Temporary Work Assignment

Brenda from Palatine, IL is an indie who provides organizational development and learning and instructional design consulting. She inquired: "Recently, I have picked up 2 clients in Virginia and DC that have provided me with 1-year contracts, which in essence has required me to stay in the area." "I want to be sure that while I am working for these clients in the area, that my lodging expenses are deductible. My permanent residence is in Illinois."

I have had many questions about the deduction of expenses related to what is known in tax jargon as “temporary assignment" or "temporary worksite.” For instance, if you regularly work at one place -- called your tax home -- and also work at another location, it may not be practical at the end of each work day to return to your tax home from this other location. You may need to "live" at this other location for a while. What is deductible? Here's a guide:

A job assignment may be temporary or indefinite. Which one it is makes a big difference in the amount of expenses you may deduct.

If your other work location qualifies as a temporary work site then you may deduct related travel expenses. And, as you can read here, travel expenses can mount up. A temporary work site or assignment is, generally, work at a single location that is realistically expected to last (and does in fact last) for one year or less.

If, on the other hand, your work assignment or job is indefinite, you cannot deduct your travel expenses while there. An assignment or job in a single location is considered indefinite if it is realistically expected to last for more than one year, whether or not it actually lasts for more than one year.

You must determine whether your assignment is temporary or indefinite when you start work. If you realistically expect an assignment or job to last for one year or less, it is temporary.

An assignment that is initially temporary may become indefinite due to changed circumstances. A series of assignments to the same location, all for short periods but that together cover a long period, may be considered an indefinite assignment.

Be sure to check out the long list of travel expenses on my website.

Reimbursed expenses: There's more than one way to dress a mannequin

Hi June,

I'm a designer working in fashion, snowsports, and the entertainment industry. I work on everything from costumes and sets to graphics and photography. The work keeps coming so I don't deny it. Currently I live and work in Brooklyn and have been working since 1999.

Here is my question - when working as a costume or set designer, stylist, or even in fashion, I often buy a lot of stuff - IE costume pieces, furniture, accessories, etc. These are items I'm not reselling to the public and are used exclusively for the project. I do invoice them for the cost, but its exactly at cost - more like an IOU.

Exactly how do I classify this on my taxes.

Thank You,
Jess


Hi Jess,


There are several ways to treat your props cost.


If never used again for another project then you may categorize the expense as "client costs" and the income or inflow of the reimbursement as "client costs reimbursement." The expense would cancel out the income and = 0.


If you used the props for other projects, or saw something interesting at an estate sale and bought if for future use, you could classify the income as "supplies." Include any income or reimbursement simply as income.


Sometime the choice depends on the amount of money we're talking about. For instance, $10,000 income, $100 props or $80,000 income with a $1,000 props may be treated differently than $80,000 income and $30,000 props.

Your tax pro may look at your entire tax picture and possibly choose a third method. If you props expense were a large portion of income she might treat the expense as "production costs."


Contrary to the understanding of most indies and the general public, tax preparation is not always a yes/no, this-way/ not-that-way, "exactly" situation. That's why I think indies should use the services of an indie-savvy tax pro.

Best,
June

Jack or Jane of All Trades: How does an indie define a business?

Hi,

I'm a writer/designer/wearable art & life style accessories maker, thus my question: How broadly can I define my business?

If I do all of these things and make money at all of them, can I have one umbrella company that does it all? Or do I have to bifurcate the writing and communications activities from the design and manufacturing? To clarify, I'm primarily a technical communicator, but I have also started a jewelry and lifestyle accessories business. I plan on trying to get some writing published in jewelry and accessories publications, so where do I have to draw the line?

So how many "plates" can I have in my "cafeteria business" under one name and under one sole proprietorship? If you know the cartoonist Larson, it's a little bit like the one with "Lou's FillDirt and Croissants."

Regards,
Christine, from Belmont, CA


Hello Christine,

What a great question. So many indies have irons in many fires -- fill-dirt and croissants is stretching it a bit too much, of course. The goal is to legitimately combine as many of aspects of your money-making activities under one profession or one business as you possibly can. The biggest reason: It simplifies your recordkeeping.

Here's the test that will help you decide: Write one press release announcing your business. In it combine all your services and products. If you can comfortably put them all together in one press release, and if you would not have a problem sending out that press release, then you're OK with one business.

Often the skills in one area give authenticity or credibility to another area. I see no stretch between designer/wearable art & life style accessories maker. And if you write about these things, that you write about other subjects as well does not make writing a separate business.

Best,
June

Taxes when you work in one state but live in another.

