Incorporation is not a tax strategy.

June --

I live in Charlotte, N.C., and have been a freelance writer for five years, although I have only done it exclusively for the last two. (Before that I also worked part-time at a newspaper.)

Anyway, I've gotten a lot of work from higher-paying publications last year, and two of them gave me mid-year per-word raises because they liked what I was doing. The result has been that my income is greater than I expected. wondering if maybe at this point incorporation makes sense as a tax strategy.

I earn $70,000 annually working 25 hours a week. (I have three kids under age 7 so I don't work full-time now but I expect to work more and see my income increase as my kids get older.)

The Department of Labor says it expects "reporters and correspondents" to make $16 to $20 an hour or $43,000 a year. What do you think?

Thanks.
Michelle
Charlotte, NC


Hi Michelle,

First, let me congratulate you on successfully freelancing as a writer. It's not easy. I think the DOL knows little if anything about reporters and correspondents or the publishing industry as a whole. Newspapers are falling by the wayside. Reporter clients of mine are being let go and they are heading onto the freelancer highway. A really good piece about this is in the December Harper's, "Bright Frenetic Mills" by Thomas Frank.

Do not incorporate. Incorporation for independent professionals should not be part of "tax strategy." So cross it off the list ASAP.

What you need to do to reduce your tax is similar to what you'd need to do if your are putting together a feature story. As my husband, a reporter for decades would say, you can't get too many facts and you can't check them too often. So here's where to start:
1. Learn what is deductible
2. You have three kids and that means a really busy life, so make your recordkeeping as simple as possible.
3. If you make more money than you need to live on, look at the many different kinds of pensions available to indies.
4. Find an indie savvy tax pro.

The most difficult is #4.

#1 and #2 are fully explained in my book. It's available at most libraries or you can buy it here Self-employed Tax Solutions.

#3 Maybe by the time you're ready to contribute to a pension I'll have an indie pension overview available.

I wish you continued success.

-- June

Writers, beware: A royalty is different than a royalty.

June,

Thank you for your wonderful book. It has been a useful resource in the past year since I purchased it.

I am writing to you with a question I hope you can answer. Early this year, I published my first book. I am receiving royalty checks for the book this year. I am also working on another book (no advance or payment for the text--I'll just get royalties for that one too).

I have been an indie for many years first as a performer and more recently running a martial arts school, but writing is new for me.

I am quite puzzled about how to report royalty income. The IRS schedule E is for reporting income from royalties. However, there is a single sentence in the instructions that says "if you are self-employed as a writer, report your royalty income on a schedule C instead." My question is, what standard does the IRS use to determine if I am self-employed as a writer? On the one hand, it seems that anyone who is receiving royalty income from a book is, sort of by definition, self-employed as a writer. Is the difference whether or not I write off my writing expenses as business expenses? Is the difference whether I have another stream of income? This point has me quite confused, and it seems likely that it could make a difference of hundreds if not thousands of dollars in my tax liability, since schedule C income then gets reported on a schedule SE, whereas schedule E income does not. Any feedback you have on this would be most welcome. I welcome your comment.

Jonathan
Saint Paul, MN


Hello Jonathan,

Congratulations on getting published!

My "wonderful book." Oh, how I love to hear that. Thank you.

I don't usually get into tax preparation and tax forms on my blog but because so many accountants screw up on just the question you ask I want to address it here and alert writers to know at least this much about the actual preparation of their tax returns. So here goes:

How much income you make, whether you have other income, whether you write off expenses -- none of those come into play regarding the classification of royalty income. Read these two examples.

With a very little amount of money a regular Jon or Jane could invest in an oil well. Many do through their investment brokers. Many who do don't even know that they've invested in an oil well. At year end they get a Form K-1 from the oil company that says, hey Jon, you made $700 in royalty income. That royalty income goes on federal Schedule E. John didn't do anything to get that $700 other than invest some money.

