Posted on January 25, 2022January 25, 2022 by Jan Roberg

Tax Tips for Performers

Are You A Hobby or a Business?

Many performers don’t think they have a real business – they’re just doing a few shows on the side, it really is more of a hobby than a business. And if you’re just getting paid in cash by private citizens that’s fine, you can get away taxwise with being a hobby. But, if you’re working through a company and you earn over $600 in a year, then you’re required by law to receive a form called a 1099NEC. And if you receive a 1099NEC, the IRS pretty much treats you like a business.

So the question becomes, at what point does your performing become a business instead of a hobby? A lot of your decision may be based on taxes.

Hobby Income Taxes

Hobby income is taxed at your regular income tax rate. It goes on line 8 on the Schedule 1 of the 1040 tax return. Now in the past, you might have been able to deduct some of your hobby expenses but that option is no longer available. So, if your federal income tax rate is 22%, and you earned $5,000 on your performing, then your tax on that $5,000 will be $1,100.

Business Income Taxes

Business income is taxed at your regular tax rate plus the self-employment rate. The self-employment rate is 15.3%. So, if you’re in the 22% tax bracket, the tax rate on your performing income would be 37.3%. That means that the $5,000 you made income would now be taxed $1,865. Which sounds awful at first blush.

But the advantage to being taxed as a business is that you get to write off your business expenses directly against your income. Let’s say you had $3,000.00 in business expenses, then your tax would only be $746.

($5,000 income – $3,000 expenses = $2,000 net income to tax)

($2,000 taxable income x 37.3 percent tax rate = $746 in taxes)

If you have business expenses, being able to claim your performance income as a business can be a good thing. This is especially true if you have a business loss. You can use your self -employed business loss to offset other income – like wages you receive from another job – on your tax return. Be sure to read about QBI further on though because there’s more to business taxes than just this.)

1099NEC If you receive a 1099 NEC, the IRS will automatically count you as being self-employed – even if you have another job somewhere else.

What will be different about your tax return if you’re a professional performer instead of a hobby performer?

You won’t need to incorporate or file a special business return. Most people will just include their performance income on a Schedule C form which becomes part of your 1040 tax return. It will show your business income and expenses.

Form Schedule SE will show your self-employment tax owed.

Common Tax Deductions for most Small Businesses

Most small businesses have these deductions on their tax returns:

Advertising
Home Office expense
Mileage
Supplies, etc.

The important thing to know is that as far as the IRS is concerned, you may deduct an expense that is ordinary and necessary to your business.

A few exceptions to the ordinary and necessary: you might need nice clothes for an audition or an interview show – but clothing that you can wear in a normal situation cannot be deducted. It’s one of the most common questions I get which is why I put it up here. Costumes, on the other hand, are deductible.

Your two best Tax Deductions

The two best tax deductions for a small business owner are the Mileage and Home Office (Studio) deductions. These deductions are great because they are expenses that you already are paying for anyway.

Mileage

If you want to claim mileage, you must keep a mileage log. For every business audit I have ever worked on – the IRS requested the mileage log. The IRS wants to know how many total miles you put on the car, not just your business miles. This is the most forgotten about issue but it’s really helpful to know. You can get a free mileage log on our download page

Super Silly Tax Tip: When you’re watching the Rose Parade (or football game or something that you know you do every year) write down the mileage on your odometer on January 1^st and stick that number with your tax records. This way you’ll be able to figure your total mileage for the year – just subtract last year’s odometer.

Home Office

You don’t need a desk and a computer for your home office. It could be a storage space for your supplies, the place where you do your work, or the room you keep your product or supplies in. It doesn’t have to be a separate room in your house, it can be a section of a larger room. It can also be very small.

The most important reason for claiming a home office is so that you can claim your mileage to your gigs. The important issue is “regular and exclusive”. Maybe you work in your kitchen – that’s fine but you can’t claim your kitchen as a home office because you cook dinner there. You have to use a space exclusively for your business in order to deduct it. So, if you work in your kitchen, you need another space to maybe store your supplies that you can claim as your “exclusive” working space.

Should you become an LLC?

Generally, performers tend to be “individuals”. An LLC is not required. An LLC is a limited liability company. The idea is that your liability – meaning if someone wants to sue you – is limited. If you decide to become a Limited Liability Company anyway there are rules you must follow.

