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

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

A good deed is not a tax deduction.

Hi June,
I really enjoy your newsletters -- Ways Through the Maze . I've been doing my own taxes for close to 20 years using Turbotax and it's predecessor, MacinTax. For many of those years, I was an employee with a part-time business. I'm now in business for myself publishing a local home improvement magazine.

The business is now 2 years old and struggling but surviving. My dilemma is this: I sold an ad last year to Habitat for Humanity at a highly discounted rate and they've given me a receipt for a donation for the balance of the amount. However, I can't figure out where on my Schedule C to place this donation. Turbotax doesn't seem to allow for a business to make a donation but I know that this is not that uncommon.

Can you tell me how I should account for this on my tax forms. I'm structured as an LLC.

Thanks,
Alan


Dear Alan,

Glad you like my eLetters. Please tell your indie colleagues.

You can't find it on TurboTax because there in no accounting for donated time other than the feeling in your heart that you get for doing a good deed.

Read this post about Donating Time: 10 Cents A Minute .

Best,
June

Partenerships may not be simple.

Guess I'm on a roll here. Here's another question similar to the one in Assess the situation. Then make the right choice. This one from Mike, in Georgia.


June, Computer Consultant 9 years as indie. I have been an indie for a number of years, last year I started a new LLC with a good friend. He wants to have both of us treated as 1099 employees. Is this a smart move. Is it correct and legal. I have always treated my past business (also LLC) as an owner that receives a draw.
Thank you,
Mike


Well, for starters, all of you indies who know my writing and seminars are aware that there is no such thing as a "1099 employee."

Employees receive W2s; they have employers; they are not self-employeds.

Self-employeds receive 1099s.

What you probably don't know, because I pretty much keep my writing to sole proprietorships and do not give advice on partnerships, is this:
Partners in a partnership receive a K-1 stating their income or loss for the year. They do not receive a 1099 from the partnership.

Partnership tax returns are complex.

I have a bad feeling that Mike and good friend may also have done the $29.95 setup-an-LLC-online kind of thing. They need to have a tax pro look at their partnership agreement and also explain the tax setup for partnerships.

-- June

Assess the situation. Then make the right choice.

No surprise to all of you, I'm sure, that my posts have been minimal these last weeks. Well, it's tax season and client deadlines take precedence. I did want to get this out to all of you as a caution about whom to ask about what.

I receive 100s of questions. The ones I find most disturbing are those that seek answers to complex tax situations that the indie expects will be resolved by a quick emailed response. They are disturbing because I am concerned that independents don't know how or where to get accurate information.


Here's an example: from Laurie:
My husband started an LLC Partnership this year. He is the active/general partner, subject to SE tax. The other 2 partners are not subject to SE tax based on their role in the partnership. Can my husband submit his SE taxes as reimbursable expenses to the LLC? The other alternative is to increase his percentage of the profits to cover the additional financial burden, but I suspect the other partners may not be too keen on that.


So, I ask: Why wouldn't Laurie ask her tax pro who is familiar with and has all the particulars of her situation? Was this partnership formed without the advice of an attorney or tax pro? Done online for $29.95? To even consider that SE taxes might be reimbursable expenses shows that the questioner knows little if anything about partnership taxes.

Indies, please, I know these are tough times and you are all trying to save money. Yet, be aware of when to call in a pro, when to rely on a quick emailed response, or when to try to handle it on your own. Just like knowing when you can handle a cold or headache on your own or when you need to see a doctor. If you don't call in the pro at the right time it will likely cost you more in the end.

-- June

When To Deduct An Expense

June,

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

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

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

Best Regards,
Mark


Dear Mark,

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

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

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

Supplies for general use -- when purchased.

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

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

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

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

Best,
June

An LLC what?

Hi Ms. Walker,

I was originally going to become an S Corp but recently decided to go LLC instead. With regard to record keeping, etc, would you suggest your books for an LLC? Or are they strictly for sole proprietors?

Thanks,
Mike
Las Vegas, NV


Hello Mike,

I suggest the first thing you do is read these posts on LLCs -- LLC? Incorporate? and Sole Proprietor as an LLC .

Why should that be the first thing you do? Well, because you don't say what kind of LLC you are. As you'll learn in those posts and many others about LLCs in this blog: An LLC is a state legal structure; it is not a tax entity. Once you are an LLC you then decide to be a sole proprietorship LLC, a partnership LLC; or a corporate LLC.

So, to answer your question you asked, which I am very pleased that you asked, I will assume you are a sole proprietorship LLC [a disregarded entity in tax jargon]. If that is so then all my material is for you.

I suggest you start with my book, Self-employed Tax Solutions, which gives you the basics on income, expenses, taxes and more.

Best,
June