With a whole lot of blood, sweat and tears Jon writes a book. It is published. Jon's publisher receives the money from the sales of the book. Then the publisher pays Jon his portion of that sale income. At year-end Jon receives a Form 1099 saying that Jon made $700 from the sales of his book. That income goes on federal Schedule C. Because Jon worked his butt off for two years writing the book that royalty is self-employed income and Jon will pay self-employment tax on whatever is left of that income after business expenses are deducted.

Royalty income from a publisher is the same kind of income as a fee for writing a magazine piece or a column for a blog.

The same applies to musicians who get a royalty on their compositions.

It's all self-employed income. Be sure your tax pro treats it as such.

Best,
June

Easy Recordkeeping

Hi June,

I live in Philadelphia, PA. I'm a calligrapher and journalist and I've been an indie for 5 years (and I'm originally from Santa Fe!)

I wanted to ask about the worksheets you provide on your website. What format are these in? Excel? PDFs?

Are they meant to replace an accounting method or are they intended to use at the end of the year for tax time?

I'm having a hard time finding simple accounting software and was wondering if you have any suggestions for Excel spreadsheets (other than me making my own). I was going to go in any copy the system you suggest in the book but I just wanted to make sure these sheets don't already exist for purchase.

QuickBooks is just way too complicated for my needs...

Many thanks,
Mara


Hi Mara,

Just returned from vacation in Jemez Springs. Being an ex Santa Fean I assume it's an area you know And, BTW, my daughter lives in Philly.

I am not sure what you refer to when you say worksheets that I provide on my website. On my site I offer for sale my 2010 manual recordkeeping how-to guide:The Confident Indie: Five Easy Steps. It has my worksheets in it.

Five Easy Steps shows indies the most simple way to keep records -- manually. In the 75 page publication are the worksheets which I developed over more than 20 years of working with indies.

The worksheets are PDFs; they are not in Excel. They are your means of presenting your self-employed tax information to your preparer.

Accompanying each worksheet, if necessary, is a description or instructions. Some of the worksheets follow the format of an actual IRS form but modify it in such a way as to make it more understandable and useful to you and your tax preparer.

First comes the recordkeeping; then come the worksheets.

Excel is not a recordkeeping program. It is simply a spreadsheet. Just like those old systems that had you putting things in little boxes then adding them up. Excel does the addition for you. It does nothing more regarding recordkeeping.

I agree with you, QuickBooks is too complex. It's for professional bookkeepers and accountants. It's a double entry system not for the layman. If you want to keep records manually, I strongly recommend you buy Five Easy Steps and follow my Most Simple System method. If your want to keep your records on computer I highly recommend Quicken -- just ignore all the latest bells and whistles. As one of my Learning Tools I did have a pub on adapting Quicken for indies. [Quicken is really is for W-2 people and small businesses.] However, it's out of date re the Quicken version I reference and I haven't yet revised it.

Hope that helps. Please let me know.

Best,
June

Oh, the hype ... lies ... and edited video tapes

June --

I am a writer that is still having a time finding a tax person with your indie point of view. But the good bookkeeping I have learned from you has been a plus. Can I get your updated version of biz expenses?

Also, I am hearing that massive tax increases are coming in January 2011. Can you please post what these tax increases are on your blog as you can? This would really help in my monthly bookkeeping.

Thank you, Donna
Lakewood, NM


Hello Donna,

Thanks for letting me know that my advice is a help. Expense list sent a while ago so on to your question.

So many indies write me and say that they heard such-and-such but they don't tell me where they heard such-and-such. Aunt Tillie? A CPA? The yoga teacher's husband?

And I must tell you that just about all the such-and-such is hogwash. As is what you heard.

Anecdotally, I have seen taxes go down for my clients. The refundable and non-refundable credits available have increased. The reading I must do to keep up on the new tax breaks is daunting.

And, it's not just my experience. The Center on Budget and Policy Priorities says that: "This is the second-lowest percentage in the past 50 years."

