June,
I have been a personal trainer for 2 years. I am a veteran working in the health/fitness industry and have needed alternative and out-of-pocket medical treatments (acupuncture, physical therapy, massage) for a service-connected orthopedic problem (for which I do have a disability rating).
Working with these other health care professionals has also been a help in furthering my skills in working with my clients. How/which of these should be taken as medical expenses and/or training/education for my work?
Thanks a bunch, "Ron"
Hi Ron,
Wish I could give a different answer but ... it all is medical expense. Especially since you have a disability rating. Were you "healthy" and had decided to do 10 sessions with another pro as training or some other learning experience then I'd OK the business expense.
Best,
June
Tuesday, October 9, 2007
Friday, October 5, 2007
Southwest Takes a Shine to Self-employed Tax Solutions
I love getting feedback from readers of my blog, but it's nice, every once in a while, to get kudos from big organizations.Self-employed Tax Solutions is a finalist for the 2007 New Mexico Book Award . The Award, which includes authors throughout the Southwest, is sponsored by several organizations including Borders Books.
Self-employed Tax Solutions is one of four finalists in the business category. Competition includes: Mastery at Work: 18 Keys for Achieving Success; The Japanese Money Tree; and Web Marketing for Dummies.
For Solutions complete Table of Contents, please visit here.
Thanks for your interest in my blog and my website. Please wish me luck and I'll keep you posted ... June
Equipment or Supplies Expense
June,
Thanks so much for the info. Lots of great stuff in there.My only question for now is: Does equipment have to cost over $200 to deduct it as a business expense?
Thanks again,
Chuck
Hi Chuck,
You are welcome.
If you purchase something for business that lasts longer than a year it's considered an EQUIPMENT expense. But realistically, what about a $10 stapler? That lasts longer than a year but does it make sense to depreciate it over 7 years? Nope. So we set up an arbitrary limit of $200. Anything less than $200 is a SUPPLIES expense.
Best,
June
Thanks so much for the info. Lots of great stuff in there.My only question for now is: Does equipment have to cost over $200 to deduct it as a business expense?
Thanks again,
Chuck
Hi Chuck,
You are welcome.
If you purchase something for business that lasts longer than a year it's considered an EQUIPMENT expense. But realistically, what about a $10 stapler? That lasts longer than a year but does it make sense to depreciate it over 7 years? Nope. So we set up an arbitrary limit of $200. Anything less than $200 is a SUPPLIES expense.
Best,
June
Thursday, October 4, 2007
Web developer with lots of questions
My answers to Peter are embedded below. Think that makes it easier with so much going on in his correspondence.
-- June
Hi June,
Great site. Thank you. I must say, a lot of info - possibly too much to find all the questions I have. Try the "search" box in the upper left of the screen. It may help.
I am a web developer. I started an LLC (sole proprietorship) in Ohio last month. I have couple of clients I make websites for (some for over 2 years now) and as expected I have some questions about what my new "status" brings:
1) When I receive checks, they all go to my business account. I read on your site that as a sole proprietor I am not an employee but rather I AM the company itself. Therefore: How do I pay myself? You don't pay yourself. You may take money whenever you like. You "income" is the profit your business has at year end. Can I just take the money from the same bank account, do I write myself a check, or what? Write a check to yourself or to cash.
2) How do I pay taxes? Read this post Estimated Taxes I have an EIN, I have no employees, and I have some freelance developers doing some work for me at times - I consider them as vendors, not employees.
3) What are the benefits of having an accountant, Jack Smith has a web making program. Why does he need a web developer? I do not do much business really, one or two checks a month come in... I read somewhere that in order to comply with the Limited Liability part, I need to separate my business and personal expenses. If you are an LLC you must have a separate checking account and a separate credit card to maintain limited liability.This comes together with Q#1: If I pay myself, transfer money to my personal account, or buy personal things directly with my business credit card, does that in any way change the LL part of the LLC? Yes.
4) How do I know if I should charge my customers a Sales Tax?? Every state is different. Call your state tax office.
