I got the following email on April 13 from Bob Smith. I usually don't give last names but something tells me his is a pseudonym. And, if it's not, I used to live in NJ so I know he's well hidden.
The kinds of questions I get usually can be categorized into a few areas. They are usually about specific expenses or generally what kinds of expenses can be deducted, and requests for explanations about taxes paid by indies. Sometimes I get a tough question that needs research on my part -- I'm doing one now for a cruise ship entertainer. There's always the new-to-self-employment folks who don't know where to start, and there's those seeking advice about my fellow tax professionals.
The thing is, when I get an email like the one below, my first response is: You have got to be kidding! You really expect an accurate, thoughtful response to this? And you want it in time to file your return in a couple days?!$#*&!
Well, I didn't get to Bob's email until now and I suppose he has already filed his return, but I'm hoping you, my readers, can learn something from Bob.
Bob is a financial analyst. Taxes and money are not a foreign language to someone in his profession. Well, here are his "quick questions." By the way, on my website a good while ago I wrote the column How to ask a question: "Quick Advice" or, "What is the meaning of Life." So many people start their inquiries with, I have a "quick question" that my husband assessment is, sure, the quick question is akin to "what's the meaning of life."
So, here's Bob's email and my "quick" answers in bold.
Hi - nothing like cutting it close. I worked as a self-employed consultant (as a financial analyst) last year for 3 different firms - 2 in NY and 1 in Connecticut. I worked on-site about 2/3 of the time and from my home for the remainder. I have a few quick questions:
1) What kinds of expenses can I deduct? All business expenses.
And, Bob, you never requested my free indie expenses list -- just a click away at about 4 or 5 places on my site and blog.
I was reimbursed by the Connecticut firm for mileage and tolls, but this reimbursement was included in the 1099 - where on the tax return would I deduct them? There are several columns and posts on my site and blog about how to handle reimbursed expenses. Click "reimbursed expenses" on the left side of my blog.
2)Since I was traveling from my home office to on-site offices some of the time are these travel expenses deductible (and not counted as commuting?) The room I worked in at home is not exclusively an office (worked on the family computer) so is it safe to assume I can't take a home office deduction, There are several columns and posts on my site and blog about "home office," however, I think you already know that the answer to this is: you don't qualify for home office. and that to be considered business mileage it must be from one business event or location to another.There's but I can still deduct the costs of printer supplies, cell phone, etc.? Yes, you can. And, you know what? It's all in the columns about home office. Just takes a little reading and analysis.
3) Do I need to file state tax returns for CT and NY? (I'm a NJ resident). Yup. For all three states.
Thanks for your assistance. Bob
Bob, I sure hope you filed for an extension and will plan better for next year. Also, hope you didn't mind my using your email as an education tool.
Best regards,
June
Saturday, May 5, 2007
Recording Business Mileage
June --
I work as a network consultant; driving from job to job throughout the day. What types of records do I need to keep to deduct the mileage? ie... is there a specific form or format or logbook style that I need to use? Currently I just keep a running total of the miles I drive per day in an excell spreadsheet; however, I don't necessarily keep track of which miles were associated with driving to which client.
-- Mike
Mike, there is no specific format or logbook that must be used. Use whatever method works for you.
If, for privacy reasons, you choose not to note a client's name, that's OK. You could use "Client A" or "Client B." You do need to note whom you met with and why. If you go from one client or business function to another then a daily mileage total is fine. However, you still must list the business events -- such as client meeting, drive to airport, business errand, etc. --for the day including what they were, why they were, and where they were.
For more info take a look at these two columns on my website How to Keep a Record of Business Miles and How to Calculate Auto Expense .
Best,
June
I work as a network consultant; driving from job to job throughout the day. What types of records do I need to keep to deduct the mileage? ie... is there a specific form or format or logbook style that I need to use? Currently I just keep a running total of the miles I drive per day in an excell spreadsheet; however, I don't necessarily keep track of which miles were associated with driving to which client.
-- Mike
Mike, there is no specific format or logbook that must be used. Use whatever method works for you.
If, for privacy reasons, you choose not to note a client's name, that's OK. You could use "Client A" or "Client B." You do need to note whom you met with and why. If you go from one client or business function to another then a daily mileage total is fine. However, you still must list the business events -- such as client meeting, drive to airport, business errand, etc. --for the day including what they were, why they were, and where they were.
For more info take a look at these two columns on my website How to Keep a Record of Business Miles and How to Calculate Auto Expense .
Best,
June
Driving from home to work: Is it deductible?
Hello June,
I am a limousine driver. Can I deduct the cost of gas for getting to work and back? I was driving a company car and they paid for the gas. I was driving my car to the base to pick up the limousine.