Get a Federal EIN number.
Set up a bank account for the LLC.
Run all of your business income and expenses through that bank account.

If you don’t do all those steps, you’ve “pierced the veil” of the LLC and you’re just wasting your time and money.

“Piercing the veil” means that someone could still sue you personally even though you have an LLC. If you’re not going to bother with the separate bank account and getting a separate EIN number, you’re not protected by your LLC.

In most cases, a decent business insurance policy might be all you need. But if you decide you want to set up an LLC, it only costs $50 in the state of Missouri. It only takes about 10 minutes to do it online.

If you choose to become an LLC unless you make a special election to be taxed differently, you would still claim your business income on a Schedule C like an individual.

DBA Doing Business As

You might have a business name that you want people to use, like “Willie’s Writings”. You can file paperwork for “doing business as” with the Secretary of State’s office. It only costs $7.00. That way you can receive checks under your business name instead of your own name.

A word about making Estimated Tax Payments

If your business is successful, you’re going to be making money. And if you make money – you have to pay taxes. If you’re going to have a tax balance due of more than $1000.00 federal, you should start making estimated tax payments. A good rule of thumb – if you make over $6,000.00 after deducting your expenses then you should make estimated payments.

It’s easy. You can go online at IRS.gov and click on “Pay”.

The Qualified Business Income Deduction

QBI – What you need to know about your business income for 2021

As a small business owner, there is something called the Qualified Business Income Deduction. QBI for short. QBI is a 20% deduction off your business income from your taxable income. It’s really pretty awesome.

Simply speaking – remember that example above where you have $5,000 of income, but after expenses you only had $2,000 of taxable income? Well, with the QBI deduction, you still pay your self-employment tax on the full $2,000 – so that’s 15.3% = $306.

But then, you get to deduct 20% from the $2,000 before you pay the regular tax. In this example you’d take 2000 – 400 = 1600, then take 1600 times 22% and you get $352. So, really, instead of paying $746 like in the earlier example, you’ll only pay $658 – a savings of $88.

That doesn’t seem like much, but if you had a net income of $50,000, at the 22% tax bracket you’d be saving $2,200! The QBI can be a really important tool for you.

But not everyone can qualify for the QBI deduction. For an automatic QBI deduction – meaning – you don’t have to jump through any hoops to qualify, a single person would have to have income below $164,900. A married person would need to be below $329,800.

You might be thinking – I’m just starting out as a performer, I’m not Johnny Depp. I don’t make anywhere near those numbers. But I’m talking about your total income. So, if you’ve got a day job, or a spouse with a high income, your QBI deduction could be lost. (For what it’s worth, Johnny Depp doesn’t make anywhere near $329,800 – he makes a lot more!)

But there are strategies for QBI if your income exceeds those limitations. That’s where it makes sense to talk with your accountant about what’s best for your situation. That’s really outside the scope of this little blog post.

Posted on December 26, 2021December 26, 2021 by Jan Roberg

A Dog as a Business Tax Deduction

Welsh corgi Pembroke red white color with a long tail grazing sheep. Sports standard for dogs on the presence of herding instinct. A beautiful and intelligent little shepherd dog.

The first thing you need to know is that you can’t claim your dog as a dependent on your tax return. Never! Don’t even think about it. There are no special rules for St. Bernard’s or Great Danes. It doesn’t matter how much your dog depends on you or that he’s a regular member of the family. A dog can never be claimed as a dependent on your U.S. income tax return.

There are two places you can claim a dog on a tax return, as a medical expense, such as a service dog, or as a business expense. This post is about claiming your dog as a business expense.

If you intend to claim your dog as a business expense, you have to remember the two most important words for business expenses: regular and necessary. Is the dog a regular and necessary expense for your business? For example: my dog likes to help me when I work from my home office. She guards my door and barks at the UPS truck. As you might have guessed, I cannot claim my dog as a business expense. Her service to my company is neither regular, nor necessary.

Real working dogs, on the other hand, are a legitimate business expense. Sheep herders, guard dogs, bomb sniffers and rescue dogs all are legitimate working dogs. I know a dog that used to star in the dog program at Busch Gardens, that’s a legitimate working dog.

Breeding dogs can be a little trickier. A real dog breeder is a legitimate business. Where it gets a little tricky is that fine line between dog breeding as a hobby versus breeding as a business. If you purchase a puppy—with the intent of breeding it when it grows up, you can’t write it off yet. You can’t breed a puppy so it’s not working yet.

