June --
My boss decided to put me on a 1099. Just wondering what percentages I can expect to be taken based on a 15 dollar per hour wage at 40 hours per week, no write offs.
Thank you so much for your time.
Thanks, Eric
Eric, stop the train!!!
The difference between self-employed and employee is not just a matter of changing what you're called. Your boss cannot just "put" you as an independent contractor. If he's done this without any consultation with you, then most likely he's doing it to try to save money -- on insurance, benefits, workers compensation and payroll taxes.
Take a look at this column on my site: It's all about relationships: Are you an employee or are you self-employed?
If you are self-employed you should plan that about 30% of your income will go to taxes. For an explanation, check this out on my site Taxes: Which ones and how much do I pay?
-- June
To learn more about indie taxes and Self-employed Tax Solutions please visit http://www.junewalkeronline.com/
Sunday, May 20, 2007
Not filed a return for many years? Here's where to start
Hi June,
Received your book, Self-employed Tax Solutions, from Amazon and can't wait to dive in and then to tackle my 6 years of back taxes. Hopefully with the book holding my hand, I can do it.
I just discovered boxes of tax materials and bank statements from up to 20 years ago. I hope I'll find (in your book?) that I can toss them.
Thanks again for your help.
All the best,
Beth ... music business
Hi Beth,
Here's a link to my site on how long to keep records, How long to keep tax records . There is a longer explanation in my book starting on page 138 and there's also something about record storage which starts on page 189.
When tackling six back years of tax returns, the task can be daunting. While you're doing it, rather than overdoing it, take your time; take lots of breaks. It’s a lot like cleaning out a closet. Here’s some steps to get you on the right path:
Received your book, Self-employed Tax Solutions, from Amazon and can't wait to dive in and then to tackle my 6 years of back taxes. Hopefully with the book holding my hand, I can do it.
I just discovered boxes of tax materials and bank statements from up to 20 years ago. I hope I'll find (in your book?) that I can toss them.
Thanks again for your help.
All the best,
Beth ... music business
Hi Beth,
Here's a link to my site on how long to keep records, How long to keep tax records . There is a longer explanation in my book starting on page 138 and there's also something about record storage which starts on page 189.
When tackling six back years of tax returns, the task can be daunting. While you're doing it, rather than overdoing it, take your time; take lots of breaks. It’s a lot like cleaning out a closet. Here’s some steps to get you on the right path:
- Get one file box for each year. Go through each paper looking at dates only. Put each paper into the "year" box to which it belongs. Pay no attention to what the paper relates to.
- Now go through each box, sorting the paper into the following piles.
- Personal, nothing to do with taxes
- Income
- Expenses
- Investments
- Other money related things
- Ask tax pro
- OK to throw away [But don’t discard these until you’ve had the returns prepared … just in case.]
- Get out Tax Solutions and sort and tally your records as explained in the Most Simple System.
Now you’re ready to go see your tax preparer.
Cheers!
June
Wednesday, May 16, 2007
Auto Expense For A New Indie
June,
First, I just want to say that I am loving reading your Self-Employed Tax Solutions book! It is very informative.
Regarding auto deductions: For the first 5 months of this first year of being an Indie business woman I have not kept gas receipts. I've thrown them away after the credit card statements balanced because someone told me I will just be using the standard mileage method as my deduction. I also do not have a car payment.
If I purchase a new auto in the next few months would I be able to switch to the actual auto method for the rest of the year or am I stuck this year because I had not kept gas receipts.
Thank you, Maureen
Hello Maureen,
I'm pleased my book has been informative for you. Thanks for letting me know.
Here's some more info on auto expense:
** It is OK to estimate gas expense if you do not have all the receipts.
For instance, if you know that you get 30 miles per gallon, and your average cost for gas for the year was $3.00 per gallon, then you may divide your total miles by 30 and multiply that number by $3.00 to come up with your cost for gas.
Here's an example:
30,000 total miles per yr / 30 miles per gal = 1,000 gal Xs $3 per gallon = $3,000 for gas.]
** You do not have to be making payments on your car to have substantial auto deductions. If you bought your car for $25,000 several years ago, and on your first day of business use you could have sold your car for $5,000 you have a $5,000 vehicle that you are using for business. And depreciation for the business use of that car may be deducted on your tax return. And, as I'm sure you saw in the auto worksheet in my book you may also deduct repairs insurance, registration, etc.
