Learn how to deduct medical costs as a business expense.

Hi June,

I'm a software/controls/simulation engineer. Indie for 6 months.

Your web site has been a fantastic resource for me. Thank you. I read recently about deducting medical expenses and I contacted TASC about setting up a plan, which I expect will save me a good chunk on taxes.

I wanted to let you know your link is not working on your page http://junewalkeronline.com/index.asp?sPG=80.

Here's a link that works: https://www1.tasconline.com/buytasc/bizplan/page/whatisbizplan.

Thank you for the great web site !

Regards,
Rob
Pleasanton, CA


Hi Rob,

The guys to talk with at BizPlan are John Gill and Marino Alcorta-Narvaez.

How much you'll save depends on your total medical costs. There have also been some changes due to the new small business tax act that may have an impact on medical insurance deductions.

Thanks about the link -- been fixed -- and for your generous comments about my site.

Please let me know how BizPlan works out.

I just signed with Xynergy to develop my a new website and online marketing. Hope to have things up and running by Christmas or earlier. As a one-person info source I need to figure out how to spread the word more efficiently.

-- June

Self-employed? Determined by facts, not choice.

June --

I am a software engineering consultant working as a W-2 hourly employee of a consulting company. I am on assignment at an insurance company. I report my hours to the consulting company, they bill the client, and give me a paycheck. I make currently make $54/hour. I receive medical benefits and 401(k) benefits (up to 3% match).

I am wondering if I can switch to a 1099, with the consulting firm contracting the work out to me as a subcontractor? I would bill the consulting firm, and they would bill the client. Is this allowed since I am already on assignment at the client. The billing relationships would change, but I would be doing the same work.

Dee
Alpha, Ohio



Hello Dee,


Whether you are self-employed or an employee is determined by the circumstances of your work relationship. It is not a matter of choice or changing the billing method.


You are an employee. Take a look at my post Employee vs. Self-employed .


-- June

Really confusing questions. A really confused indie!

This question is such a mishmash that I am going to embed my answers and also give you a taste of indie-style forensic accounting. This kind of email from an indie is not unique. Most times I disregard and don't post them. However, I hope that reading this will help you see a better way of approaching your indie business.


June,

I am in Richland, WA and have an engineering degree. I have registered an LLC as an sole proprieter to develop some software that will soon be bought out.

In the meantime, I am trying to decide how to become independent and pick up technical consulting work. Translated: How do I get clients? Maybe that's what that means. I prefer to do a 1099 with other companies, as I understand that it means I work under their insurance guidelines What kind of insurance? Professional liability insurance? Health insurance? Generally, indies are not covered by their clients' insurance whether the client is an individual or company. What does "guidelines" mean? ? Did an engineering firm offer you insurance coverage even though you'd be an independent?

And what does "understand" mean? Don't enter into an agreement with a client by taking something to be understood. Terms must be explicitly agreed upon. Be careful. Too many indies follow the advice of Aunt Tillie, who has a neighbor who is an engineer and knows for sure.

and I don't need to start my own business per se. You are an LLC structured as a sole proprietorship. You have already formed your own business. And under whose direction did you form your LLC?

I guess my question is... what do I need the LLC for. Why did you form an LLC? -- I am not exactly sure I understand how the 1099 and LLC work together. Shouldn't you have asked what you need the LLC for before you formed it? What were the reasons?

As an engineer and software developer logic, sequence and reason are all at the core of your discipline. I assume your analytical skills and decision-making processes have been developed throughout your schooling. You need to use those same skills on the business side of your indie venture.

I noticed your comment about how one is a tax structure and the other legal, and to fill out the 1099 with my name first, LLC name second, and my own SSN rather than the EIN. I am really confused on this. You're confused? I'm confused, because I can't find where I said exactly that.

Also, does self-employment mean I need to register as a business in my local area and may state and pay business taxes. -- I hope you did a better job of proofing your software than you did of your email. Your sentence has a typo but I'm not sure whether "may" is a typo for "pay" or a typo for "my." The answer to the kinds of taxes paid by an indie can be found on my July post here I am an LLC. How do I pay taxes? Call your local Small Business Association about local business registration requirements.

Please help!
Name Withheld

I hope I have.
June

Indies: Do it right.

June –

I am a nuclear engineer from Knoxville, Tennessee. I just started December 3, 2007. I would like to start off without calling attention to the IRS.

I assume I need to pay quarterly estimated taxes but am not sure how to estimate them.

When was the last update of your book, Self-employed Tax Solutions?

If I use Schedule C must I also fill out the SE Form?

Your help would be appreciated.

Thanks,
Max


Hi Max,

I am not sure what you mean by “without calling attention to the IRS.” And if you mean you don’t want to call attention to yourself in the eyes of the IRS, I am still unsure.

Every new indie -- such as you – needs to get as much information about self-employment income, expenses and taxes as possible. Your goal should be to pay the least tax legitimately possible and to avoid missed deadlines and payments so that you don’t get stuck paying penalties and interest.

As in nuclear energy, the aim is economy, simplicity and doing it right. Rather than thinking of your task as an indie in terms of keeping the government off your back or out of your business affairs, think in terms of avoiding mistakes and delays that would cause problems and overpayment of taxes – in other words, learn how to do it right.

Here is my post on how to calculate and pay Estimated Taxes .

Yes, a Schedule C: Profit or Loss from Business, and a Form SE: Self-employment Tax, are part of your tax return.

My book, Self-employed Tax Solutions, just went into its 6th printing. My purpose in writing it is to give indies an understanding of how the IRS looks at self-employment and also to give them a basic foundation in income, taxes, expenses, and recordkeeping. The book does that and will always do that.