If you are claiming a dog as a business expense, you really need to make sure you’re on the up and up. A dog on your return is going to be a red flag so you start out with the assumption that you will be audited. Document everything. Have receipts for your expenses, and proof that your dog is a necessary and regular expense for your business. Dot your i’s and cross your t’s and you’ll be okay.

Don’t be greedy! Only claim legitimate business expenses. If you own 4 dogs and 2 of them are pets, you can’t write off the dog food and vet expenses for the non-working dogs.

Obey your state and city laws! If you’re claiming a dog breeding business on your federal tax return, and you live in a city that doesn’t allow dog breeding, you’re going to have some explaining to do. That’s one of the rules for owning a business – know your state and local business laws. So do your homework.

Remember, if your dog is a pet, let it be a pet and don’t try to write it off on your tax return.

For more information check out this article from the AKC web-site: Tax Tips for Dog Breeders

Posted on June 16, 2016 by Jan Roberg

Missouri Sales Tax Issues for Professional Photographers

Missouri has special rules for sales taxes for photographers

Professional photographers have unique issues when it comes to Missouri sales taxes.

I work with quite a few professional photographers and I’m always being asked about Missouri sales tax. There seem to be different answers about what is considered taxable and non-taxable here in Missouri. Well, I decided to get to the bottom of this – I called the Missouri Department of Revenue and this is what they told me.

Service – is not subject to sales tax. So if you perform the service of photographing a wedding (for example) the service portion of your work is not subject to sales tax.

Product – is subject to sales tax. So, if you produce a tangible product that you can hold in your hand – like a wedding album – that product is subject to sales tax. Even if you ship that product out of the state–it’s going to be subject to Missouri sales tax. Note – that’s for photographers only! Let’s say you manufacture a product – like wedding garters for example. You sell those garters online to people all over the country. If you sell that garter in Missouri, yes, that’s subject to tax, but if you sell it to someone outside of the state – then there is no Missouri sales tax. Photographers are treated differently on this issue.

Combined service/product is subject to sales tax. Let’s say you are going to photograph a wedding and the fee is $5,000 and that includes a wedding album book that you provide the bride and groom with at the end. In a situation like this – because the service and the product are priced as one unit – then the whole thing is taxed!

What’s the lesson here? You separate out the price of your service from your product! So if that album is worth $500 – then you say the service of taking the photos is $4,500 and the album is $500. You need to break it out so that your clients will not be taxed on your service of photographing the event.

Here’s a few more things to consider:

Electronic downloads are not taxable. If your client can purchase the photos by downloading them online – the photos are not subject to sales tax. It doesn’t matter if the downloads occur across state lines or in Missouri – downloads are not subject to sales tax. (That would include things like video games or apps as well.)

One more thing – if you paid sales tax on the product instead of using your business exemption – then you don’t have to charge sales tax on that product! So if you take the photos and have the wedding book printed up by someplace that charges you sales tax – then you don’t have to charge sales tax when you sell the book! Remember, even in this situation, you still need to break out the service fee from the product!

Some other thoughts –

What about saying the service is $5,000 and the album is free? My opinion is that would make the whole thing taxable. Your clients are basically getting the wedding book for $5,000 and I believe that would make your service taxable.

Okay, so what if I said the service is $5,000 and the wedding album is a penny? Once again, I would think that would still make your service taxable. Being realistic, the wedding album is worth more than a penny. I think you need to price the album at a fair market rate to pass Missouri scrutiny.

The big take away here though is that you must separate out your service fee from your product fee or else you’ll be paying sales tax on all of your work.

Posted on September 20, 2015May 31, 2016 by Jan Roberg

Should Your LLC Be an S Corporation?

If your small business has reached the point where your self employment taxes are really hurting you, choosing an S Corporation status might be the answer to your problem.

If you own a single member LLC, the IRS considers that to be a “disregarded entity.” That basically means there’s no such thing as an LLC tax return. So, if you don’t make an “election” to taxed some other way, you’re taxed as a sole proprietor on your 1040 personal tax return. That means, you not only pay income tax on your LLC income, you also pay self employment tax on top of it. Ouch!

