you don’t have big daddy taking care of you.

You need information. You must educate yourself. As the copywriter from Illinois said: I offer a “vast array of resources.” You are in the right place to access them. Start educating yourself. Start reading.

And a new resource will be available shortly, The Confident Indie. Please be on the watch.

I wish you a creative and successful 2010!
June

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

Hi June,

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

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

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

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

Thanks,
Matthew


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

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

Here's how it works:

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

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

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

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

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

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

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

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

Best,
June

Health Insurance Deductions / Income: Indies Be Careful!

Hi,

I'm a freelance writer/consultant in San Francisco, finishing my taxes, and would greatly appreciate a small bit of help/clarification.

As a full-time freelancer with no employer health plan, can I deduct the full cost of my health insurance payments? I have no access to a partner's plan or COBRA.

Last year I deducted one-fourth of health insurance as a business expense, but can I deduct the full amount?

One more question if I can: do I need to report any payments under $400 from clients, if I didn't get a 1099?

Thank you very much for your assistance,
Chris


Hello Chris,

There's a special place in my heart for writers. My husband is a writer. Many friends are writers. So here's my special caution to you.

A writer's accuracy is his credibility.

Everything you do goes out with a byline. I assume you are sure of the facts before you put your name on something you offer for publication.

You don't say whether you're a sportswriter or science writer or a generalist. If you're a sportswriter you sure as heck better understand the game. If a science writer you'd better be comfortable in a physics or chemistry lab.

Just as being a specialist in any field requires education and experience so too does tax preparation for indies require education, research, experience.

Your tax return is a document that you sign, attesting to the accuracy and truthfulness of what's on that paper. You must know what you're signing.

Your two questions point out why indies should not do their own tax returns. Your questions are Indie Tax 101.

Health insurance premiums are not a business expense deduction.They are deducted as an adjustment to income. Same place you'd deduct alimony payments.

Payment to you for your freelance writing is taxable. All of it. Whether you get a 1099 or you're paid in cash and nobody sees the transaction or you're paid in chickens. And if you don't claim the income it's fraud.

Don't mess yourself up by getting into trouble with the IRS. Learn more. Read. A good place to start your education: Go to your library and check out my book Self-employed Tax Solutions .

Best,
June

Tax Return Do-Overs: Must be done within 3 years

June, June, June.....WHY didn't I discover your site, 10 years ago. For most of those 10 years, I used a guy to do my taxes who obviously knows nothing of the tax code. He indicated to me that a large % of my deductions were not tax deductible because I was reimbursed for them. BUT I was reimbursed on a 1099 NOT separately on a W-2, expenses were included in my income. How far back can I go to correct past tax returns and maybe, reduce the dollars I owe to the IRS??

Thank you sincerely for your attention to my question.
Anna
Mcallen, TX


Dear Anna,

You may file an amended return up to three years after the deadline of April 15. So, a 2007 return filed on or before April 15, 2008 has until April 15, 2011 to be amended.

If you filed later than April 15 -- on a valid extension -- you have until 3 years after the filing date.

Anyone wishing more info on reimbursed expenses might want to read these posts: expenses -- reimbursed .

Best,
June

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

Stupid questions are those unasked.

Hi June:

This is probably a stupid question, but does the accountant that does my taxes need to be in the same state?

Thanks!
Carrie


Hi Carrie,

I'm sure you've heard that the only stupid question is the one unasked.

No, your tax pro does not have to be in the same state as you. Just be sure she knows about your state's taxes.

Best,
June

Indies are not Corporations

The header on my blog says, “June Walker, Tax and Financial Advisor to the self-employed.” On my website, blog, and in my books I say:

“Whether you call yourself a
1099 Worker
Sole Proprietor
Freelancer
Subcontractor
Free Agent
or
Self-employed
you are an independent professional.
The IRS classifies you as an independent contractor.
I call you an indie.”