5) What can you do for me, besides making my life easier by answering the above questions, or at least pointing me in the right direction? Contrary to most laymen's thinking, tax preparation for indies -- and many other situations -- is not simply putting #s on specific lines. There are often many choices for the same kid of deduction, there is different tax treatment for similar situations, there are different kinds of pensions for indies depending on income, age, family situation.
Just like Jack Smith doing his own website. For some Jacks it might be OK for other Jacks it might mean a big loss of money.
Thank you so much in advance! You are very welcome.
I can tell by your questions that you would benefit from the info in my book, Self-employed Tax Solutions. You might want to check it out.
All best, Peter, OH
-- June
Hi June,
Great site. Thank you. I must say, a lot of info - possibly too much to find all the questions I have. Try the "search" box in the upper left of the screen. It may help.
I am a web developer. I started an LLC (sole proprietorship) in Ohio last month. I have couple of clients I make websites for (some for over 2 years now) and as expected I have some questions about what my new "status" brings:
1) When I receive checks, they all go to my business account. I read on your site that as a sole proprietor I am not an employee but rather I AM the company itself. Therefore: How do I pay myself? You don't pay yourself. You may take money whenever you like. You "income" is the profit your business has at year end. Can I just take the money from the same bank account, do I write myself a check, or what? Write a check to yourself or to cash.
2) How do I pay taxes? Read this post Estimated Taxes I have an EIN, I have no employees, and I have some freelance developers doing some work for me at times - I consider them as vendors, not employees.
3) What are the benefits of having an accountant, Jack Smith has a web making program. Why does he need a web developer? I do not do much business really, one or two checks a month come in... I read somewhere that in order to comply with the Limited Liability part, I need to separate my business and personal expenses. If you are an LLC you must have a separate checking account and a separate credit card to maintain limited liability.This comes together with Q#1: If I pay myself, transfer money to my personal account, or buy personal things directly with my business credit card, does that in any way change the LL part of the LLC? Yes.
4) How do I know if I should charge my customers a Sales Tax?? Every state is different. Call your state tax office.
5) What can you do for me, besides making my life easier by answering the above questions, or at least pointing me in the right direction? Contrary to most laymen's thinking, tax preparation for indies -- and many other situations -- is not simply putting #s on specific lines. There are often many choices for the same kid of deduction, there is different tax treatment for similar situations, there are different kinds of pensions for indies depending on income, age, family situation.
Just like Jack Smith doing his own website. For some Jacks it might be OK for other Jacks it might mean a big loss of money.
Thank you so much in advance! You are very welcome.
I can tell by your questions that you would benefit from the info in my book, Self-employed Tax Solutions. You might want to check it out.
All best, Peter, OH
Shared Rent: You may still deduct for home office
Hello June,
Thanks for your thorough and detailed site. It's great to know there are experts like you who are on the side of us freelancers. We are in sore need of information. It's a hard job to have, plenty of rewards and plenty of challenges.
My question ... I'm a self-employed actress, playwright and theater-based educator. I've taken a home office deduction for the past 3 years, but this year, I'm not sure what is appropriate for me to deduct. In fact I'm wondering if it was alright for me to make those past years home office deductions in the first place.
I share a house with 5 other urban, single professionals. I have my own large bedroom in which a section is devoted to my home office where I have a desk, computer, printer and files. Can I deduct a home office expense? That small section of the room is exclusively used for business purposes. However it's not a separate room or even partitioned off. And I share the rest of the house with other people. So if I could claim a deduction -- then how much could I claim? The rent I pay is for the room and shared use of kitchen, living room, etc. Apart from your response, the option I have for next year is to just move my office section to the basement. A student I live with would use one section for her office, and I could use another section. No one else uses that half of the basement. On the other side of the basement is the washer and dryer and a rehearsal space for a music band of former housemates. Would this be a more appropriate deduction?
Thank you for your time, Anu from DC
Hello Anu,
You are welcome. As you can tell from the lag time between your question and my answer, the freelancers seeking questions are many.
Yes, you have a legitimate home office expense. Here's a hypothetical of how you would calculate your deduction. Follow the arithmetic carefully.
Four of you share an apartment.
Rent is $2000, you each pay $500. [2000/4]
Apartment is 1,600 square feet.
You each have your own room and share the rest of the apartment.