** You may use one method to calculate auto expense for one car and another method for the other car, as long as both cars weren't used in the same business during the same time.
First, I just want to say that I am loving reading your Self-Employed Tax Solutions book! It is very informative.
Regarding auto deductions: For the first 5 months of this first year of being an Indie business woman I have not kept gas receipts. I've thrown them away after the credit card statements balanced because someone told me I will just be using the standard mileage method as my deduction. I also do not have a car payment.
If I purchase a new auto in the next few months would I be able to switch to the actual auto method for the rest of the year or am I stuck this year because I had not kept gas receipts.
Thank you, Maureen
Hello Maureen,
I'm pleased my book has been informative for you. Thanks for letting me know.
Here's some more info on auto expense:
** It is OK to estimate gas expense if you do not have all the receipts.
For instance, if you know that you get 30 miles per gallon, and your average cost for gas for the year was $3.00 per gallon, then you may divide your total miles by 30 and multiply that number by $3.00 to come up with your cost for gas.
Here's an example:
30,000 total miles per yr / 30 miles per gal = 1,000 gal Xs $3 per gallon = $3,000 for gas.]
** You do not have to be making payments on your car to have substantial auto deductions. If you bought your car for $25,000 several years ago, and on your first day of business use you could have sold your car for $5,000 you have a $5,000 vehicle that you are using for business. And depreciation for the business use of that car may be deducted on your tax return. And, as I'm sure you saw in the auto worksheet in my book you may also deduct repairs insurance, registration, etc.
** You may use one method to calculate auto expense for one car and another method for the other car, as long as both cars weren't used in the same business during the same time.
If anyone needs an explanation of auto expenses, just go to my website : How to Calculate Auto Expense and How to Keep a Record of Business Miles .
Best,
June
Thursday, May 10, 2007
HOBBY OR BUSINESS: Are you a professional artist?
Artists and designers and crafts people:
Does the IRS consider you a professional?
You’ve been chosen for juried shows. You sell your work. People praise its quality and design. You think of yourself as a professional artist. But … are you a professional in the eyes of the IRS? And why does that matter?
It matters because it can have a big impact on your taxes, especially if you spend more money pursuing your art or craft than you bring in.
Let’s say that in one year you spend $10,000 more in art expenses than you bring in as sales. Also in the same year, you receive $50,000 in income from Grandma's trust fund, or $50,000 salary from your corporate job. If your art or craft activity is a business rather than a hobby, then you get to subtract the $10,000 business loss from the $50,000 taxable income. You are now looking at taxable income of $40,000 instead of $50,000.
But you may deduct the art loss from Grandma's trust income or from any other taxable income only if the IRS considers your art activity a business.
Maybe you don’t think of yourself as a self-employed designer or craftsperson in business. Perhaps you’re still at the thinking-about-it stage of making your art your work or you love what you do so much you don’t think of it as a business. You may believe you’re not self-employed because you haven’t made any money. Or perhaps you know you’re in business but work only part-time at your art and doubt that the IRS would think you’re a business.
The IRS criteria on the issue comes in two parts.
· The first: Are you self-employed or are you an employee?
· The second: Are you doing what you’re doing as a hobby or is it a business?
With regard to the first question, the IRS has put together a guide to help determine whether someone is self-employed or an employee. The focus of that guide is upon a single issue – the issue of control. It looks at things like whether you use your own methods and set your own hours? Who directs and controls the money, that is, who pays the expenses of the business -- customer or worker?
To get an idea of how this works, here’s an example of two self-employed artists:
Glen Glass has a client who wants stained glass candle holders designed and made by July 1 as an anniversary gift for his wife. He will pay Glen $1,000. On July 1 the candle holders are ready. The client likes them. He gives Glen a check for $1,000.
Trixie Trinkets designs and makes jewelry. She sells a silver necklace to her friend for $1,000.
In neither case did the customer have any control over what hours to work, what supplies or equipment to use, or any other aspect of production. The customer is free, of course, to cancel the order or not buy the product but even that may be regulated by contract.
Both Glen and Trixie are self-employed. There’s more info on employee vs. self-employed at It's all about relationships: Are you an employee or are you self-employed?