I am so pleased that you asked before acting. And, as my husband the former reporter always says: Check your sources then check them again.

Best,
June

Quicken Records & Business Meetings

I exchanged a series of emails with Marianne, a writer/photographer, that I have abridged and am passing along to you.


Hello, June.

I just finished reading your The Confident Indie: Five Easy Steps pub. At the end, you refer to a pub you are writing about tweaking Quicken to use for business records. Is this available?

Pub was great, BTW.

Marianne


Hi Marianne,

Glad you liked Five Easy Steps. Thanks for letting me know.

No, the new petite pub is not yet ready. I previously published a how-to guide to computerized recordkeeping. It was a companion piece to my book Self-employed Tax Solutions . It explained how to adapt Solutions' manual recordkeeping method to Quicken. But it’s out-of-date and needs revision.

Do you currently use Quicken? Are you PC or MAC?

Oh. I went to your site. Doesn’t work???

Best,
June


Hi, June.

I use Mac and PC, but prefer my Mac (newer, faster, more memory and just cooler). If you have any suggestions, this struggling taxpayer will promote you to goddess level.

Yes, that was my old site. My current site does work. ‘Tis a sad tale of down payments wasted, deadlines ignored, false starts and real disasters. Do you know any good firm who can make a website for video folks???? Lots of it will link up to videos already posted on Vimeo, YouTube, etc.

Thanks for all your help, June. I will be buying other books!
Marianne


Hi Marianne,

I like goddess. I'll work on it. For your website check out Mike Hartley web designer at http://bigflannel.com. Here's a site Mike did that includes video http://www.leftright.tv.

Best,
June


Good morning, June. Thanks so much for the referral. Wow, Mike's stuff is great and he clearly works at the TopTop of the tree. My partner (and husband) and I were just looking over both sites. Again: Wow.

OK, transition:
As one small business owner to another, what is your opinion re the value of joining the Chamber of Commerce for marketing purposes?

Thank you for all your help and your ab fab site and materials. I think every small business owner/indie should read your site if only for the shot-in-the arm reminder that you ARE a business. Your message empowers -- I know that term is overused and trite now, but it is the best one this wordsmith can use.

Cheers,
Marianne


OK, Marianne, first things first.

I agree on Mike’s work.

Since I am in the process of writing how to adapt Solutions' and the Five Easy Steps' manual recordkeeping method to Quicken, could you tell me what you find are your difficulties in setting up & using Quicken for your indie business?

[If any of you are having problems with making Quicken work for your unique indie venture please leave your comments or email directly to me at june@junewalkeronline.com.]

On the Chamber of Commerce, or any other organization, you need to first determine what you are looking for. What are your needs? Does that organization fulfill that need? Who are the other members? What are the demographics of your potential market? Are the Chamber members your potential market? Is it worth 1/3 of your day to attend a meeting?

I think of my day as split in thirds – morning, afternoon, evening. And I think of a couple hour meeting plus getting out of my jeans and dressing for the meeting and getting there and back as using up 1/3 of my day.

Call the organization and see what its guest policy is so that you may attend at least one meeting before plopping down a big membership fee.

Please, do get back to me on using Quicken for your indie business.

Best,
June

Audit potential?

June --

Been tracking (officially) my income/expenses from writing for just about a year now. I've actually been teaching creative writing and submitting fiction pieces to literary journals for several years (more than a decade). I have done my taxes through a software program, but I am paranoid that I have done something wrong, mostly because I haven't made any money on my authorship.

Additionally, my husband, for whom I prepare his taxes, is self-employed but hasn't made any money in a couple of years. He is a management consultant.

Will all of this trigger an audit? I would be more than willing to pay for advice!

Many thanks,
Kristine
Walnut Creek, CA


Dear Kristine,

An indie who is legitimately pursuing his or her profession should never fear an audit.