June --

I have been a mechanical designer for one year. I have been working in Texas for the past 8 months. Texas has no state income tax. My residence of record is in Roswell, NM, but I have been renting an apartment here (in Texas).

I have not had any New Mexico income tax withheld from earnings here. Will I still have to pay New Mexico state income taxes ?

David


Hello David,

Yes, you must pay New Mexico.

Regardless of where you work you must always pay income tax to the state where you live. Of course if your resident state has no income tax, then you pay no income tax where you live.

Typically, you pay income tax to the state where you work and you receive a credit for those taxes paid in the state where you live.

Here's an example of how it works:
You work in state A. Let's call it your work state --non-resident state in tax jargon.
You live in State B. Let's call it your home state -- resident state in tax jargon.
Your total home state income tax is $5,000. That includes tax on your earned income and tax on interest and dividends and stock sales. You paid $4,000 tax to your work state and so you get a credit. So your home state tax is $1,000.

It may not work out dollar for dollar if one state has a different tax rate than the other. And of course, if your work state, like Texas, has no income tax, then you get no credit and so owe NM the entire tax.

Also read this blog post Work in Another State

Best,
June

Husband & Wife Working Together: Incorporate or Not?

Dear June,

I am a freelance designer. My husband works for an advertising company. Once in a while he helps me out with my work. My friend's accountant told her that I'd save a lot of money if I incorporated. Should I incorporate and put my husband on my payroll? I'm confused because I don't really know how a corporation works.

Thanks.
Janice from Ohio


Hello Janice,

Do not incorporate unless your personal tax pro analyzes your unique situation and gives you specific, understandable reasons why it would be better for you.

Here's a snapshot of how a corporation may handle income:
In a corporation, the tax benefit of retained earnings -- that's corporate profit that is not distributed but kept in the corp for future business spending -- comes into play only when you make a lot more money than you need to live on. By doing this, you leave some of the earnings of the corp in the corp and do not have them available for living expenses.

In your corporation you would earn money as a designer. These would be your wages. Your husband would earn wages. The corporation would have a profit on which the corporation -- that's you -- would pay tax. The corporation profit -- in the form of dividends is distributed to you.

On yours and your husband's tax return you include your wages, his wages and the dividends. You pay tax on that income. Note that on the dividends, the corp -- you -- have already paid tax once. Now you will pay tax on those same dividends again.

You must pay whatever fees your state requires for setting up a corp. You must pay an accountant to help set up a corp and every year to prepare a corporate return for the feds and also for the state. There are various required papers, such as corporate minutes, that you'll need to keep.

All this is a hassle and expensive and so you don't want to do it unless you must.


When you have a sole proprietorship and you hire your spouse as your employee this is what happens or may happen:
-- Your wages to him simply move the income from one part of the return to another. No tax change. -- If he must accompany you on a business trip, his expenses are business deductions. Not so if he were not an employee.
-- You may provide him with a health plan that covers his family [that includes you]. All family medical expenses then become deduction against your business income.
-- You may give your spousal employee dental coverage, life insurance, disability coverage, a pension -- all are deductions against your business income.

And, if he works out really well, you may give him a raise.

Keep in mind: A sole proprietorship may be an LLC. Read about it here Sole Proprietor as an LLC

Best,
June

Designer: New to self-employment and the 1099 world

June,

I am a designer -- interior / furniture / industrial . This is my first time handling my taxes as a 1099, and after reading about my deduction opportunities in your "Designers Dozen: Tax Saving Tips for the Graphic Artist " article, I'm wondering: Do I need physical receipts for every write-off I claim or will my credit card / bank statements suffice?

Rachel -- Brooklyn, NY


Dear Rachel,

You will need paper backup for just about all expenses. Some expenses may be estimated, for instance, if you know that once a month you subway to the Bowery to get something fabricated, then you may estimate that monthly transportation expense. Or if on one or two occasions you lose the receipt for a supply house you regularly purchase from, you may estimate. Certain expenses may not be estimated, like business gifts and meals & entertainment.

Regarding credit card statement versus the actual receipt, there are two areas where statement rather than receipt is a problem. First, you would need to show, for instance, that a Macy's receipt is for a business attache and not for a blouse. The other is how would you total all specific category receipts from your credit card statement? You're going to need to sort receipts into business categories -- supplies, postage, dues, etc. My book Self-employed Tax Solutions has an entire section on easy, audit-proof recordkeeping, that shows how to deal with business expenses on credit card.

You are new to self-employment, you need a lot of information. I recommend you start by reading a short column on my website, like: Is it a deductible business expense?

If you like what you read there, 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.

And more than just answering your taxing questions, the information in Solutions will give you a firm foundation on which to build your solo venture!

I wish you much luck!
June