Thanks.
Lilka in New York
Sorry, Lilka, you cannot. From home to work is considered a commute, and commuting costs are not deductible. Take a look at Auto Expense: From one work location to another .
Best,
June
I am a limousine driver. Can I deduct the cost of gas for getting to work and back? I was driving a company car and they paid for the gas. I was driving my car to the base to pick up the limousine.
Thanks.
Lilka in New York
Sorry, Lilka, you cannot. From home to work is considered a commute, and commuting costs are not deductible. Take a look at Auto Expense: From one work location to another .
Best,
June
Notary Public / Court Reporter
Hi June,
Let me preface by saying, this year I attempted to do my own taxes through TurboTax to have a greater and deeper understanding of same; I believe that's the only reason that this was brought to my attention. I truly don't believe this question has ever been asked of me recently by any accountant that I've used.
There was a question regarding being a notary public and that any services as such were being performed as a public official and, therefore, those services were tax exempt.
As a court reporter it is my responsibility to swear in all witnesses and to then also certify every page of the transcript as being true and correct (also why I need to be a notary) as far as what was said, the parties present, events that happened, et cetera.
I feel that being a notary is an integral part of my job and, therefore, I am not sure if I should have to pay any self-employment tax. I have thought and thought about it and I don't see how you can separate out the two and I do believe my client pays me for both services being performed at the same time. If I were to lose my ability to be a Notary I would no longer be able to report. I looked on my previous tax years and I have always paid this self-employment tax.
Any guidance and standing I would have on this matter would be greatly appreciated. Thanks so much, in advance, for all of your time.
Sincerely, April in North Carolina
Hello April,
Public officials and public officers do not have to pay self-employment [SE] tax. There is no precise definition of "public official." The IRS says it is anyone who who administers or enforces public laws and exercises significant authority. . This includes positions such as governor, mayor, member of the state legislature or school board, justice of the peace, tax assessors.
A notary public, although she must pay income tax on fees earned, does not have to pay SE tax on income.
The IRS, on its website, gives the following examples of independent contractors: "People such as lawyers, contractors, subcontractors, public stenographers, and auctioneers who follow an independent trade, business, or profession in which they offer their services to the public, are generally not employees ... The earnings of a person who is working as an independent contractor are subject to Self-Employment (SE) tax."
A court reporter or stenographer who offers her services to attorneys or anyone else needing her services is considered self-employed, that's an independent contractor, and so does not get the exemption from SE tax that public officials get. A court reporter is not considered a public employee.
Let me preface by saying, this year I attempted to do my own taxes through TurboTax to have a greater and deeper understanding of same; I believe that's the only reason that this was brought to my attention. I truly don't believe this question has ever been asked of me recently by any accountant that I've used.
There was a question regarding being a notary public and that any services as such were being performed as a public official and, therefore, those services were tax exempt.
As a court reporter it is my responsibility to swear in all witnesses and to then also certify every page of the transcript as being true and correct (also why I need to be a notary) as far as what was said, the parties present, events that happened, et cetera.
I feel that being a notary is an integral part of my job and, therefore, I am not sure if I should have to pay any self-employment tax. I have thought and thought about it and I don't see how you can separate out the two and I do believe my client pays me for both services being performed at the same time. If I were to lose my ability to be a Notary I would no longer be able to report. I looked on my previous tax years and I have always paid this self-employment tax.
Any guidance and standing I would have on this matter would be greatly appreciated. Thanks so much, in advance, for all of your time.
Sincerely, April in North Carolina
Hello April,
Public officials and public officers do not have to pay self-employment [SE] tax. There is no precise definition of "public official." The IRS says it is anyone who who administers or enforces public laws and exercises significant authority. . This includes positions such as governor, mayor, member of the state legislature or school board, justice of the peace, tax assessors.
A notary public, although she must pay income tax on fees earned, does not have to pay SE tax on income.
The IRS, on its website, gives the following examples of independent contractors: "People such as lawyers, contractors, subcontractors, public stenographers, and auctioneers who follow an independent trade, business, or profession in which they offer their services to the public, are generally not employees ... The earnings of a person who is working as an independent contractor are subject to Self-Employment (SE) tax."
A court reporter or stenographer who offers her services to attorneys or anyone else needing her services is considered self-employed, that's an independent contractor, and so does not get the exemption from SE tax that public officials get. A court reporter is not considered a public employee.
Here's a decision from a court case [Allen C. Moore and Annette Moore, plaintiffs v. U.S. defendant] in California in 1984: SE tax must be paid by court reporters who were also notary publics. The court reporter's services generated business fees subject to SE tax despite the practical necessity of being notary." Being "notary was merely incident to court reporting business."