Well, I know all you indies are smart enough to know that I am talking to you, advising you, teaching you. I am not addressing my advice to corporations. Pretty straightforward, one might think.

Many of you also know that my 30-years’ experience has shown me that most attorneys blatantly advise indies to incorporate for no good reason. And that incorporation often makes an indie’s life unnecessarily complicated and costs money in corporation set-up fees and tax preparation fees.

Also pretty straightforward, one might think.

In my post, You Do Not Need A Business Checking Account I advise indies, both as clients and as readers, that it isn’t necessary to have a separate business checking account – that it’s simpler, easier, and because of the nature of an indie venture, it works better just using a personal checking account for both personal and business needs.

I have examined some of the reaction to that post in There’s no shortage of bad advice out there.

Much of the reaction, especially from lawyers, has been hot-air-ballooned into warnings about how the only safe business structure for indies is incorporation. We can talk more about that at a later date.

For now I want to address something else. As you, my indie readers know, I pressure you to present your questions carefully. Whether you’re a massage therapist, sculptor, IT consultant, psychologist, carpenter, writer, cruise ship entertainer, furniture refinisher, or astrologer when asking a question you will get an accurate, appropriate answer only if you provide the right information. Sometimes I’m pretty harsh about that. That’s because words mean something and accuracy is important. If careless with words not only will you likely get a wrong answer but carelessness with words makes for sloppy thinking.

That said, I can’t let Attila Attorney respond to my posts by being inaccurate in his quotes of what I said.

In his post here, Attila Attorney, Esq. wrote, and this is a direct, accurate quote:

“I recently wrote in a post titled Tax Advice, Legal Advice & Piercing the Corporate Veil that it would be legal malpractice for an attorney to advise his corporate and business clients to commingle their personal and business funds.

“I wrote the post in response to June Walker who had written a blog post titled You Do Not Need a Business Checking Account in which she proceeded to give that very advice to her clients and readers.”

The problem with Attila’s premise: My readers are indies, not corporations. None of my clients is a corporation unless I am in the process of dissolving the corporation for him or her. I never mentioned corporations in that post. And, with 30 years of accounting experience [He’d know that because my blog header says “since 1979”] I’d be pretty silly were I to say that corporations don’t need to keep completely separate business and personal records. That’s one of the reasons I advise my wedding photographer clients not to incorporate. Just ask Billy Bridesnapper. He’ll tell you.

Attila continued: “Ms. Walker responded with a post titled There’s No Shortage of Bad Advice Out There. In it, she reiterated her advice to commingle, corrected my grammar and called me ‘Atilla the lawyer.’”

No, Mr. Attorney, I did not advise "to commingle funds.” I said a business checking account was not needed for indies. Big difference.

This is similar to the faulty logic of many accountants and attorneys who tell indies you must have a profit in 3 out of 5 years in order to be a business. No way. The IRS says that if you have a profit in 3 out of 5 years you are a business. Think of it this way: If it’s your birthday you will get a gift does not mean that if you receive a gift it must be your birthday.

And one more thing about Attila. In his attempt at quoting me he said I called him “Atilla the lawyer.” The gods invented quotation marks to mean that the words in between them are exactly what the person said. What I said exactly is: “Attila Attorney.”

In my book Lily Legal wants to know if, because she writes her briefs at the dining room table, she can deduct the dining room as a home office. [She can not because she also has dinner parties there.] Maybe in my next book Lax Lawyer will be asking if his reading glasses are a business deduction because he keeps misreading quotes. [He can deduct them if he uses them only for business and has another pair for reading the funnies.]

Accuracy is important. Not just for indies, but equally for accountants and attorneys.

I have received many emails from indies and tax professionals. All the indies say how much easier it is to keep accurate records using one checking account. Most of the tax pros say it's wrong. One pro said I was engaging in "chick think." Wow! More about that some other time.

Please do read The Tax Lawyer’s Blog and the comments. You need to know the kind of advice that is out there so that you can make the right choices in choosing a tax or legal professional.