As long as you can prove the legitimacy of your business -- how to do this is explained in my book Self-employed Tax Solutions -- and as long as your records are accurate you would smoothly fly though an audit.

Audits can be random or for specific reasons. Even indies with profits year after year can be audited. They, too, must keep just as accurate records as do indies with losses year after year. Here are lots of posts on recordkeeping . And you might want to check out my petite publication on recordkeeping, The Confident Indie: Five Easy Steps.

-- 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.

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

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

A freelancer's business expense cannot be deducted as an employee's expense.

Hi June,

I am a writer. I have a question about Schedule C deductions versus unreimbursed employee expenses on form 1040.

I'll have a significant amount of charitable donations this year, not to mention all the state tax I paid this year that I understand is deductible on the 1040. But I won't exceed the standard deduction level.

What would one need to do to treat indie expenses as unreimbursed employee expenses? I am, after all, an employee of myself, right? Is this smart or dumb? Legal or not?

Thanks! I love your book. Best $13 I've spent in a while.

Rachel
Alexandria, VA


Hi Rachel,

To set the stage:

• Everybody deducts personal expenses on Schedule A.
• Employees deduct all their business expenses on Schedule A.

Self-employeds deduct all their business expenses on Schedule C.

Both Schedule A and Schedule C are part of the Individual tax return Form 1040.

All business expenses may be deducted on Schedule C. Only home office has restrictions based on income.

There are several income restrictions as well as deduction restrictions on Schedule A. Often, depending on income or total expenses, employee business expenses on Schedule A may be lost, that is, you get no deduction.

A deduction on a Schedule C is much more of a tax advantage than the same deduction on Schedule A.

Rachel, to answer your questions:
You cannot deduct self-employed expenses as employee expenses. You may split an expense between employee and self-employed if it is used in both your work situations, a reference book for example.

You say, "I am, after all, an employee of myself, right?" No you are not. You are self-employed. Employees are people on payroll, who have taxes withheld by an employer and receive a W-2 at year-end.

You may be a freelance writer and also have a job on a magazine. In which case you would be both self-employed and an employee.

You might want to read these posts employee vs. self-employed for a better understanding.

Glad my book is helpful. Please tell your friends and colleagues.

Best,
June

A Reporter's Confusion

There are so many elements to SV's email below that I am going to embed my responses as an aid to clarity. Her confusion is not unique, so my explanation may help a lot of you.


Hi June,

I'm a full-time reporter and just started freelancing this year.

I received a 1099-MISC and am confused about whether I should enter that in a Schedule C or just along with my total income? This tells me that SV is preparing her own return and I don't give specific tax preparation instruction. So I am going to rephrase her question. Think of it this way: I am freelancing. I received a 1099-MISC that stated the amount of my freelancing income. Is that income the same as my wages as a reporter and if it is may I combine it with my wages income? Or is it self-employed income to be treated as self-employed income on my tax return? Well, asked this way, it's a little more clear that the income is self-employed income not wages and must be treated as such on SV's tax return.

It seems that's for a sole proprietorship, not a proprietor. Self-employed income makes you a sole proprietor -- fait accompli.

but according to you a 1099-MISC is for an employee, I never said that. Check your sources.

By the way, a reporter always thrice checks sources. I know because my husband was a reporter for a long, long time. And, as reporters know: Don't let what you want to be the outcome of the story influence how you investigate your story. You may think the guy's a crook but you must investigate to see all sides of the situation. You don't want to pay more in taxes but you must look at the possibility that you may and not interpret to fit your desired outcome.

I was originally working with Turbo Tax You are doing exactly what Timothy Geithner our treasury Secretary did. He didn't know his self-employed income was self-employed income and so he answered the TurboTax question incorrectly. Read these posts Turbo Tax and Tax Prep Programs (8) .

but got a queasy feeling that something was just not quite right about the fact that one way I was asked to pay several hundred dollars, and the other way I was given a refund of a few hundred dollars. On your wages as a reporter you have already paid social security and Medicare tax. You have not paid those taxes on your freelance income. Combined -- called self-employment tax -- they are approximately 15% of your net self-employed income. That's why you owe taxes.

