taxgirl » small or home-based business

Ask the taxgirl: Do I Need a Form 1099?

Kelly — Thu, 19 Nov 2009 13:32:08 +0000

Taxpayer asks:

Several elderly friends have asked me to help them with administratrive work in there home. I would probably do this on an ongoing basis and I am sure each would end up paying me more that $600 a year. I would report all of this money (Schedule C I think) but am concerned for the people I would be doing the work for. Do they have to issue a 1099 for the work I would do for them? Could I just report the money quarterly without ever getting a form from them and have it be legal, I don’t want to get them into trouble?

Taxgirl says:

If I understand it, you’re going to be kind of like a Girl Friday? Opening mail, paying bills, that sort of thing, at times that are convenient for you – and for a number of different people?

Assuming that you can’t be classed as a household employee (which I think you’re not if my understanding of your situation is correct), then there is no obligation for your customers to report payments made to you.

Forms 1099-MISC are generally issued when payments are made in the course of trade or business. Personal payments are not reportable. If your customers are making payments to you for services in much the same way that they would pay their hairdresser or a kid that occasionally mows the law, there’s no reason to submit a 1099 to you.

Again, this assumes that you’re self-employed and that you control how the work is done. A self-employed worker also usually provides his or her own tools and offers services to the general public in an independent business – which sounds like what you’re doing.

If, however, you could be classified as a household or other employee (which would result in a form W-2 issued to you), or if you’re performing services for your customer’s trade or business (which would result in a form 1099-MISC issued to you), that’s a different story. You can read more about household employees here.

I hope that helps. And good luck with your business!

Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

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Businesses Get Tax Break

Kelly — Tue, 10 Nov 2009 02:39:46 +0000

Don’t get too excited. It’s not a huge tax break – but it’s not a bad one either. A bill that was ~~rushed through~~ recently passed in Congress, known as The Worker, Homeownership and Business Assistance Act of 2009, will allow businesses to apply losses retroactively.

The bill, which was tacked onto the homebuyer’s credit extension/expansion, would allow businesses which suffered losses in 2008 or 2009 to retroactively apply those losses to any five years prior to 2008. Known as a “net-operating loss carryback” or “NOL carryback”, those losses could previously only be carried back for two years. It’s an expansion of the NOL provisions under the American Recovery and Reinvestment Act (ARRA).

There are some restrictions. The one that’s been getting the most press bars businesses which have accepted TARP money from utilizing the expanded NOL carryback. That is, of course, so that Congress appears to be taking a hard-line against those businesses (all while allowing them to engage in the same kinds of risky behaviors as before).

The expansion is estimated to cost just over $10 billion over 10 years. The homebuyer’s credit is estimated to cost about $10 billion over 10 months.

Is it just me, or does this feel very “Old MacDonald” all of the sudden?

Here, $10 billion, there $10 billion, everywhere $10 billion…

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Ask the taxgirl: Deductions for Guest Blogging

Kelly — Mon, 20 Jul 2009 12:30:21 +0000

Taxpayer asks:

While putting together a new group of guest posters for my site, a tax question hit me! Is the time I spend guest posting on other blogs for promotional purposes tax deductible? i.e. I don’t get paid for the post – my only compensation is the link back. But I could be getting paid for the post… so is the amount I charge for that service a marketing business expense?

If it is – I’m sure you have many readers that would be interested!

Thanks so much!

Taxgirl says:

Gosh, I sure wish it was – since I spend so much time writing for other publications and blogs – but it’s not. The IRS likes to match items of deduction with items of income. If they allowed a deduction for the cost of your time, then they’d require you to value the same for purposes of attributing income (the “value” of the article). But they don’t. Since there’s no income component, there’s no deduction.

Even though it feels odd, this is consistent with the IRS’ position on the treatment of services when there’s no compensation throughout the Tax Code. You can’t deduct your time for volunteering, even though it’s valuable, or time spent on services for which you didn’t get paid because you were “stiffed” by a client (hey tax geeks, most of my readers are cash based so no need to write in to tell me how this isn’t *quite* true for accrual based taxpayers).

I do have one piece of good news, though. Any out of pocket expenses related to the piece (i.e. money spent on paid art, research and the like) can be deducted as promotional expenses. So all is not lost!

Thanks for writing in – and good luck with the blog! Guest posting is a great way to promote your blog or services. I’m always happy to accept ideas for guest posts at taxgirl – just drop me a note!