You each pay $500 per month for 400 square feet. [1600/4]
You use a 20 square foot area [5 ft X 4 ft] of your room exclusively for business.
20 divided by 400 = 5%. You use 5% of your share of the apartment for business.
So you may deduct 5% of your share of the rent, or $25 per month.
Hope that's clear. Please let me know.
Best,
June
Thanks for your thorough and detailed site. It's great to know there are experts like you who are on the side of us freelancers. We are in sore need of information. It's a hard job to have, plenty of rewards and plenty of challenges.
My question ... I'm a self-employed actress, playwright and theater-based educator. I've taken a home office deduction for the past 3 years, but this year, I'm not sure what is appropriate for me to deduct. In fact I'm wondering if it was alright for me to make those past years home office deductions in the first place.
I share a house with 5 other urban, single professionals. I have my own large bedroom in which a section is devoted to my home office where I have a desk, computer, printer and files. Can I deduct a home office expense? That small section of the room is exclusively used for business purposes. However it's not a separate room or even partitioned off. And I share the rest of the house with other people. So if I could claim a deduction -- then how much could I claim? The rent I pay is for the room and shared use of kitchen, living room, etc. Apart from your response, the option I have for next year is to just move my office section to the basement. A student I live with would use one section for her office, and I could use another section. No one else uses that half of the basement. On the other side of the basement is the washer and dryer and a rehearsal space for a music band of former housemates. Would this be a more appropriate deduction?
Thank you for your time, Anu from DC
Hello Anu,
You are welcome. As you can tell from the lag time between your question and my answer, the freelancers seeking questions are many.
Yes, you have a legitimate home office expense. Here's a hypothetical of how you would calculate your deduction. Follow the arithmetic carefully.
Four of you share an apartment.
Rent is $2000, you each pay $500. [2000/4]
Apartment is 1,600 square feet.
You each have your own room and share the rest of the apartment.
You each pay $500 per month for 400 square feet. [1600/4]
You use a 20 square foot area [5 ft X 4 ft] of your room exclusively for business.
20 divided by 400 = 5%. You use 5% of your share of the apartment for business.
So you may deduct 5% of your share of the rent, or $25 per month.
Hope that's clear. Please let me know.
Best,
June
Save Taxes: Pay your spouse for his help
Dear June,
Thank you, thank you for speaking in a voice that I can understand. I'm beginning to feel a little less like Alice going down the rabbit hole :-)
About me - I teach classes to homeschoolers. (I realize that sounds like an oxymoron, but in today's world "home education" is more like "parent directed education" and doesn't have to take place in the home exclusively.
So far, from reading your site, it doesn't sound like I need to incorporate. I'm not worried about legal liability and I don't have business debt that I need to protect personal assets from. Your book is on its way and I look forward to learning about taking advantage of more deductions. I plan on paying my children and my husband.
So far so good! Here's my question: Is there any other reason to incorporate given the fact that as a sole proprietor my income is being taxed at my husband's rate? I guess I'm confused because if I pay him then he still has to declare the income, correct? So aren't we back where we started? Am I missing a piece of the puzzle here?
Thank you again!
Renee from Houston, TX
Hello Renee,
You are very welcome. I am so pleased my writing is useful to you.
The hiring of a spouse is a big puzzle to explain in a short post that's why you are missing a few pieces here and there. But let me give you a few more pieces to the puzzle.
If you hire your spouse, yes the income is simply moved from your side of the return to his. No tax break there. The advantages come with your spouse as an employee in this way:
** You may now deduct travel costs for him when he is on a business trip with you. If he were not your employee, even though he conducted business for you while traveling, you could not deduct his travel costs.
** You could provide him and his family [that includes you and your son] with medical coverage and thereby deduct as your business expense all health insurance and other medical costs.
** Were you to set up and contribute to his pension that would also be a business deduction for you.
How's that for starters?
Best,
June
Thank you, thank you for speaking in a voice that I can understand. I'm beginning to feel a little less like Alice going down the rabbit hole :-)
About me - I teach classes to homeschoolers. (I realize that sounds like an oxymoron, but in today's world "home education" is more like "parent directed education" and doesn't have to take place in the home exclusively.