But as a disregarded entity, you may make an election to be taxed as an S corporation (or even a C corporation if you want to) instead of being a sole proprietor. So how do you know you might be ready to be an S Corp? Here’s my top three criteria:

1. Steady net income. If you have a loss on your business, that business loss can offset your other income on your tax return. One of the big benefits of an S corp is to reduce your self employment tax. If your business has a loss, you’re not paying self employment tax anyway so the S corp status wouldn’t provide much benefit there. A good rule of thumb, but certainly not a deal breaker, is to have a net income of about $50,000 to make the tax savings be greater than the additional cost of separate tax returns and payroll expenses. I work with business that have losses and still are S Corps. The $50K income isn’t a requirement, it’s just sort of a break even point on costs.

2. Separate Employer Identification Number (EIN) and bank account. If your business is set up as an LLC, you should have a separate EIN and a bank account for your business already. I’m always surprised by people who skip this step, but it’s important. You can get an EIN number for free, online. It takes about 5 minutes.

Learn more here.

And you really need a separate bank account. You don’t want to co-mingle your business funds with your personal money.

3. Discipline to make monthly payroll deposits and quarterly reporting. One of the requirements of an S Corporation is that the owner has to pay him or herself a reasonable wage. That means, even if nobody else works for you, you still need to write yourself a paycheck and pay yourself like an employee. If you’re already making your quarterly estimated tax payments–you’re probably able to handle doing a payroll. If you’re scrambling every year, you can’t keep on schedule etc, then I say don’t do the S corp. Not being up to date on your estimated payments can be a problem, but the IRS can get really nasty if you’re behind on payroll tax deposits.

If you have no discipline, and your business easily has enough revenue to handle the payments–and still want to do the S Corp, then pay the extra money to hire a payroll company to do it for you.

Setting a reasonable wage is usually the most difficult thing to determine. You want to go by what a person in your line of work would get normally get paid, that’s not always easy to figure. You should probably have your wage be at least 1/3 of your net income unless you can document that people in your line of work usually make less.

Now, these are just my guidelines. There’s really no “set in stone” criteria for S Corp status. And really, before you make any change to the status of your business, what you really should do is run the numbers. Sit down with your tax professional and – using the most recent tax return – run the business numbers as if you were an S Corp, a C Corp, and as a sole proprietor. Don’t forget to include the costs of your payroll taxes when running the numbers.

Everybody’s situation is a little different. Compare your numbers side by see to see if changing to an S Corporation makes sense for your small business. That’s really the best way to tell.

Posted on December 17, 2013May 31, 2016 by Jan Roberg

Deducting Your Starbucks Coffee on Your Income Tax Return

Meeting for coffee is a deductible business expense.

If you deduct business expenses on your tax return, then you probably already know that if you meet someone for a meal that you can deduct 50% of the bill as a “meal and entertainment” expense. You can’t deduct the cost of just yourself going to lunch, since you have to buy your own lunch anyway. For example: if I go to McDonald’s by myself this afternoon and get a Big Mac; even though I go during my business lunch hour–it’s not a deductible expense at all. But if I take Mike, my employee, to McDonald’s for lunch and I pay for his meal as well–then I can claim 50% of the bill as a business expense because we’ll be talking shop.

This is where Starbucks comes in. I suspect that more business is conducted at Starbucks coffe shops than anywhere else. It’s sort of every small business owner’s “office away from home”–neutral networking territory. If you do the whole networking thing, certainly you’ve had the “Let’s meet for coffee” meeting.

Coffee meetings are safe. Generally you’re not billing for time at a Starbucks meeting. Being an accountant, I think some people are afraid to come to my office. They think that if they walk though my door I’ll put the meter on and start billing them. (I’m not that bad, really!)

Many small business owners don’t have offices, so Starbucks is a good place to hold a meeting. I know some small business owners who spend hours at Starbucks. For the price of a cup of coffee you also get a table to work at and an internet connection.

So, how do Starbucks coffee receipts fit into your tax return? I’ve got two ways:

1. You meet a business acquaintance for coffee and you pick up the tab for both of you. Keep track of the meeting and you easily meet the 50% deductible rule.

2. You meet a business acquaintance for coffee but you only pay for your own coffee. (This is pretty common.) You can still probably claim this as a business expense but you have to be a little more careful. There’s an old 1953 court case (Sutter v. Commissioner of Internal Revenue http://www.leagle.com/decision/195319121ttc170_1172) that states that you can’t deduct entertainment expenses just for yourself if you’re paying what you normally pay for something.