June Walker

Bravo Indies!

Oh, thank you indies! I am so pleased to know that you read my info and use it in your professional life. Congratulations. It does my indie-accountant heart good.

Here are a few of the emails that I received about You Do Not Need A Business Checking Account and There’s no shortage of bad advice out there.. More to come, as well as my next reponse to Attila Attorney.

To recap what I've said here, there and everywhere:
1. The IRS does not require a sole proprietorship to have a separate business checking account. Of course records must show whether inflow and outgo are for business or personal, however, for indies that is typically more easily and more accurately accomplished with one checking account.

2. Corporations must keep separate records for business and personal. For independent professionals that's one of the negatives of incorporation.

3. LLC law is governed by each state. If you formed an LLC for the purpose of liability protection you need to check whether your state requires separate accounts for business and personal in order to maintain that protection. If in doubt, keep them apart.


From Lisa Lepine, Consultant, Branding for Creatives
Portland, OR
I love your eletter re: one checking acct. Don't let those dissenters get you down!

For many freelancers - having separate checking accounts is just ridiculous.I tried it for about a month - and still have a stack of checks that I will never use. I have followed your approach for the last few years with confidence and peace of mind.What makes your advice so dependable is that you truly LOOK AT THINGS THROUGH THE LENS OF TRULY SMALL BUSINESS. Here is a gadget some folks would love. -- Neat Receipts.


From NancyKay Sullivan Wessman, WessComm, LLC
Jackson, Mississippi
Thanks for the advice!
I do have a business account, but it’s in my Federal Credit Union; so it’s basically free. My desire was to NEED to keep work and personal money separate – but, sigh, I’ve never had enough of either to justify. Still, the business checks come in handy for buying some things. Most of the time, everything that can gets charged for easy access to American Express and Visa end-of-year statements. That makes identifying the business vs personal expenses fairly easy. . .

I especially like getting advice from another woman and, specifically, one who lives in Santa Fe near my friends. Bill and Sue and Margaret!

Best to you!


From Rose at Content Matters LLC in Colorado Springs, CO
Writing, Training, and Project Services for people who need help with the content that matters to them.Rose.CMLLC@gmail.comhttp://www.content-matters.com/
Dear June -

I'm a sole proprietor LLC with a service business and in-home office. I read your post and the two contrarian posts, and I have several responses based on my 15 years as an Indie.

Either the contrarians have not read your book or have forgotten key points that you make in it, such as that an Indie needs to find the system that works best for her. In no way are you insisting that people use only one account.

It is only in the past several years that I began using two accounts. The primary factor influencing my switch was the increased frequency of business income and expenses due to an increase in clients. To use an analogy, it was ok to put all my socks and stockings in the same drawer so long as I could keep the drawer neat. When I started spending more time sorting socks than wearing them, it was time to use two drawers: one for socks and one for stockings.

I keep track of all my personal and business monies in a single Quicken file, which lets me see at a glance the balance of any account and whether I need to make any transfers. I tried using two files, one for personal and one for business, and abandoned that in a hurry because I had to track inflow-outflow via paper reports. This is another example of not making your system any harder than it has to be.

I reconcile all monies at least once a month; I tried doing it less frequently and didn't like it.

A business associate is a Sub-S with a business that is far more complicated than mine. She reconciles just once, at the end of the year. Different strokes for different folks (cliche but true). We each trust our systems to work for us.

Over the years your book and your site have helped tremendously in getting myself "straight" about how to best manage my checking accounts, credit cards, and records as an Indie. You are doing a great job and a great service by focusing on the Indie as you do!


Thank you, all.
June Walker

There’s no shortage of bad advice out there.

Indies, an alert: Be careful. Know your source.

Sammy Segar, CPA, is the composite figure I use in my writings to depict the tax pro who totally misunderstands indie life; my recent blogpost, You Do Not Need A Business Checking Account, woke the real Sammy Segars out of their after-lunch naps.