I'm sure that's not the answer you want but it was a great question.
And, I'm glad you learned something from TurboTax, but, be careful. If you've read some of my other writing you know that many tax prep programs do not do the best job for indies.
Best,
June
How to Keep a Record of Business Miles
Regardless of which method -- actual or standard -- you use to calculate auto expense you will need to know the total business miles for the year.
Easy how-to for recording business mileage.
Let’s start on New Year's Eve! A little assignment before you head out to the party: Get the mileage reading on your car from the odometer and write it in your calendar.
Next assignment: on the following New Year's Eve, once again before you go out (because you'll never remember in the morning) write that mileage reading in your calendar.
Completing those two assignments gives you a beginning and ending mileage reading for the year so you know how many miles you put on your car for the year. Now let’s see what you do between parties.
As long as accuracy is your goal, the method used is unimportant. Choose the routine that suits you and your business. Patti Party Planner, who runs all over the state checking party and convention sites and prices of supplies, and listening to bands, will have a very different method of calculating business mileage than will Rob Rolf who rarely needs to leave his massage studio. Let’s look at the different ways that they, and Lily Legal, figure out business miles.
*** Rob Rolf uses his car for business only once a month to buy supplies all he has to do is to check the mileage from studio to supply house and back and multiply it by 12 and he’s got his total business miles for the year.
*** Lily Legal goes to the court house twice a week. She has an occasional trip to a client’s office. Like Rob Rolf she does the multiplication thing to figure her court house appearances -- two trips times 48 weeks (she takes off four weeks a year to go to Aruba). And she uses her appointment calendar to determine which clients she met with at their offices. Around early December she has her clerk figure the miles from her office to each client. He writes the mileage in her appointment book and tallies them up. He adds that to her court appearance mileage for total business use mileage.
*** Patti Party Planner spends much of her day in what she calls her “business” car. She was distraught at the cumbersome way her former tax preparer told her to calculate business miles. Sammy Segar told her to write down the odometer reading every morning – 79,814.5 – and then at the end of the day write down the new reading – 80,013.6 – and then subtract. 199.1 miles. What a bother! By day’s end she was so tired that she often made mistakes in arithmetic. Patti has another car -- bigger, with a childseat, devoid of the clutter of her business car. She uses that one for just about all family errands. Patti came up with a much easier way of calculating business miles. She does her New Year’s Eve notations in the calendar. But then instead of writing down all her business miles she just notes in her calendar the few occasions she uses the business car for personal errands. She deducts her personal miles from her total miles to come up with a business use figure.
As you can see from the above examples, there is no set way to keep a mileage record. Use a method that suits you.
Want to learn more about auto expense and mileage recordkeeping? Take a look at these on my website Two Ways to Calculate Auto Expense and the expanded How to Keep a Record of Business Mileage .
Easy how-to for recording business mileage.
Let’s start on New Year's Eve! A little assignment before you head out to the party: Get the mileage reading on your car from the odometer and write it in your calendar.
Next assignment: on the following New Year's Eve, once again before you go out (because you'll never remember in the morning) write that mileage reading in your calendar.
Completing those two assignments gives you a beginning and ending mileage reading for the year so you know how many miles you put on your car for the year. Now let’s see what you do between parties.
As long as accuracy is your goal, the method used is unimportant. Choose the routine that suits you and your business. Patti Party Planner, who runs all over the state checking party and convention sites and prices of supplies, and listening to bands, will have a very different method of calculating business mileage than will Rob Rolf who rarely needs to leave his massage studio. Let’s look at the different ways that they, and Lily Legal, figure out business miles.
*** Rob Rolf uses his car for business only once a month to buy supplies all he has to do is to check the mileage from studio to supply house and back and multiply it by 12 and he’s got his total business miles for the year.
*** Lily Legal goes to the court house twice a week. She has an occasional trip to a client’s office. Like Rob Rolf she does the multiplication thing to figure her court house appearances -- two trips times 48 weeks (she takes off four weeks a year to go to Aruba). And she uses her appointment calendar to determine which clients she met with at their offices. Around early December she has her clerk figure the miles from her office to each client. He writes the mileage in her appointment book and tallies them up. He adds that to her court appearance mileage for total business use mileage.
*** Patti Party Planner spends much of her day in what she calls her “business” car. She was distraught at the cumbersome way her former tax preparer told her to calculate business miles. Sammy Segar told her to write down the odometer reading every morning – 79,814.5 – and then at the end of the day write down the new reading – 80,013.6 – and then subtract. 199.1 miles. What a bother! By day’s end she was so tired that she often made mistakes in arithmetic. Patti has another car -- bigger, with a childseat, devoid of the clutter of her business car. She uses that one for just about all family errands. Patti came up with a much easier way of calculating business miles. She does her New Year’s Eve notations in the calendar. But then instead of writing down all her business miles she just notes in her calendar the few occasions she uses the business car for personal errands. She deducts her personal miles from her total miles to come up with a business use figure.