Does the IRS consider you a professional?
You’ve been chosen for juried shows. You sell your work. People praise its quality and design. You think of yourself as a professional artist. But … are you a professional in the eyes of the IRS? And why does that matter?
It matters because it can have a big impact on your taxes, especially if you spend more money pursuing your art or craft than you bring in.
Let’s say that in one year you spend $10,000 more in art expenses than you bring in as sales. Also in the same year, you receive $50,000 in income from Grandma's trust fund, or $50,000 salary from your corporate job. If your art or craft activity is a business rather than a hobby, then you get to subtract the $10,000 business loss from the $50,000 taxable income. You are now looking at taxable income of $40,000 instead of $50,000.
But you may deduct the art loss from Grandma's trust income or from any other taxable income only if the IRS considers your art activity a business.
Maybe you don’t think of yourself as a self-employed designer or craftsperson in business. Perhaps you’re still at the thinking-about-it stage of making your art your work or you love what you do so much you don’t think of it as a business. You may believe you’re not self-employed because you haven’t made any money. Or perhaps you know you’re in business but work only part-time at your art and doubt that the IRS would think you’re a business.
The IRS criteria on the issue comes in two parts.
· The first: Are you self-employed or are you an employee?
· The second: Are you doing what you’re doing as a hobby or is it a business?
With regard to the first question, the IRS has put together a guide to help determine whether someone is self-employed or an employee. The focus of that guide is upon a single issue – the issue of control. It looks at things like whether you use your own methods and set your own hours? Who directs and controls the money, that is, who pays the expenses of the business -- customer or worker?
To get an idea of how this works, here’s an example of two self-employed artists:
Glen Glass has a client who wants stained glass candle holders designed and made by July 1 as an anniversary gift for his wife. He will pay Glen $1,000. On July 1 the candle holders are ready. The client likes them. He gives Glen a check for $1,000.
Trixie Trinkets designs and makes jewelry. She sells a silver necklace to her friend for $1,000.
In neither case did the customer have any control over what hours to work, what supplies or equipment to use, or any other aspect of production. The customer is free, of course, to cancel the order or not buy the product but even that may be regulated by contract.
Both Glen and Trixie are self-employed. There’s more info on employee vs. self-employed at It's all about relationships: Are you an employee or are you self-employed?
Here’s the part that confuses many artists. Just because you are self-employed does not necessarily mean that you are also a business. This is where the second criteria comes in: The IRS says: “In order for you to be engaged in a business rather than a hobby the goal must be to make a profit.” But how do you prove to the IRS that your goal is to make money if you make no profit? Well, you have to show that you have a profit motive.
The IRS lists nine guidelines that will help you determine -- in case you had any doubts – whether you’re doing whatever you’re doing to make a buck. No single item on the list settles or resolves the issue, and the list includes items such as:
· Do you carry on your work in a businesslike manner? For instance, do you keep accurate records of income and expenses?
· Do you strive to learn more about your work? For instance, do you visit museums? Take design courses? Do you have business cards? Do you have copies of juried show applications you submitted?
Let’s look at a hobby and a business.
Aunt Ada lives nicely off the income generated from her investments. She enjoys quilting. She has given her quilts to nieces as wedding gifts and every once in a while an acquaintance or relative buys a quilt she’s made. Ada does not advertise. She sees her quilting income as play money. Whatever she makes she spends in Atlantic City testing her gambling skills.
Based on these facts, Aunt Ada has a hobby. If Ada sells $1,000 worth of quilts in a year she is allowed to deduct up to only $1,000 in quilting expenses, even if her costs were more than $1,000. Why? Because hers is a hobby, not a business.
Trixy Trinkets, unlike Aunt Ada, has no investments. She works as a design assistant at a clothing store where she earns $40,000 a year. Evenings and weekends she designs and makes silver jewelry. Unable to keep up with the requests of those who want to buy her unique pieces, she cuts back on the hours at her clothing store job to devote more time to designing, creating and selling her jewelry. She’s not sure how long it will take, but she’s determined to leave the clothing store eventually and make a living as a jewelry designer. She was an excellent apprentice to a highly respected silversmith in her town and even helped him redesign his studio. She keeps careful records of how long it takes her to complete each piece and sets her prices by her records and the going market rate. She advertises and keeps a record of income and expenses.