Last Friday The Wandering Tax Pro, Robert D. Flach took respectful disagreement with my post in his You Do Need A Business Checking Account.

Flach advocates a separate business checking account because an indie should “do as much as possible to give your self-employment activity the appearance of a real business entity so that the IRS does not come back and say that it is really a ‘hobby.’” But then he steps on his own message by citing the chronic problem of indies with business checking accounts – what to do when the money gets low. Well, he says, “loan” money to the business account from your personal account and then return it later. If you have attended my seminars or read my book you know: That leaves a very wiggly audit trail for the IRS to follow.

He quotes my observation that in an IRS publication “you are urged to open a business checking account.” But he fails to include the rest of the comment, which was my main point: “The very next example from the IRS in the publication is the mixed use – personal and business – of your automobile. So, let’s see how efficient two checking accounts would be in this situation – hmm … guess you are expected to pay for each gas purchase with two checks – one for the personal use amount of gas and a business check for the business use portion.”

Flach says: “a separate business checking account is not a strict requirement.” I am not sure how a “strict requirement” differs from a plain requirement but the IRS didn’t require – it “urged,” which is no requirement at all.

Mr. Flach’s website does indicate that he works with self-employeds. He offers information to the “sole proprietor and one-man LLC.“ Well, if we were still in the 20th century I could understand, but this is the 21st. One-man!

Another response to my post came from The Tax Lawyer's Blog . Let’s call him Attila Attorney.“ In a recent post,” he writes in astonishment, “she advises her business clients to commingle their business funds with their personal funds. You read that write. She advises the commingling of funds.” Yes, indies, you read that right. He did say “write.”

Then he warns: In advising that an indie doesn’t need a separate checking account I am “engaging in the unlicensed practice of law and it’s dangerous.” I’m not sure if he means dangerous to me or to you indies. I didn’t realize that advising against setting up a business checking account was fraught with such peril.

Oh -- and I was not going to mention this but I just had to. He says: “First, Ms Walker may be the most brilliant, competent, well-meaning person on the face of the planet …” Well, my mother and my husband always thought so and I’m pleased to know that A. Attorney, Esq., is considering the possibility.

He follows that with, “Second, and more importantly (his seventh grade teacher would have corrected that to “important”), Ms. Walker is giving business owners horribly bad advice.” (Oh, wait. Maybe I shouldn't correct his grammar because I'm not a licensed teacher.)

He has warned of danger and spoken of horror. But should we be getting goose-bumps and feeling our hair standing on end? Not really, because there is nothing illegal, immoral, fattening or unwise for a sole proprietor, who is not an LLC, to conduct business by depositing income or paying for business expenses from a personal checking account. For that matter, for reasons explained on my website and blog, it’s smart.

Attila Attorney then abruptly changes the subject to the protections that await the indie who does exactly what the lawyers want him to do – form a corporation.

He warns indies – likely in his thinking they are all corporate monarchs -- against “a general commingling of corporate activity and/or funds and those of the person or persons who control the corporation.” Well, duh! That would be a serious mistake.

But can Attila keep his attention span focused long enough to note that my blogpost never mentioned corporations? Did I advise: Don’t set up a separate checking account, even if you form a corporation? Of course not. Whatever his motive for changing the subject, it gives him a chance to plug incorporation – a legal step near and dear to the hearts of many lawyers.

And when Jeff Day, an enrolled agent, in a comment to the post disagrees with Attila the Tax Lawyer, Attila responds to Jeff with: “If you have a serious business, it’s unwise to operate as a sole proprietorship and probably malpractice for a lawyer not to point that out to his clients.”

I’m trying to think of a word that properly describes his assertion that advising against a business checking account is practicing law without a license or not advising to incorporate is “malpractice.” “Preposterous” somehow doesn’t seem strong enough.

Of course, the issue we should be looking at today isn’t practicing law without a license or malpractice or man-only businesses. It’s Attila and Sammy giving tax and legal advice to self-employed independent professionals without really understanding how indie businesses function.