As you can see from the above examples, there is no set way to keep a mileage record. Use a method that suits you.
Want to learn more about auto expense and mileage recordkeeping? Take a look at these on my website Two Ways to Calculate Auto Expense and the expanded How to Keep a Record of Business Mileage .
Thursday, May 3, 2007
What'll it cost me to leave my W-2 job for the indie life?
Hi June,
I currently work full time and my salary is 95k + bonus (8k this year). I am married, own my own home. I have no children. I have been offered a consulting position at a 1099 rate of $65 hr. My other option is $55 hr as W-2.
I am an IT professional. I have expressed an interest in taking the position as a 1099 consultant. I donate to charity at least 10% per year. My wife is employed, but I would probably make her my employee for tax advantages. I don't go to the doctor often at all and am an aggressive investor for now, not interested in the lower interest returns of 401-Ks and such. Dentist twice a year, and we own 2 automobiles, one paid off and one leased.
What is your opinion? Do you think it would benefit me to move over to be independent?
Thanks, Dan
Hello Dan,
There are two sides from which to look at your question.
For only $10 more per hour, definitely not. For a measly $10 an hour you are giving up benefits which could be vacation and sick pay, unemployment compensation, health insurance. And your employer is saving those costs. Don't think of your health costs as two dental visits per year it's the skiing accident or the fall in the bathtub or worse for which you have medical insurance. Take a look at this on my website
What'll it cost me to leave my W-2 job for the indie life?
On the flip side, you could reduce taxes substantially by being able to directly deduct all business expenses. And with your wife on payroll, if you give her good benefits like a pension and health insurance, it may make it worthwhile.
I suggest you push the company for more than $65 per hour.
Best,
June
I currently work full time and my salary is 95k + bonus (8k this year). I am married, own my own home. I have no children. I have been offered a consulting position at a 1099 rate of $65 hr. My other option is $55 hr as W-2.
I am an IT professional. I have expressed an interest in taking the position as a 1099 consultant. I donate to charity at least 10% per year. My wife is employed, but I would probably make her my employee for tax advantages. I don't go to the doctor often at all and am an aggressive investor for now, not interested in the lower interest returns of 401-Ks and such. Dentist twice a year, and we own 2 automobiles, one paid off and one leased.
What is your opinion? Do you think it would benefit me to move over to be independent?
Thanks, Dan
Hello Dan,
There are two sides from which to look at your question.
For only $10 more per hour, definitely not. For a measly $10 an hour you are giving up benefits which could be vacation and sick pay, unemployment compensation, health insurance. And your employer is saving those costs. Don't think of your health costs as two dental visits per year it's the skiing accident or the fall in the bathtub or worse for which you have medical insurance. Take a look at this on my website
What'll it cost me to leave my W-2 job for the indie life?
On the flip side, you could reduce taxes substantially by being able to directly deduct all business expenses. And with your wife on payroll, if you give her good benefits like a pension and health insurance, it may make it worthwhile.
I suggest you push the company for more than $65 per hour.
Best,
June
Tuesday, May 1, 2007
Health / Medical Insurance
June --
I'm new to the life of an 1099er and would like to know your opinion in general on medical insurance rates and shopping around.
Chris from Plano, Texas
Hello Chris,
Everyone I spoke with said the same thing. Start with your existing trusted agent that you use for other insurance. Ask for a recommendation. Often the term agent and broker are used interchangeably but usually they are defined as: An insurance agent works for one insurance company; A broker looks to many companies to find coverage for you.
You can also check with fellow indies. You don't say what your profession is so I can't suggest specific organizations or guilds.
Do check with the Freelancers Union. It offers health insurance not only to indie New Yorkers but is expanding to other states and also has a lot of information on health insurance.
Please let me know if you find other good sources.
Best,
June
I'm new to the life of an 1099er and would like to know your opinion in general on medical insurance rates and shopping around.
Chris from Plano, Texas
Hello Chris,
Everyone I spoke with said the same thing. Start with your existing trusted agent that you use for other insurance. Ask for a recommendation. Often the term agent and broker are used interchangeably but usually they are defined as: An insurance agent works for one insurance company; A broker looks to many companies to find coverage for you.
You can also check with fellow indies. You don't say what your profession is so I can't suggest specific organizations or guilds.
Do check with the Freelancers Union. It offers health insurance not only to indie New Yorkers but is expanding to other states and also has a lot of information on health insurance.
Please let me know if you find other good sources.
Best,
June
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