Based on these facts, Trixy is a self-employed jeweler. She is in business -- even before she quits her regular job.
If Trixy sells $1,000 worth of jewelry, she may deduct any amount of business expenses that she incurs even if they amount to many thousands of dollars. If Trixy has a net loss from her jewelry design business, that loss can be deducted from her other income and could reduce her taxes. For instance, If her expenses total $6,000, she would have a $5,000 loss. From her wages of $40,000, she may subtract her $5,000 loss, to arrive at taxable income of $35,000.
To sum up: To prove that your art is a business, treat it as one. Show that your aim is to make money. Then, if you end the year with a loss you have proof that such was not your intention. And you can deduct your losses without fear.
The IRS lists nine guidelines that will help you determine -- in case you had any doubts – whether you’re doing whatever you’re doing to make a buck. No single item on the list settles or resolves the issue, and the list includes items such as:
· Do you carry on your work in a businesslike manner? For instance, do you keep accurate records of income and expenses?
· Do you strive to learn more about your work? For instance, do you visit museums? Take design courses? Do you have business cards? Do you have copies of juried show applications you submitted?
Let’s look at a hobby and a business.
Aunt Ada lives nicely off the income generated from her investments. She enjoys quilting. She has given her quilts to nieces as wedding gifts and every once in a while an acquaintance or relative buys a quilt she’s made. Ada does not advertise. She sees her quilting income as play money. Whatever she makes she spends in Atlantic City testing her gambling skills.
Based on these facts, Aunt Ada has a hobby. If Ada sells $1,000 worth of quilts in a year she is allowed to deduct up to only $1,000 in quilting expenses, even if her costs were more than $1,000. Why? Because hers is a hobby, not a business.
Trixy Trinkets, unlike Aunt Ada, has no investments. She works as a design assistant at a clothing store where she earns $40,000 a year. Evenings and weekends she designs and makes silver jewelry. Unable to keep up with the requests of those who want to buy her unique pieces, she cuts back on the hours at her clothing store job to devote more time to designing, creating and selling her jewelry. She’s not sure how long it will take, but she’s determined to leave the clothing store eventually and make a living as a jewelry designer. She was an excellent apprentice to a highly respected silversmith in her town and even helped him redesign his studio. She keeps careful records of how long it takes her to complete each piece and sets her prices by her records and the going market rate. She advertises and keeps a record of income and expenses.
Based on these facts, Trixy is a self-employed jeweler. She is in business -- even before she quits her regular job.
If Trixy sells $1,000 worth of jewelry, she may deduct any amount of business expenses that she incurs even if they amount to many thousands of dollars. If Trixy has a net loss from her jewelry design business, that loss can be deducted from her other income and could reduce her taxes. For instance, If her expenses total $6,000, she would have a $5,000 loss. From her wages of $40,000, she may subtract her $5,000 loss, to arrive at taxable income of $35,000.
To sum up: To prove that your art is a business, treat it as one. Show that your aim is to make money. Then, if you end the year with a loss you have proof that such was not your intention. And you can deduct your losses without fear.
Tuesday, May 8, 2007
Lower Taxes
June,
I have been self-employed in program and logistics management for a year and a half. Besides deductions and placing money into an IRA or 401K plan for the self employed, what are other ways to bring my tax burden down?
Thanks. Teresa
Hello Teresa,
If you want to be good at lowering your taxes you need to use the same method as you would to be good at anything else. You need to learn about the subject from the right sources and then act on the information that you get.
There are several different kinds of pensions for indies. The most flexible and least expensive for those under 50 years old is a UNI-K -- also called a solo-K. It's structured like a combination SEP plus 401-K.
In order to take advantage of every possible deduction you need to know what those deductions are. Click here for a complimentary copy of the Self-employed Business Expenses List and also read Is it a deductible business expense? on my website.
I have been self-employed in program and logistics management for a year and a half. Besides deductions and placing money into an IRA or 401K plan for the self employed, what are other ways to bring my tax burden down?
Thanks. Teresa
Hello Teresa,
If you want to be good at lowering your taxes you need to use the same method as you would to be good at anything else. You need to learn about the subject from the right sources and then act on the information that you get.
There are several different kinds of pensions for indies. The most flexible and least expensive for those under 50 years old is a UNI-K -- also called a solo-K. It's structured like a combination SEP plus 401-K.