So — If you’re going to Starbucks everyday and picking up a latte whether you’ve got a meeting or not– that’s a normal expense for you so a Dutch Treat Starbucks coffee isn’t a deductible business expense for you.

On the other hand, if you’re not buying gourmet coffee unless you’re at a business meeting, then you’d be allowed to claim that expense. The whole key here is to document, document, document. For me–I pay a $30 fee to my office manager so that I may have coffee at work. At one cup a day, that works out to $1.50. At Starbucks, my coffee costs $4.50; so clearly, I’m not normally spending $4.50 on coffee unless I’m having a meeting.

Under the Sutter rules, I don’t have to subtract my normal coffee cost from what I spend, I can deduct 50% of the whole cost. I just have to be able to prove that my normal coffee cost is less than $4.50.

Does the IRS really go back to 1953 tax court cases when they audit returns? Yes, as a matter of fact, they do. Even though there have been significant changes to tax law since that case, Sutter is still invoked in audit cases with high entertainment expenses.

Personally, given how many people use Starbucks for their meeting rooms and internet connections, I think the IRS should allow a 100% deduction for Starbucks as a rent and computer expense. But don’t try that, it won’t fly with the IRS. The best you’ll get is a 50% deductible meals and entertainment expense.

Posted on August 20, 2013January 14, 2017 by Jan Roberg

Top 5 Reasons Your Tiny Business May Not Be Doing As Well As It Could Be

If you don’t take care of your tiny business, it’s like flushing money down the toilet.

The government defines small businesses as companies making less than $7 million a year or having fewer than 500 employees. The companies I work with generally have three or fewer employees and only dream about seven million dollar revenues. I call these “tiny” businesses.

As tiny businesses, we’re generally ignored by the government. When you hear something in the news about Congress passing legislation to “help” small business owners—they don’t mean us. That’s okay with me. We tiny businesses can get into enough trouble all by ourselves. Here are my top 5 picks for tiny business problems.

1. Not working around Roadblocks. Every tiny business has roadblocks; you need a license, or special training or there’s a law change. No matter what type of business you have, there will be roadblocks. The successful tiny business finds a way to work through or around them.

True story: There was a small business owner who was basically ready with her business; the only thing left was to get her web-site up. She had asked me for some help. Mind you, the only thing stopping her business from getting off the ground (at least as she explained it to me) was her website. I gave her names of people who could make her website for a fee and I also gave her free website resources as budget was an issue for her.

Six months later we met again. She still didn’t have a website. The work was stalled because she couldn’t find the “right” art for it. She wanted a picture of a compass. She had hired a high school kid to draw it for her for free. He wasn’t done yet. Okay—go to Google images, type in compass and you get hundreds of pictures. Granted, she’d probably have to pay to use one of those pictures but her “free artist” hadn’t gotten the work done in six months.

And letting a high school kid that you’re not even paying be the reason your business hasn’t gotten off the ground? That’s ridiculous. Now in fairness, the compass idea was a cool idea and it tied to her business theme. But—it wasn’t necessary to her business. She could have already been up and running for 6 months while waiting for this art that she wanted so badly.

Sometimes, we’re our own worst enemies. If you’ve got a roadblock that’s holding your business back get a second opinion. There’s usually more than one way to skin a cat.

2. Not knowing who your customers are. If you own a business you’re selling something. The tough question is who’s going to buy it?

I once knew a woman who had started a business making bows. She had made hundreds of bows, invested in a bow making machine and lots of expensive ribbons. She hadn’t sold a single one. She really liked making bows so that was what she was doing with her time, but she hadn’t figured out who would buy them. At that point, that wasn’t really a business it was just a hobby. You have to have customers, someone willing to pay for what you’re selling to be a real business.

3. Partner problems. Recently I was asked, “Why do you hate partnerships?” It was a fair question, I was being pretty negative. The truth is, I don’t hate partnerships, I’ve just had to dissolve too many of them. Partnerships get started because two or more friends decide they want to go into business together. Good friends (or spouses) do not always make good business partners. If there is a disagreement—how do you settle it?

