Tax & Marriage

Hi June,

I attended your session at CFC last year. I'm a Chicago graphic designer (sole prop) and have been in business for 10 years. I recently got married and am wondering if you have any specific advice regarding how to approach taxes now that I'm married (I checked your website but didn't see anything relating exactly).

Thanks for any insight you can offer!
lidia


Hello Lidia,

First, let me wish you joy and happiness and good wishes on your marriage.

Assuming you and your husband do not work together in your design business then marriage has no impact on your sole proprietorship graphic design business tax, per se.

However, being married may have a profound impact on your overall tax. For instance, a married couple with taxable income of $100,000 will pay less tax than a single person with $100,000 taxable income. Yet, two single people each with $50,000 taxable income may pay less tax than a married couple with $100,000 taxable income.

As I explained here Taxes: Which ones and how much do I pay? and here Estimated Taxes your tax is based on yours and your husband's entire income and deductions. That includes earned income, investment income, medical deductions, etc.

-- June

Sales tax regulations vary by state.

Hello June -

Robert from Sir Roberts Furniture Restoration,Repair and Design, Stow Ohio.

I am on your e-mail monthly list and appreciate all the information you provide.

My question, I restore antique pcs. build and repair furniture. What is the rule on charging sales tax and or reporting sales tax. Why for the question. I network with several upholsters in when they provide services they do not charge me sales tax on the work they complete. What is the rule for charging sales tax when completing work to a customer. Thanks for your time.


Dear Robert,

Happy to know my information is helpful to you. Thanks.

Every state has unique sales tax regulations. Some states have no sales tax. Others have a gross receipts tax. In New Mexico the rate changes depending on where you live.

Some charge for out-of-state purchases. Some do not.

Get the idea. No state is the same. You need to contact your state, county, city. And make sure you do. Since all the governments are hurting for money many are enforcing payment regulations with a vengeance. Be careful.

BTW -- the same applies to licensing and zoning laws.

-- June

Sometimes it takes a while to get it.

Alana from Oakland, CA in commenting on Tax Savvy Indie Saves $850 Because Of Reimbursed Expenses On Her 1099 said:
Nice! Thanks again for the helpful posts that led me to that. I dropped my amended return in the mail last week, so I think I'm all set. Hopefully my story in turn helps a few others. Sometimes you have to hit people over the head with 10 examples of the same principle before they get it. :)
thanks June!


You're welcome, Alana, and thanks for getting back to me. You'll see from my blog that my schedule has been wicked so apologies for my late response.

I think that when something comes at you from an alien field -- maybe, financial jargon to an artist or tech talk to a plumber or explanation of a painting's composition to a realtor -- it takes a while to grasp. Reimbursed expenses are a good example. Of all the questions I get it's that topic that currently heads the list of most frequently queried.

Often something must be explained several times in different ways in order to be really understood. That's the job of the teacher -- to be understood. The student must keep on asking questions until he or she understands. Doesn't matter if the teacher is the one you had in third grade, or your physician or your tax pro.

Thanks again for the update.

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

Tax Savvy Indie Saves $850 Because Of Reimbursed Expenses On Her 1099

So many of you continue to have questions about reimbursed expenses and I've written so much about them that I thought you'd like to see a really positive response from a California indie. Here 'tis:

Hi June,
I live in Oakland, CA and I worked for about three years as a freelancer for various online outlets (I'm now a regular employee). I just wanted to thank you for your very helpful posts about 1099s and reimbursable expenses!

In 2008 I was missing the 1099 from one of my clients, so I filed my return with an estimate of my income based on my pay stubs. Just now I got a notice from the IRS because the 1099 info they received had about $2k more income than I had reported. I went back to my files (thank goodness I kept very good ones!) and realized that the discrepancy was exactly accounted for by my expense reports that had been reimbursed.

At first I was mad at my client and was going to demand that they revise the 1099 to exclude the reimbursed expenses. But luckily I first read your posts explaining that the client is allowed to do that and it's MY burden to separate out how much is income versus reimbursed expenses. So I'm going to file an amended return reporting the larger amount of income from the 1099 and deducting the expenses on Schedule C. Even though some of the expenses are meals/entertainment, I'm going to include 100% of the amounts in order to properly offset the income amount from my 1099 -- as you said, the client is the one who paid the expenses, so they are the ones responsible for making sure only 50% is deducted (the instructions for Schedule C explicitly say this on page C-7!).