In order to take advantage of every possible deduction you need to know what those deductions are. Click here for a complimentary copy of the Self-employed Business Expenses List and also read Is it a deductible business expense? on my website.
If you like what you read there, I encourage you to buy a copy of my book, Self-employed Tax Solutions, featured in BusinessWeek. The book will give you the basics for understanding how to lower your takes. It also tells you how to set up a recordkeeping system and prepares you for an audit -- all in the same easy-to-understand style you'll find in my columns.
I wish you much success.
Best regards,
June Walker
Best regards,
June Walker
Saturday, May 5, 2007
More car questions ...
June,
My company gave me a car last year for making my sales numbers over an 18 month period. The value of the car has been reported to me on a 1099 - can I deduct any portion of this?
Michellel
My company gave me a car last year for making my sales numbers over an 18 month period. The value of the car has been reported to me on a 1099 - can I deduct any portion of this?
Michellel
Congratulations, Michelle.
Yes, you may deduct all business auto expenses for that car and any other car you use for business. Read these on my website to learn more about auto deductions: How to Calculate Auto Expense and How to Keep a Record of Business Miles .
Best,
June
Yes, you may deduct all business auto expenses for that car and any other car you use for business. Read these on my website to learn more about auto deductions: How to Calculate Auto Expense and How to Keep a Record of Business Miles .
Best,
June
Free Advice
June,
I am a freelance writer . I just was poking around and would love any free information you've got! I'm worried about that number I saw on your home page Did you know? Approximately $400 of every $1,000 net self-employed income you earn goes to the governments. Is that right?
My primary employer is only giving out 1099s once this year and I've been told I'm going to get "zapped" this time next year. Any practical advice you've got for a newbie would be great.
Jesse in NYC
Hello Jesse,
I'll start at the end of your email: What do you mean by "my primary employer is only giving out 1099s once this year?"
Self-employeds do not have employers, only employees have employers. And, 1099s are sent out once a year, at year-end, just as are W-2s.
Also you ask if the $400 of every $1,000 going to taxes is right? If you clicked the link and read the column that the statement linked to, you would have known that the statement is correct.
You ask for free advice. Could it be you're looking for easy advice? If you are self-employed, you are a business and with being a business comes the responsibility of being a business person and handling your indie venture in a businesslike manner.
So, your email tells me that you need information, too much for me to provide in one email or one blog post. I recommend you start by reading a short column on my website. Try Take charge. Learn. Pay less tax. 7 Advantages of Self-employment
If you like what you read there, I encourage you to buy a copy of my book, Self-employed Tax Solutions, featured in BusinessWeek. It's not free but on Amazon it cost about only $13. 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 those taxing questions, the information in Solutions will give you a firm foundation on which to build your solo venture!
I wish you much success.
Best regards,
June Walker
I am a freelance writer . I just was poking around and would love any free information you've got! I'm worried about that number I saw on your home page Did you know? Approximately $400 of every $1,000 net self-employed income you earn goes to the governments. Is that right?
My primary employer is only giving out 1099s once this year and I've been told I'm going to get "zapped" this time next year. Any practical advice you've got for a newbie would be great.
Jesse in NYC
Hello Jesse,
I'll start at the end of your email: What do you mean by "my primary employer is only giving out 1099s once this year?"
Self-employeds do not have employers, only employees have employers. And, 1099s are sent out once a year, at year-end, just as are W-2s.
Also you ask if the $400 of every $1,000 going to taxes is right? If you clicked the link and read the column that the statement linked to, you would have known that the statement is correct.
You ask for free advice. Could it be you're looking for easy advice? If you are self-employed, you are a business and with being a business comes the responsibility of being a business person and handling your indie venture in a businesslike manner.
So, your email tells me that you need information, too much for me to provide in one email or one blog post. I recommend you start by reading a short column on my website. Try Take charge. Learn. Pay less tax. 7 Advantages of Self-employment
If you like what you read there, I encourage you to buy a copy of my book, Self-employed Tax Solutions, featured in BusinessWeek. It's not free but on Amazon it cost about only $13. 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 those taxing questions, the information in Solutions will give you a firm foundation on which to build your solo venture!
I wish you much success.
Best regards,
June Walker
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