I recently sat down with a couple that had a pretty good business plan and they seemed to be a good choice for a partnership. But I was asking a lot of questions and I’m glad I did. It seemed that Adam and Eve each had two income streams that they were thinking about for the partnership—sales of widgets and sales of thingamajigs. Adam was going to cut back on his widget sales to pursue the thingamajig sales full time in the partnership. Eve couldn’t sell thingamajigs she was just going to help Adam with that and in the meantime she would still sell widgets. It all sounded like a good plan.

Except: Widget sales was technically another job. The money Eve earned selling widgets was outside the partnership—just as Adam’s widget sales were outside the partnership. Adam was counting on Eve’s widget income to help support him because he knew that the thingamajig income wouldn’t be enough to support him during the first year. Eve was hoping the thingamajig income would supplement her widget income; she wasn’t planning on turning over half of her widget income to Adam.

The bright side to this scenario is that they were thinking and talking before they made the partnership. They hit a roadblock, yes, but they’re smart and will work around it somehow. Too often I see partners who went into business together and later wind up fighting because they didn’t spell out their expectations up front.

4. You gotta work at your business—I can’t tell you how many times people have come to me because they bought a business or invested in a business that required no work—and they lost their money. If it sounds too good to be true, it probably is. And if you’re picking a business, do something you love to do—because you’re going to be at it a lot.

5. Not planning for your taxes—This wouldn’t really be a tax blog if I didn’t mention taxes now would it? The whole idea about owning a business is that you want to be profitable. If you’re making a profit, then there are going to be taxes. If your small business is making enough money to support you and your family then you know you’ve got self-employment taxes to pay.

Screwing up one year—that happens. Screwing up two years—you need to be more careful. But if you screw up and don’t make your estimated tax payments after you’ve been profitable and owed tax money for three years in a row—you’re asking for trouble. Our business cards say, “If you don’t have a strategy for your taxes, you’re probably paying too much.” Taxes take a huge chunk out of your earnings. Don’t let IRS penalties and interest make matters worse.

Posted on November 20, 2012January 13, 2017 by Jan Roberg

Top Tips to Prepare 1099-MISC Forms on Your Own

You can prepare your own 1099 MISC forms. All you need are the right forms.

The 1099-MISC form is what you need to give to a contract laborer if you pay them over $600 in the course of the year. There’s a whole new emphasis on reporting and so many more businesses are finding that they need to be issuing 1099s. But there’s a lot of confusion about how.

A few years ago I was at the IRS office near my house asking if they had any of the new 1099-MISC forms that I could have. “What do you want them for?” The IRS agent asked me. So I explained to her that I was teaching a class about 1099s and wanted to have the actual forms to hand out to the class.

“Oh thank God!” She said. Now, I work with the IRS a lot. I do audits and debt resolution, and although I genuinely like most of the agents I get to work with, I can assure you that “Oh, thank God,” is not a phrase used when the IRS is dealing with me. (Unless it’s used as “Oh thank God she’s gone now, but that’s about it.)

So I asked her why she was so excited that I was teaching a 1099 class and she told me about all the mistakes that they see and the problems they have with bad 1099s. “Somebody’s got to teach this stuff,” she told me. So I figured it would make for a good blog topic.

The Basics

Here’s a link to see the 1099-MISC form. 1099MISC If you’re the business owner, you need to issue the 1099 to the recipient by January 31. New for 2017 – you must submit the 1099 to the IRS by January 31 also.

My directions here are just an overview; here are the official IRS directions: IRS 1099 Directions If you have questions, that’s the best place to look.

The Quick and Dirty

Generally, when you prepare a 1099-MISC you’ll put the dollar amounts in box 7 for non-employee compensation. If you’re preparing a 1099-MISC for any other reason, you should check the rules to make sure you’re using the right box. I’m talking about non-employee compensation. Write in the white part of the box, not the red.

Payers name, address, etc, is you. Recipient is who you paid. I recommend using EIN numbers instead of Social Security Numbers whenever that’s an option for safety.

You put the whole amount of money you paid the person into box 7. For example, let’s say I hired Brad the Painter to do some work in my offices. I paid him $600 for the labor, $75 for the paint, and $25 for his parking. If I paid that money to Brad, even though part of it was for supplies not labor, I give him a 1099 for the whole $700. Brad will write off the $75 for paint and $25 for parking as his business expenses.