So far, from reading your site, it doesn't sound like I need to incorporate. I'm not worried about legal liability and I don't have business debt that I need to protect personal assets from. Your book is on its way and I look forward to learning about taking advantage of more deductions. I plan on paying my children and my husband.
So far so good! Here's my question: Is there any other reason to incorporate given the fact that as a sole proprietor my income is being taxed at my husband's rate? I guess I'm confused because if I pay him then he still has to declare the income, correct? So aren't we back where we started? Am I missing a piece of the puzzle here?
Thank you again!
Renee from Houston, TX
Hello Renee,
You are very welcome. I am so pleased my writing is useful to you.
The hiring of a spouse is a big puzzle to explain in a short post that's why you are missing a few pieces here and there. But let me give you a few more pieces to the puzzle.
If you hire your spouse, yes the income is simply moved from your side of the return to his. No tax break there. The advantages come with your spouse as an employee in this way:
** You may now deduct travel costs for him when he is on a business trip with you. If he were not your employee, even though he conducted business for you while traveling, you could not deduct his travel costs.
** You could provide him and his family [that includes you and your son] with medical coverage and thereby deduct as your business expense all health insurance and other medical costs.
** Were you to set up and contribute to his pension that would also be a business deduction for you.
How's that for starters?
Best,
June
Going Legit
June --
I am a website owner and operator. I make money from ads.
I haven't really made that much in the past 5 years or so (or paid taxes) but this year, it has really taken off. I don't have a DBA or anything like that, but I really need to get everything legit. I can't even get a loan or a credit card because as far as everyone knows I haven't had a job for years. But I made about $10,000 last month alone. Reading various articles on your website has me a little scared to go to a local cpa. I'm not sure what I need to do.
Brian from Juliet, TN
Hello Brian,
Yours is not a unique situation.
For starters you do not need a DBA. For more info, read this DBA: Doing Business As -- It's just a name .
You may be able to get a "no income verification" loan. That means the bank doesn't look at what you earn but what you own.
Some credit card companies will give you a card with a very low credit line. After several months of proving yourself a good risk, upon request, they will increase the line of credit.
You do not need a CPA, you need a tax preparer with knowledge about taxes for the self-employed and experience working with indies. There are several posts here about picking a tax pro. Whether or not you get the right pro depends on on how you go about looking for one. As these posts point out, you need to ask the right questions when you interview him or her.
Keep in mind that as an indie you are responsible for your financial well-being. That means you need information about taxes and recordkeeping and a lot more. If you like what you read on my blog and website, I encourage you to buy a copy of my book, Self-employed Tax Solutions. The book answers many of the most common self-employed questions in the same easy-to-understand style you'll find in my columns.
Best of luck!
June
I am a website owner and operator. I make money from ads.
I haven't really made that much in the past 5 years or so (or paid taxes) but this year, it has really taken off. I don't have a DBA or anything like that, but I really need to get everything legit. I can't even get a loan or a credit card because as far as everyone knows I haven't had a job for years. But I made about $10,000 last month alone. Reading various articles on your website has me a little scared to go to a local cpa. I'm not sure what I need to do.
Brian from Juliet, TN
Hello Brian,
Yours is not a unique situation.
For starters you do not need a DBA. For more info, read this DBA: Doing Business As -- It's just a name .
You may be able to get a "no income verification" loan. That means the bank doesn't look at what you earn but what you own.
Some credit card companies will give you a card with a very low credit line. After several months of proving yourself a good risk, upon request, they will increase the line of credit.
You do not need a CPA, you need a tax preparer with knowledge about taxes for the self-employed and experience working with indies. There are several posts here about picking a tax pro. Whether or not you get the right pro depends on on how you go about looking for one. As these posts point out, you need to ask the right questions when you interview him or her.
Keep in mind that as an indie you are responsible for your financial well-being. That means you need information about taxes and recordkeeping and a lot more. If you like what you read on my blog and website, I encourage you to buy a copy of my book, Self-employed Tax Solutions. The book answers many of the most common self-employed questions in the same easy-to-understand style you'll find in my columns.
Best of luck!
June
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