Sometimes I just have to show the question.

Hi June Walker,

My name is Copeland and I have a Franchised Cleaning Business and I've been in business for 2 years and my question to you is the food I buy from the Grocery store is that a tax write off.

Copeland
Middletown, DE


Copeland --

Why in the world would you think your food is a business deduction? everybody has to eat.

-- June

Where To Get Health Insurance

June --

Psychotherapist since 2000. I welcome your comment

After COBRA, where do I find the best health insurance for the Indie???

Kathryn
Rolling Hills Estates, CA

Dear Kathryn,

Taxes are easy. Insurance is difficult! Start by asking for a recommendation from the insurance agent who handles your auto or home insurance. He or she will know the recent changes in your state and which coverage is the best for you.

I do not recommend NASE -- the National Association for the Self-employed.

-- June

Deductible Refinancing Costs

June,

I was wondering if refinancing a mortgage loan - points, appraisal fee, broker fee, escrow fee. are those deductible?

Thanks,
Justin

Justin --

Non-finance charge costs when refinancing are added to the cost-basis of your home.

Finance charges -- "points" -- are amortized as a mortgage interest expense over the life of the loan.

For instance, a 30 year mortgage refi taking place on January 2 with $3,000 in points gets a $100 [3000/30] mortgage interest deduction per year.

-- June

No Deduction For House-sitter

June --

Truck driver for 25 years. We have finally hired a house sitter for when we are gone trucking. Is the $15 a day we pay her considered a deduction?

Patricia
Toledo, WA

Dear Patricia,

No deduction for the house-sitter.

-- June

Selling A Website or Business Equipment

June,

I contacted you 3-4 years ago regarding my website business that is a sole proprietorship and 1099s. I have another question. I sold my main revenue generating website. It used to make me money through advertising. I'm going to give a simple rundown to clarify things. Let's say it made $1,000 every year. This was posted with a yearly 1099 by my web sponsor. [I think he means that the guy who paid him the $1000 per year sent him a 1099 stating the income.] However, this year I got a buyer that wanted to pay me $10,000 for it. So I sold it.

My question is: the website includes the domain, website assets, and full ownership of the website. Does that $10,000 become a capital gains tax? Also, I've worked on this website and filed taxes on it since 2006, so does this mean it becomes a long term capital gains tax?

Thanks!
Justin

And another …


June –

I do music composition/instrument sales. Question: I re-sell some instruments and sometimes there is a profit other times a loss. End of the year I have a net loss. Do I owe social security tax [I think he means self-employment tax] on those items sold for profit.

If there is a profit from the total sale of instruments BUT after including business expenses there is a net loss - do I owe social security tax on the profit sales?

Thanks for your time.
Jeff
St. Louis, MO


Hi Guys,

Earned income is money you receive for services you perform or products you sell. It is on your net earned income that you pay self-employment (SE) tax.

Justin, you sold a website. Unless you are in the business of selling websites or domain names the income from that sale is not earned income. It is gain from the sale of an intangible -- can't pick it up in your hand -- business asset. It is long term. It is not part of your self-employed income.

Jeff, you say that you are in music composition and instrument sales. If you write music and then simply sell instruments that you don't use anymore then the sale of that "equipment" is not part of your earned income. You would have a capital gain or loss on your tax return. That gain or loss is not part of your self-employed income.

If,however, you are in the business of buying and selling musical instruments, then they are the products you offer for sale and any income or loss is part of your self-employed income. It is subject to SE tax.

-- June

Your Vote Is Needed

Hi Indies, a quick note:

Please take a look at my earlier review of The Wealthy Freelancer .

I just heard from author and colleague, Ed Gandia. The book is in the running for the "Small Business Trends Reader's Choice."

Please take a moment to read my review and if you like what you've read, vote for Ed's book right here: http://bookawards.smallbiztrends.com/entrepreneurship/the-wealthy-freelancer/ . Just hit the vote button. It really takes only 2 seconds to vote.

Thanks.
June

Self-employment is about credibility.

I work with retirement plan advisors to help my clients set up complex self-employed pension plans. In correspondence about a client that I said is no longer self-employed I received the following question from one of those pension guys and decided to bring you in on my response.

Pension Pete asked: So when you say the client is no longer self employed I’m wondering what you mean. In other words, if he delivered newspapers in the morning or sold pencils in the park wouldn’t he be self employed? Isn’t the notion of being self employed more of an intellectual exercise rather than factual (although maybe deductions wouldn’t be allowed if zero net in 2 out of 5 years???)? I am both self-employed and a common-law employee. Although I usually earn a little in my SE practice annually, allowing me to deduct other stuff, even if I don’t have any net earnings I would consider myself to be SE.


I answered Pete: Someone may be both an employee and self-employed. So, yes, he may be an employee of a pension company and legitimately sell pencils as his indie business.

However, self-employment is absolutely not an "intellectual exercise." There are specific IRS regs that determine self-employment. Take a look here for an overview: It's all about relationships: Are you an employee or are you self-employed?

The corporations that are kicking out employees through the front door and then bringing them back in through the rear door as "consultants" are breaking the law. Saves the corporation a whole lot in payroll taxes and benefits -- approximately 25% to 30% of salary. The IRS is trying to crack down on that but not doing a good job at it.

Or, let's look at -- wife earns $300,000 a year at her corporate job. Hubby is into photography. Wife pays for all the expensive photo equipment and the travel to the Amazon, New Zealand, and Peru for nature photo shoots. Oh, says their CPA, Sammy Segar, I think hubby is in the business of photography. Get him to sell a couple photos to friends for a few hundred dollars and we can write off all his photo expenses because he is self-employed. Here we've got a home-made tax shelter -- albeit a fraudulent one.

Sammy's shenanigans damage the credibility of legitimate photographers who happen to have a bad financial year. Why? Because it's much easier for the IRS to go after individuals than to pursue entire companies or industries. And the IRS lumps hubby together with the legitimate wedding photographer, Billy Bridesnapper.

And, any of you who follow my writing know that any 2 or 3 year profit rule is ... well You must have a profit in 3 out of 5 years: Hogwash!!

Cheers,
June