Mail your 1099MISC with a transmittal form. 1096 Transmittal Form

The filer is you (or your company.) The forms being reported is the 1099-MISC. The total amount reported on the 1096 is the total of what you paid the 1099 contract laborers. Here’s a clue—that number you put in box 5 should also go somewhere on your business tax return as a 1099 contract labor expense.

The IRS’s Biggest Complaints

People are supposed to use the red forms. You have to use the real form; you can’t print it off the computer, even if you have a color printer. Those forms are scanned so it has to be the right paper. You can order your 1099-MISC and your 1096 transmittal from for free from the IRS. Here’s the link: IRS Forms Order
Don’t cut the copies. Leave all the pages whole. If you only have 1 form to issue, just leave the second one blank.
Don’t staple the returns. Don’t fold, spindle or mutilate them in any way. They have to go through a scanner so leave them plain.
That means you have to mail them in the big envelope. I keep getting asked about that. Don’t fold means use a big envelope.

Smaller Complaints

Do not use a $ sign when typing in the amounts. It’s already on the form.
Do use a decimal point and cents. So I didn’t pay Brad $700 I paid Brad 700.00
Do not put 0’s in spaces, just leave them blank.
Do not use # signs. For example, on the form 1096 where it asks for the number of forms, I would write 1, not #1.

A note about handwritten returns: Handwritten returns are more likely to have errors than other returns. Usually it’s a Taxpayer Identification Number and name mismatch. If you are using a person’s name—use their social security number. If you are using a business name, use the EIN number. That’s a common mistake. Be sure to use block print and not script. Yes, I need to say, print neatly.

If you are typing it on a typewriter, you need to use black ink and 12 point courier font.

The 1099-MISC reporting rules have a lot of people confused, but you don’t have to do this alone. We can prepare 1099-MISC for a fee and we e-file them with the IRS.

Posted on November 13, 2012May 31, 2016 by Jan Roberg

Small Business Owners: Are You Claiming Too Many Deductions?

Photo by Herkie at Flickr.com

The short answer: probably not!

This is a sentence I hear at my tax desk every year, “I bought this for my business or I did that for my business but I’m not going to claim it because I have too many deductions!” Seriously? No you don’t.

I guess I should back track a little on this—if you’re claiming stuff you shouldn’t be claiming—that’s another story. But if you own a business and you have a legitimate business expense—then claim it.

Often times, small businesses, especially in the beginning, have losses. On your tax return it’s called a net operating loss or NOL. If you have an NOL, you carry that back two years and use it to offset income that you had two years ago. If you still have a loss, you can carry it forward for another 20 years!

Now sometimes you have an expense that gets limited if your business doesn’t have enough income—like a section 179 deduction or a home office expense. That doesn’t mean that you can’t claim these things, they just get carried forward to be used to offset your future income.

Don’t skip your deductions! I can’t stress this enough. Often, at the “big box” stores, they’ll skip your home office deduction because they’re “saving you money by not claiming it” since they charge you for each form. But it’s like that old expression, “pennywise and pound foolish.” Sure, you save a few bucks by not filing the 8829 form, but you just lost the carry-forward of a few hundred dollar deduction. This is especially important this year with taxes most likely going up next year. Even if your deductions won’t help your tax return right now—do not just leave them off. Otherwise, you would have to amend your prior returns to carryforward the deductions which will cost even more money in the end!

It’s still November, you have plenty of time to round up your receipts, review your mileage log, and make sure that you’re doing everything you need to be doing to maximize all of your deductions. Obviously you can’t claim stuff that’s not a real business expense. But you can claim everything that is a legitimate expense for your business. Not only can you claim it—it’s the right thing to do.

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For those of you who do not have a home office, these posts will help get you started:
http://robergtaxsolutions.com/tag/home-office-deduction/
http://robergtaxsolutions.com/2011/07/how-to-boost-your-home-office-deduction/

Posted on September 21, 2012May 31, 2016 by Jan Roberg

5 Things You Need to Know About Credit Cards and Your Small Business

Photo by 401(K) 2012 on Flickr.com

I generally don’t recommend using credit cards because it’s too easy to get into trouble with over spending. But I also know that most people do use them and how you use your credit card can have a profound effect on your business bottom line. If you are a sole proprietor of a small business, here’s what you need to know about credit card spending.

1. Your credit card purchase counts as a business expense the day it is charged, not the day the credit card is paid. If you charge a business expense on December 31, the expense is counted in that year, not the next year when you pay the bill.