I don't want to get in trouble but I can't afford an expensive tax preparer, especially if I will be paying several hundred dollars in taxes (and yes, I put enough aside but I feel as though if I were more savvy I would probably would not be paying as much...) I believe I should have deductions for clothing, makeup, car use and home office, but I'm not sure where to put that. It seems most tax preparers are not well-versed in helping people in my situation. You need to educate yourself. As a reporter you wouldn't write a story knowing nothing about the subject. You know nothing about the business side of being self-employed and so you should not expect to be able to write about it -- doing your own tax return. Start by reading more of my blog posts. For instance, you'll see in the explanation of expenses that you cannot deduct makeup unless it were purchased for a business special event only. For a basic understanding of self-employed taxes and recordkeeping check out my book Self-employed Tax Solutions. In it there's Rick Reporter. Rick has both wages as a reporter and freelance income, just as you do.

Do you know of a good "indie" accountant in the DC/Maryland area? No one. These posts might help tax pros - tax prep fees - tax returns .

Thanks so much!
SV
Largo, MD

You are welcome.
June

Is your goal to make money?

Hi June,

I just received my list of business expenses, and it's great. Thanks so much for this invaluable information.

I'm still wondering about one type of business expense, however, so here's my question: As a freelance writer, can I deduct business expenses (research, publications, etc.) for a project that I am working on, but has no income associated with it? I am doing research on an idea for a book, but don't yet have an agent, publisher, contract, etc. and don't know if those expenses can be taken. What's a girl to do?

Thanks so much--for any help you can offer and for the fantastic information on your sites.

Barbara
Petaluma, CA


Hi Barbara,

Thank you for your generous compliments.

Expenses in pursuit of making a profit are deductible. As I explain in my book, as long as your goal is to make a profit you are a self-employed in business. You do not need to make money you need to be trying to make money.

For more of an explanation read these posts , especially No Profit Needed As Long As You Have A Profit Motive.

I wish you success with your book.

Best,
June

Undergarments as a business expense?

June --

I'm from Minneapolis, MN, and I am both a writer and a yoga/writing instructor. I've been an indie for 12 years. My husband is a dancer/actor/performer.

We have a two questions about business expenses. As a yoga instructor, I have specific yoga clothes and undergarments that I purchase for teaching. Deductible, right?

And, my husband has a closet of clothes that he keeps for modeling that he doesn't wear any other time, except for auditions and shoots. Deductible?

And, he has regular chiropractic and bodywork for body maintenance.

Deductible? He isn't being treated for a specific injury, he is treated for his posture, and to keep his "instrument" in good working order.

Thanks! Josie


Hi Josie,

The rule on clothes: If you can wear them as normal streetwear they are not deductible. Women wear tights as everyday clothes, so there goes that deduction. A sports bra, yes. Regular undergarments, no.

Your husband cannot deduct the clothes he buys for modeling.

Here's another way to look at it. A housewife and mom sends her third child off to school, becomes a realtor and buys an entire business wardrobe because the ripped jeans and tank tops won't do. No deduction.

The freelance writer gets a writing gig for an uppity insurance company and must buy a suit. No deduction. [That actually happened to my husband many years ago when he did a freelance project for Chubb insurance.]

A tuxedo or an evening dress for an awards ceremony are deductible.

Chiropractic and bodywork to keep your guy fit are not deductible. Same would be true for the construction worker who has to stay in shape so he doesn't fall off the scaffold or the waitress who gets a foot massage once a month to enable her to stay on her feet 10 hours a day.

Good try!
-- June

Independent Creative Services

Dear June,

I am a graphic artist, writer and musician - sometimes separately, sometimes in combination. Currently, I make revenue from all three endeavors, but only profit from two. Do you think these three activities make sense as a single business?