June Walker

File an extension. It really is the smart thing to do.

June:

I saw your post on Turbo Tax, and I am now completely confused. I own a small web programming company (sole prop) LLC in Ohio, and I would usually use Turbo Tax… What do you recommend now? It’s such a late date, and I am sure most accountants are too busy for a new account.

Please let me know what you recommend!

Jeremy


Hello Jeremy,

First of all there is no need to rush. Read my post File an extension. It's the smart thing to do. If you file an extension you'll have until October 15 to file your tax return. That'll give you time to find a tax pro.

In the interim, learn as much as you can. Read my blog and the columns on my website. Be sure to check out my posts on finding the right tax pro.

Best, June

Indies: Steer Clear of Tax Prep Programs

The advertising for tax preparation software gets heavy during tax season and this year it seems like a heavier barrage than usual. Turbo Tax and other tax programs are blitzing the Internet with promotion, some of it well disguised. For instance, Turbo Tax has an arrangement with Comcast, describing itself as “the official tax software of Comcast.net.” Comcast’s articles, which are ostensibly written to give you tax tips and alert you to deductions -- the same tired, old tips and deductions you’ve heard before -- are simply plugs for Turbo Tax. These guys are slick.

I have warned indies against using tax preparation software in the past, see these posts on Turbo Tax . A recent story on Fox News quotes a Turbo Tax spokesperson as saying: "There's a lot of time that's put in to make sure that the product is easy to use for the average American." Well, as you know: Indies are not average Americans. Wage-earners and employees may be but not the self-employed.

The software is probably adequate to handle relatively straightforward tax returns for somebody who collects a weekly paycheck, but self-employed tax returns are not Taxes 101, they are complicated. Many CPAs don’t have a clue about how to do taxes for self-employed people. So can a software program handle returns that are nuanced and complicated by the continuous interplay of business and personal that exemplifies the indie life?

An aside here: the Turbo Tax program supposedly geared to indies costs $79.95. My tax prep program costs several thousand dollars every year and I use it with the benefit of 30 years’ experience. And I educate my clients in good, simple, accurate recordkeeping.

It’s not that these cheap software programs are “wrong.” The program may operate correctly if the data input is done right. The question is whether an indie knows what questions should be asked of the program. Many brilliant indies aren’t aware of the business aspects of what they do. Software is like any tool; if you know how to handle it and use it properly, it ought to work. But does an indie who puts all her time and effort into her indie business know enough about the rules of home office deductions to choose the right prompts?

The experience of Timothy Geithner, see my post How are your plumber and the Treasury Secretary nominee alike? , paints a sorry picture of a guy who deals with the most arcane financial matters (He’s our Treasury Secretary now!) but apparently couldn’t figure out how to do his indie tax return using Turbo Tax.

Take a look at TurboTax’s Home and Business. Billed as the program for sole proprietors, it says: "Biggest Refund For You and Your Business.”

The word “refund” is used seventeen additional times in the copy. “Watch your refund add up as you complete your return,” is one inducement to buy the software. Savvy indies who read my blog know that a refund means you’ve just loaned Uncle Sam a chunk of your money, for a whole year, interest free!

The goal for indies – as it should be for all taxpayers – is to have the lowest tax liability legitimately possible; to have paid about that much over the course of the year; and to not get a refund, but owe a wee bit. That way you’ve used Uncle Sam’s money interest free!

It shows that Turbo Tax is more interested in its own profits than in the financial well-being of indies. It shouldn’t be programming you or any other taxpayer to get refunds.

Incidentally, the company is suffering through a public-relations embarrassment, as many purchasers of the software complain about serious glitches in the program.

I know I’ve given you a daunting task: Find an indie-savvy tax pro. Take a look at this post, Two Parts to Finding the Tax Professional Right for You .

A less daunting task is to learn the basics of self-employed taxes and recordkeeping. You can start here on my blog and on my website and in my book.

Best,
June