Other than an adjustment to the treatment of start-up costs the tax laws have not changed since the book was published in 2005. As you may know from reading my material or attending one of my seminars I advise indies to have a professional prepare their returns. So, when I say that the tax laws haven’t changed I mean, for example, that the method of recording and calculating business miles remains the same. Yes, the per mile amount allowed by the IRS changes every year. That is something your tax pro knows or you can look up on the IRS site. But, what your tax pro probably has not told you, nor has it changed, is that you should write down your odometer reading in your calendar on New Year’s Eve before you go out to party.

Get the idea? Hope that helps.

Best,
June

Self-employed in more than one state

June --

I have 14 yrs as a contract electrical engineer (electronic hardware designs).

You touched upon this topic at June's Blog but you didn't get into the detail I'm curious about. I am self employed and live in CT. For the first time, I might take a client company in the neighboring state (MA). For my previous long term client located here in CT, I worked from my home office and visited their facility (3 hrs round trip) maybe about 15 days out of a year.

If I work in a similar manner for a company out of state, what criteria should be used to determine how I report income to each state. Would I only report MA income for the days I traveled to MA, and the rest is CT income? Of course, the full income from this client would be reported on their 1099 showing they're an MA company, possibly without a CT facility.

Also, while hired under contract by a local office here in CT, I had to go to their corporate office in another state to work for a few weeks. I reported all income as CT income that year. Was that reasonable?

Brian
Windham, CT



Hello Brian,

All your net self-employed income -- and all your other income as well -- is taxable to the state in which you live. That's your "resident" state. In your case, Connecticut.

Here's how it works ... or here's what the non-resident states want you to do:
If you work in other states -- that means actually work there not just go there to pick up the work -- then you are working in a non-resident state. You must pay tax to the non-resident state on the income made in that state. If you pay income tax to the non-resident state you will get a credit on your resident state tax return for the tax paid to the non-resident state.

If your income can easily be identified as done in one state rather than the other, then allocate by actual income. Or, figure your income in each state by # of days worked to # of days worked in the non-resident state.

Here's an example:
As an engineer you grossed $100,000 self-employed income. $80,000 earned in resident state, CT; $20,000 was earned in non-resident state, MA.

You had $40,000 expenses which left you a net income of $60,000.

Since 20% of your gross income was from MA, then 20% of your net $12,000 is taxable to MA.

If your expenses were such that they could be easily identifiable to each state then your portioning of income would be actual rather than as a percent.

Best, June

More about Business Auto Expense

Maybe it’s because gas prices are rising that I received a lot of questions about auto expense. I hope my responses here and elsewhere on my blog to the many questions about auto expense will help all you indies who use your car for business.

June,
I am considering taking a sales position. It would be outside sales. I would use my own car. They said that I could use my car as a write off. How do I look at this? If I put on 10,000 miles a year how much is it costing me to operate my vehicle and what do I get to deduct off my taxes if I make 40,000 a year?
Dave from Champlin, Mn


Hello June,
My name is Cesar, I am from Fairfield Ca. and been self-employed for the last 5 years as full time structure draftsman who works for a structural engineering firm.

My question is I have my client who's office is in San Francisco downtown and I travel to that office sometimes 5 days a week, but try to work from home at least 2 days when no rushes or deadlines occur, also work during the weekend as well.

Can I write off lunches I buy for myself?

Can I write off mileages and gas receipts? or one or the other on gas and miles? Also can I write off car insurance on one of my cars?


Dear June:
Your book Self-employed Tax Solutions has been an invaluable help.

Regarding auto mileage deductions, I make a bank deposit daily. I want to know if I can take a mile deduction for driving to the bank from my house on the way to work or if I should go to the bank on my way from work. I can do either I was just trying to do what ever would give me the biggest benefit.For 2008 I will have an in home office deduction thanks to reading your book. The room I lease at the Spa is too small for an office so I do all my calls, Bank deposit slips and paperwork at home.

Thanks for the Help Joyce San Antonio, TX


Kimberly from Columbus, OH
I’m having a problem trying to calculate my miles driven per day for the year to get more tax money can you please help me out?


You may deduct as a business expense the cost of going from one work location to another. It’s as simple as that.

If you don’t have a home office, then you may not deduct going from home to the bank or to your studio in town or to your client’s office. You may deduct the cost of going from the bank to your studio or to your client’s office.

Business auto expense can be figured in one of two ways.

The first, the standard mileage method, simply multiplies your total business miles by a per mile rate set by the government. The rate changes yearly . For 2007 the rate was 48.5 cents per mile. For 2008 the rate is 50.5 cents per mile.

The other, the actual expenses method, multiplies your total auto expenses by the percent of business use. If you put 20,000 miles on your car in 2007 and 5000 were for business use then your business portion is 25%.

Expenses for your car, include items such as:
· Gas & Oil
· Repairs & Maintenance
· Tires
· Insurance (Remember AAA or other road service coverage, too.)
· Registration & License
· Car wash
· Garage rental
· Loan interest
· Lease costs
Parking tickets, speeding tickets and fines are not deductible business expenses.

Added to the business portion of expenses is the amount for depreciation of the business portion of the cost of the auto.


A note to Cesar: Sorry, no lunch deductions. Take a look at my response On-the-road Meal Deductions to Kevin earlier today. You may deduct meals only when traveling. Check out the expenses -- meals and entertainment (8) category for a fuller explanation.

Check out my book Self-employed Tax Solutions. It will simplify your tax and financial life, and save you money!