I was thinking "independent creative services" might be the ticket. Am I on the right track or way off base?

Thank you for your help!

Jamie
Los Angeles, CA


Hello Jamie,

Yes, you are not only on the right track you're on the right train. And independent creative services is a perfect business description.

So many people in the arts combine many creative endeavors. Their thinking, supplies, equipment, business acquaintances, clients, books, and more cannot be separated into different businesses.

Don't get too creative though by trying to combine dog walking with graphic design.

This post Jack or Jane of All Trades: How does an indie define a business? will give you more info.

Best,
June

Hubby in the Office: Not Good

Hi June,

I have been self-employed as a writer and editor since 1991. About half of my income is from travel writing...I'm coauthor of guidebooks to Oregon, Montana, and Utah. In the past, I've always deducted my meals and entertainment when I'm traveling to research these books (which require regular updating) at the 50% level.

But since reading your book, it occurs to me that I could classify them as research and thus claim 100%. What do you think?

Also, about that home office...mine is a small portion of a room that I use all day long for work. Sometimes, after dinner my husband will space out in front of You Tube or check sports scores on the computer in my office space. Does this disqualify me for the home office deduction?

Thanks so much,
Judy
Portland, OR


Hello Judy,

Meals and entertainment while traveling for business are considered meals & entertainment expense and so are deductible at 50%.

If you take a client to a jazz club and discuss business before, during or after the show that's an entertainment expense. What I think you may be confused on is this: If a jazz musician goes to a jazz club to hear a certain saxophonist, that's research or education for the jazz musician, not an entertainment expense. In the same way that your going to a writers' workshop would be a research or study expense.

If your husband spaces out in the portion of the room that you use an an office, then absolutely no home office deduction allowed.

-- June

Travel Expenses for Husband & Wife

June --

I have been a self-employed historian, located in Columbus, Ohio, since retirement from my teaching position at Ohio State University.

My income comes from book royalties, lecture honoraria, and contracting to teach seminars and workshops. My question is this: If my wife accompanies me on a research trip to an out-of-town library or archives, engaging in research on my behalf, can I deduct her expenses in any way other than by formally hiring her as an employee (and incurring the obligation to pay into her social security, etc.)?

Can I pay her as an independent contractor, obligated to report her own income and pay her own social security and deducting her own expenses?

Can I simply deduct her expenses as if they were my own?

Sincerely,
Michael

Wow! Michael, you are the first self-employed historian to send me a question. My husband is a historian. Here's two of his books A Battle for the Soul of New York and 1929: America Before the Crash.

On to your question: The only way to deduct travel expenses for a spouse is if the spouse is your employee.You say, "incurring the obligation to pay into her social security." Well, unless your income is greater than the year's required amount your combined social security costs will be the same whether she is an employee or not.

And if she is an employee you may deduct her travel expenses. So there may be a tax benefit and yet cost you nothing but time.

Be sure to read my posts in this category payroll -- spouse as employee to learn more about the advantages of hiring your spouse.

Best,
June

Freelance Income from Portugal

Hello June,

My husband is a self-employed journalist. He has income coming from an employer in Portugal we live in the USA. We have a home office that he works in at least 12 hours everyday. I have been writing off the income as self-employed income. There are no taxes taken out on this income from the foreign country.

I call IRS several different times they said two things use a form 1116 or write it off as self-employed income. One person said he was not sure and went to ask someone else. I wanted to hire and accountant this year but our income seem to drop each year.

Therefore, we do not make enough income to afford an accountant or tax officer. I have had an accounting and tax course in the pass but as you know the laws are always changing. My question is how to file this income? Should we get Portugal to take taxes out on this income?

Evone from Orange, NJ


Dear Evone,

I assume you used "employer" incorrectly and that you mean the person or business in Portugal that paid your husband for his freelance services.

