Q: I am a sole proprietor in NY. I have been in business for 9 years and have two part time employees. I usually close my office between Christmas and New Years as we are out of town during that time. When I return, there are usually several checks from clients in the mail since they want to pay me before year end. I deposit the checks after Jan. 1st, but they are included on 1099's that I receive from clients.

For example, I did $900 in business with XYZ Corp. in 2010. They send a final check for $100 that arrives before 1/1/2011, however, I don't deposit it until 1/2/2011. They send me a 1099 for $1000. However, according to my records I only received $900 in 2010. Does this present any problems?

Scott

Electronic design - PCB's flex circuits, etc
 
A: Constructive receipt. That's what the IRS calls it. It means that if the money is in your possession or in the possession of your agent or representative, then it's income to you on that day.

Although your office is closed, the money is available to you. You're not there but the money is. So in your example it's income for 2010.

However, if the payer does some quick tricks by writing out a whole lot of checks on December 31 but doesn't get around to mailing them until the middle of January, then you have an argument that he should not include them on the 1099 for the previous year.

 If the client refuses to correct the 1099 ,depending on how much you "need" that client, you can decide how much to push to remedy the situation. In other words, do you want to contact the IRS, or include a letter with your tax return?

Here are more posts on income .


 SPA EXPENSES
 Q: I am a freelance marketer primarily contracted with a salon & spa. I have gone to various other salons and spas to see their internal processes and how they treat their clients, basically research. I have received spa or salon services at these appointments. Would this be tax deductible for me? I would not ordinarily get these types of services.

Thank you, Christina

San Diego, CA

 A: Yes, your spa activities are business expenses in the same way as a middle management employee's attendance at a middle management seminar is a business expense. However, because of the nature of the expense - seen as fun and personal enjoyment -- unlike a business seminar! -- you must be especially diligent in treating your indie business in a businesslike manner. From your financial records, to your travel records, to complete reports of every spa visit, be ready for the scrutiny of the IRS.

Here is more info on expenses -- education-study-research


 HEALTH INSURANCE
 Q: Is buying family health insurance a business expense if I am a sole proprietor?

Thank you, Susan
 Stoneham, MA

 A: Yes. Starting in 2010 not only are health insurance premiums deductible from income thereby  reducing income tax, but now a self-employed may also use the premiums to reduce net earnings from self-employment, thereby also reducing SE tax.

 
COMMUNICATION & RESEARCH EXPENSES

Q: Just reread some of your blog posts and saw your comments about deducting moving expenses as a part of business expenses. Thanks for that. My new accountant wanted to deduct all moving expenses as personal rather than as some business.

 I know you have talked about deducting cable TV expenses for PR people who need to monitor news. I could not find that on your blog. Could you guide me to that?

Thanks. Jean
 Wexford, PA 

 A: Why do you watch TV, rent DVDs, see a movie? If it's just for fun, no tax deduction. However, if seeing films is vital to your own screenwriting or your novel in progress then claim a portion of the costs as a tax deduction. If you added all the bells and whistles to your cable service because your public relations business demands that you be fully versed in this area of marketing then you have a business deduction.

And remember, the business use portion of the cost of your TV, Wii, DVD player are also a business expense.

 All of these kinds of communication services and devices must be split between personal and business. If your cable bill is $1500 per year and there's you, your spouse, two kids and your business you may end with a $300 business deduction. That's 1/5 of $1500.

 Here is something on expenses -- moving . 


CONSERVATIVE?
 Q: I've been an independent contractor for a retail book and gift business for 15 years.

 Your book really got me thinking about my taxes. Are there any accountants you heard are good in the Milwaukee area? The ones I have interviewed are too conservative when it comes to expenses. Could I hire you or someone on your staff to consult with me and do my taxes?

Stephanie

Milwaukee, WI

 A: AHHH. The big misconception. It's not that those accountants you interviewed are too conservative. It's that they don't know diddly-squat about the tax code as it relates to the self-employed.

 Is adding up 2 + 2 to come out to 4 conservative? No, it's correct.

 Is omitting a deduction for a legitimate home office conservative? No, it's wrong.

Is no response to a request for the square root of 267,289 conservative? No, it's that the responder doesn't know the answer.

Istelling you not to deduct moving expense for the 18 file cabinets of research material that you sent to your new home conservative?  No, it means the guy doesn't know the tax code.

You asked about a Milwaukee tax pro. No, I do not know someone there. I do have clients in Milwaukee, tho. Here's some posts on how to pick a pro tax pros - tax prep fees - tax returns . And I'll send you a private email about my services.