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Ways Through the Maze: A Tax Guide for Indies |
#19: So Many Questions
January 2010
We're into the new year and tax time is around the bend. Indies are sending me more questions that I can keep up with. The two I chose to highlight this month seem to be on a lot of minds.
Many of you bought cars, some thanks to the "Cash For Clunkers" program. So I've included a column on keeping mileage records.
And, oh so many of you are making money from Google AdWords I thought I'd also include something on doing it right.
Please continue to send me your questions, I have every intention of answering as many as possible, if not directly then here or on my blog.
Cheers,
June
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| June Walker
Consultant to Indies |
June's Blog
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| What's an Indie? |
Whether you call yourself a
1099 Worker
Sole Proprietor
Freelancer
Subcontractor
Free Agent
or
Self-employed
you are an
independent professional.
The IRS classifies you as an independent contractor.
I call you an indie. |
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Tax Solutions for Creatives |
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4. Expenses in General
5. Office-in-the-Home
6. Auto & Transportation
7. Travel or Transportation
8. Meals & Entertainment
9. Income
10. Taxes
11. Recordkeeping
12. A Final Caution
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| Want more expense deductions? |
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| June's Book |
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The Why of Ways Through the Maze |
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To guide indies to a more simple and secure tax life.
To promote indie-business self-confidence.
To humanize tax issues with glimpses into the lives and concerns of self-employed people.
Each issue will include events and Q&As that come out of real-life situations of indies who have visited my blog or my website.
You'll learn clear and simple solutions to complicated situations about income, expenses, recordkeeping, indie pensions, and being self-employed.
From time to time I'll also announce indie happenings of interest to you. |
| Please tell your colleagues and fellow indies about
Ways Through the Maze |
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How to keep A Record of Business Miles |
There are two ways to deduct expenses for the business use of your auto: The actual expense method or the standard mileage method. Read here for an explanation of both. Regardless which you use you will need to know the total business miles for the year.
Easy how-to for recording business mileage.
I always give my clients a New Year's Eve assignment. We're a couple weeks late but a little estimating is allowed. Do this, now: Get the mileage reading on your car from the odometer and write it in your calendar.
Next assignment: New Year's Eve, before the 2011 bell chimes and before you head to the party (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 and other transportation costs? There are more than 20 posts on the subject right here. |
June --
I am a website owner and operator. I make money from ads.
I haven't really made that much in the past 5 years or so (or paid taxes) but this year, it has really taken off. I don't have a DBA or anything like that, but I really need to get everything legit. I can't even get a loan or a credit card because as far as everyone knows I haven't had a job for years. But I made about $10,000 last month alone. Reading various articles on your website has me a little scared to go to a local cpa. I'm not sure what I need to do.
Brian from Juliet, TN
Hello Brian,
Yours is not a unique situation.
For starters you do not need a DBA. For more info, read this DBA: Doing Business As -- It's just a name .
Next: You may be able to get a "no income verification" loan. That means the bank doesn't look at what you earn but what you own.
And: Because creidt is so tight right now first set up a debit account. Or talk with your local bank and see if your relationship helps in getting you a credit card with a very low credit line. After several months of proving yourself a good risk, upon request, they may increase the line of credit.
And: You do not need a CPA, you need a tax preparer with knowledge of self-employed taxes and experience working with indies. There are several posts here about picking a tax pro. Whether or not you get the right pro depends on on how you go about looking for one. Asthese posts point out, you need to ask the right questions when you interview him or her.
Last: Keep in mind that as an indie you are responsible for your financial well-being. That means you need information about taxes and recordkeeping and a lot more. If you like what you read on my blog and website, I encourage you to buy a copy of my book, Self-employed Tax Solutions. The book answers many of the most common self-employed questions in the same easy-to-understand style you'll find in my columns.
Best of luck!
June |
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The Confident Indie
With knowledge comes confidence. Many indies wrote to me after reading my book Self-employed Tax Solutions to let me know that an astonishing process took place: The further they got into reading it the more confident they became. Upon finishing the book a personal and business confidence existed that had not been anticipated.
The Confident Indie series of small publications will help you build your indie-confidence.
Please watch for the first of The Confident Indie series to be released: Recordkeeping Using the Most Simple System. It's a book of manual recordkeeping how-to and includes 2009 tax return worksheets. It will be be available online for download. | |
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