2. You can pre-pay business expenses up to a year in advance. This can have a big impact on your company bottom line. For example: I lease extra office space for tax season. I know that the extra space will cost me $7,000 next year. Generally, I’d pay that over a course of 4 months from January through April and it will count as a deduction on my 2013 taxes. But—I could elect to charge it all in December of this year to reduce my tax bill for 2012. The plus side is that I have an extra $7,000 expense to write off this year. The down side is that I don’t have that expense to write off next year in 2013. But at least I have a choice.

3. Payments to your credit card do not count as business expenses because the charge itself was counted as an expense. This is what messes people up in QuickBooks all the time. I often hear folks complain that they couldn’t possibly have that much profit, because they don’t have that much money in their bank account. It’s because they charged things the year before and took the deduction then. You can’t count the same expense for your business twice.

4. If you do use a charge card for business, the interest expense on the charge card is deductible. (Remember, the interest charged on business expenses is deductible. If you’re charging your groceries and personal items, then it’s not.)

5. As a sole proprietor, you can charge something on your personal credit card for a business expense. If you own a corporation (C or S Corp) you must use a company credit card to count the charge as a business expense. If you charge something for your corporation on your personal business card, then you must reimburse yourself for the expense before the end of the year in order to write of the expense for the company.

It’s up to you to make wise choices about how and if you use your credit card for business. Knowing the rules can help you make better decisions.

Posted on July 24, 2012May 31, 2016 by Jan Roberg

Can I Write Off My New iPad as a Business Expense? (A lesson in listed property)

Photo by John.Karakatsanis on Flickr.com

Recently someone asked me if he could write off his iPad as a business expense. Now for that guy—the answer was a resounding, “Yes!” But I knew all of the circumstances and I knew he had an audit proof reason for the iPad. For most people though—deducting the iPad purchase is a resounding, “Maybe.”

Here’s why—

First, you need to consider if the purchase of your iPad would be an “ordinary and necessary” expense for your business? Now in the case of my iPad guy, he’s a computer programmer and he had been hired to develop some apps specifically for the iPad. Although he felt confident that he could develop the apps without an iPad, he thought it might be useful to own one. (Okay, duh! I think he just wanted me to okay his iPad purchase to his wife.)

But you don’t need to be a programmer to justify the expense; there are plenty of really good uses of an iPad for your business. I could just set up a video camera and let my husband do a 20 minute infomercial about why every business person in America needs an iPad. He actually bought his for fun and found that it’s great for his business; he uses it all the time. I think many businesses would pass the “ordinary and necessary” requirements for the write off of a tool like that.

Second, you need to consider how much you’d use it for business. This is really important because the iPad counts as “listed property.” Listed property is the fun stuff. Cameras, computers, and stereo equipment—basically the fun stuff that you can get at Best Buy. Cars are also considered to be listed property.

So here’s the deal—if you buy business equipment that is not listed property—like a file cabinet, and then you quit using it—the IRS doesn’t really care too much about that. But if you buy some fancy video equipment “for business” and then don’t use if for business—well the IRS has some ideas about that and those ideas will all cost you some money! Basically, anytime your business use of listed property falls below 50%—then you’re going to have to “recapture” (that means pay tax) on the deduction that you took earlier on your next tax return. Yuck!

Let’s take that iPad for example. A new iPad costs $500. You buy it this year and you take the Section 179 deduction for it and write off the whole $500 as a business expense for your sole proprietorship. (A Section 179 deduction is what you call it when you buy a piece of equipment and expense the whole thing instead of depreciating it. Depreciation is where you buy something expensive and write off the expense over a couple of years—it depends upon the equipment to determine how long the write off is for.)

That’s all fine and dandy if you use the iPad 100% for business and you keep using it for business. But let’s say you buy it, write it off, and then next year you give it to your daughter for school. Now it’s not a business tool anymore. If you do that—the IRS will make you “recapture” the unused depreciation. So next year, you’d have $400 of extra income to pay tax on. (Because they’d let you keep the $100 expense deduction for the year you used the iPad for business.)

Now I realize that I’m oversimplifying things—but that’s the basic gist of it. It’s okay to buy cool stuff for your business. It’s okay to write it off. But if you’re not going to be using it for the full term of its use (most things are 5 years) then you might want to think twice before writing off the whole thing.