Your husband's income from Portugal is treated the same as his freelance income from any other place. It is all his self-employed income.

Do not request that taxes be withheld for Portugal. That's their job! If the payer did withhold Portugal taxes then you would file Form 1116 to get credit for taxes paid to a foreign government.

Best,
June

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

Husband & Wife Writers: One Business

Hello June,

I love your site, and it is truly the first REAL HELP I've discovered that a simpleton like me can understand.

Our details: I'm a full time writer from Austin, Texas and I maintain my own office . My wife works full time for a regular company, but she's also started contract work for the first time this year. She is in Education, and I am in Entertainment, but we both perform the same function of consulting and writing in our respective areas.

We both received 1099s this year for our separate lines of work.

Our problem: Up until now, I've considered myself a sole proprietorship, and deductions were relatively easy to understand. But now with my wife making contract money, we want to take deductions for her as well.

Can I "roll" her into my business as a husband/wife proprietorship, or is she her own side business?

My tax software lumped us together (our two 1099s anyway) but I'm not sure this action is what should be done. Do we need separate Schedule C's? Or can we actually be a husband/wife business under the same name?

For next year's problem: I'm writing screenplays and likely won't make an income in 2008. That is fine, because my wife landed a large contract and I'll help her with it. But now -- with my own office and different line of work -- then what do we do? If I become her employee, then don't I cancel out my own deductions for a different line of work? (I'll still attend seminars, classes, study, and so forth with related expenses).

I hope you can help!

Thanks. Jad


Dear Jad,

Get rid of the tax software.

OK, now I can answer your questions. Actually, your question about how a husband and wife business may file has already been answered in my post
The Many Advantages of Hiring Your Spouse . But let's deal with your current and future work situations.

For 2007, if you consider the work that you and your wife did as one business then you may file as one sole proprietorship, using one Schedule C, Profit or Loss from Business. You would split the income and the SE tax based on each one's share of income. If you think of the work as two businesses you must treat them like two separate businesses and separate all income and expenses. File two Schedules C. A real drag since, based on your description of the work you both do, I assume you share a lot of the expenses.

One thing you said doesn't make sense, "But now -- with my own office and different line of work." What different line of work? From an aesthetic perspective there is a difference between translating Homer and writing a press release for a new brand of toothpaste but from a tax perspective, writing is writing is writing. Not to mention that you'd probably get more money for the press release than the translation.

For 2008, set up as one business. The description of the work you both do certainly sounds like one business. If it's your wife's business, then you should be her employee. Or it can be your business and she can be your employee.

Be sure to read all my posts about a husband/wife business here's the category payroll -- spouse as employee .

See you off-Broadway.
June

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

First Year Freelance Writer

Hi June,

I started working as a full-time freelance writer in January 2007, and since then I haven't paid any taxes. (I did pay my income taxes in April, but that was based on my normal full-time job from 2006.)

I've missed three periods of paying estimated taxes, and now I'm not sure if/when I should pay them or if I am exempt because it's my first year as a self-employed freelancer.

I know I probably need to pay a penalty to the IRS but I'm not even sure how to do that.

Will general tax software be able to help me with this?

I really want to get back on track with all of my taxes and all caught up. Any help you have on how to do this would be much appreciated.

Thanks, Stephanie New York, NY


Hello Stephanie,

First: You are not exempt from taxes because this is your first year of freelancing. Now who could have told you that?!

Read this Estimated Taxes to get an overview of how estimated taxes work. Then read my other blog posts on estimated taxes if you need more info.

I do not think that tax software does a good job for indies. Most programs are geared for employees or else small businesses that make widgets. Independent professionals are a unique breed and need special tax treatment by a pro who understands tax law as it applies to the self-employed. Educate yourself about what is and is not deductible. Read my posts on how to pick a tax pro and you'll be headed in the right direction. If you want more information, my book, Self-employed Tax Solutions, will give you a solid understanding of the basics.

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