Since I guess the mistake is my fault, I will probably still owe some money in interest, but at least I won't have to pay the $850 the IRS was saying I owed! I know all I did just now was regurgitate the info that you already know well and have explained in past posts... but I just wanted to drop you a note, hoping that you might get some satisfaction from knowing that you helped another person understand their tax situation!

My only fear now is that filing an amended return will flag me for scrutiny and I may get audited because of other unrelated deductions I took... fingers crossed for no more letters from the IRS!

-Alana

Wasted Time = Donated Time = No Expense Deduction

Hi again June,

You were nice enough to answer my question on your blog a year or 2 ago, so I'm back with another that I hope you can help with.

I have a small consulting psychologist practice in Virginia; I help the State determine whether or not disability claimants are medically eligible for SSI benefits. The biggest occupational hazard I face is people who don't keep their appointments. I work in 2-hour blocks, and when they don't show, the state government, with whom I contract, pays me next to nothing for my trouble.

Question: can I write off the difference between the little the State pays me for those "no-shows", and what I WOULD have been paid if the patient HAD shown up, as a loss? If so, I have 25 years of amended tax returns to work on.

I realize that this may be a tax attorney question, but I thought the answer might benefit your readers.

Thanks,
Mark
Fairfax Station, VA


Dear Mark,

No tax attorney needed. This is one of those really-easy-to-answer questions with a you're-not-going-to-really-like answer.

Your time is not an expense and so it is not deductible. For tax purposes wasted time is treated the same as donated time. Check out my posts on the topic right here expenses -- donated services or products .

Suggestions: Find out why they miss appointments. Do they need transportation? Have an arrangement with someone to drive them to the appointment. Maybe that could be an indie business for a friend of yours.

Do they simply forget? Hire someone looking to work from home to call each client the week before, the day or evening before, and even the morning of to remind of the appointment. What you pay the person making the calls for you is a deduction for you. If you're married and your wife can do the calling as your employee, even better. Or if you have a child old enough for the responsibility, that would work too.

Another suggestion: Have work ready to do to fill the time of the no-shows. Things like research reading, recordkeeping, learning French.

Best,
June

Be Smart By Being Legit With Your Nanny

Hi June,

Any suggestions on paying the nanny tax and cheapest/simplest way to do so?

Thanks!
Kurt

Hi Kurt,

In tax talk we affectionately or not so affectionately refer to anyone who cleans our house, takes care of our children, cleans our yard, drives us around, or takes care of our real Nana who resides in our upstairs guest room as "a nanny." And so the tax we must pay on someone who works for us in that capacity is referred to as the "nanny tax."

The most simple way although often not the cheapest is to hire someone though an agency. The reason that's not the cheapest is because they are legitimate -- mostly -- and so they can charge more than illegitimate workers.

By illegitimate workers I mean both undocumented aliens as well as good ol' Americans simply not claiming the money you pay them to cook your meals or watch your children. In this way on $15 per hour they are avoiding about $5 per hour in taxes; On $30 per hour they are cheating the government -- that's us the taxpayer -- out of about $10 per hour.

Your other simple choice is to hire someone who has her own business. She is then an independent contractor and you do not have to pay payroll tax on what you pay her.

The determination of whether a babysitter is self-employed follows the same rules as those for any other indie. More on that right here self-employed and/or employee .

So, if the worker does not come from an agency, nor is she self-employed, and you pay her $1,700 or more during 2010 then you must treat her as an employee and do the relevant paperwork.

IRS Publication 926, Household Employer's Tax Guide spells out what you must do. It's available here http://www.irs.gov/publications/p926/index.html.

I strongly urge you to be legitimate with a household employee.

It is fair to her. She will be racking up social security points and she will be covered by your homeowners insurance should something happen, such as tripping down the stairs or having the overhead light fixture crash on her while she's washing it. [Be sure to check your homeowners or apartment insurance.]

It is better for you because you will not be committing fraud and you won't lose your house when she sues you after the glass from the light fixture lands in her eye.

Best,
June