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Ask the taxgirl: Estimated Payments

Kelly — Sat, 18 Jul 2009 13:06:16 +0000

Taxpayer asks:

I’m a recent college grad working 2 full-time jobs and doing some free-lance work on the side. I have recently been asked to provide a w-9 for a $300.00 invoice I sent to a client, who happens to be my old boss. I was wondering, how much money should I withhold to pay my taxes? Also, do I have to file quarterly, or can I wait until the end of the year?

Thanks so much!

Taxgirl says:

To the extent that you have proper withholding on your full time jobs, you won’t need to worry about estimated payments for income related to those.

However, with respect to your freelance job, you may need to make estimated payments. The general rule is that you need to make estimated payments if you expect to owe more than $1,000 in tax and you expect your total withholding and credits for 2009 to be less than the smaller of:

90% of the tax to be shown on your 2009 tax return or
100% of the tax shown on your 2008 tax return.

There is an exception, which I’ll point out especially since you note that you’re a recent college grad: You do not have to pay estimated tax for 2009 if you had no tax liability for the full 2008 tax year (partial tax years don’t count). You had no tax liability for 2008 if your total tax was zero or you did not have to file an income tax return.

With respect to the timing of the payments, you should pay in four equal installments:

Note that you don’t have to make that 4th payment in January if you file your 2009 return by February 1, 2010, and pay your total tax with that return.

To figure out how much to pay, you have a couple of options:

Estimate your tax due for the year 2009 and pay at least 90% of the tax – just divide 90% of your estimated tax liability into four equal installments.
Pay 100% of prior year tax, or 110% if your prior year adjusted gross income over $150,000.

You can figure how much to pay using the estimated tax worksheet found on the form 1040-ES (downloadable here as a pdf). You can also use a software package like TurboTax to figure the tax for you (I highly recommend this option). The form 1040-ES also explains where to send your payments.

If all of this seems much too complicated, you can always ask your employer to simply withhold a little more on your paycheck so long as the numbers work out.

One more note: There is a quirky provision in the 2009 stimulus bill that provides some relief for those who have to pay estimated tax. If your 2008 AGI shows that at least 50% of your income came from a “small business” (fewer than 500 employees) and your AGI is less than $500,000, you can pay just 90% of your prior year’s tax to avoid a penalty instead of 100% – the 90% also applies to the those with AGI more than $150,000 (meaning that you can pay 90% instead of 110%).

Estimated payments can be tricky but don’t panic. There are lots of opportunities during the year to “fix” any bad estimates (for example, if you’re making lots more than you planned) and safe harbors apply for those taxpayers subject to the estimated tax for the first time. Once you start making estimated payments, it’s pretty easy to figure it out for the next year: usually the first year is the most difficult (that’s why they have the safe harbors!).

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Ask the taxgirl: Alarm Systems

Kelly — Mon, 29 Jun 2009 11:36:38 +0000

Taxpayer asks:

After a string of robberies in my neighborhood, I decided to install an alarm system. I paid a flat fee for installation plus I pay an amount each month. Is any of this deductible on my taxes?

Taxgirl says:

If the property that you alarmed was your home, the answer is no. There is no tax deduction for installing an alarm system at your home. On the plus side, however, it’s possible that your insurance rates will go down!

If the property that you alarmed was a rental or commercial property, the answer is yes. Both the installation and the monthly fees are deductible as the cost of doing business on those types of property.

There is one more consideration: what if your home is also your place of business? If you take the home office deduction, then you may claim the pro rata portion of the alarm system on your taxes, just as you do with other home office expenses. However, the portion attributable to the non-office portion of your home is still not deductible.

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Ask the taxgirl: Deducting Gift Cards

Kelly — Wed, 03 Jun 2009 00:51:16 +0000

Taxpayer asks:

Hello,

I am an independent contractor and work with teachers. If I purchase gift cards to award those that completed required assessments by the deadline given. Can I deduct the cost of these gift cards?

I would appreciate any information you can provide.

Many thanks,

Taxgirl says:

I love this question because it’s an example of how the specific facts really shape the answer!

In your case, I say yes. And I also believe that it’s not taxable to the teachers. Here’s why:

If an employer gives a gift or award to an employee, the IRS generally considers it compensation and not a gift. There’s an exception for de minimis gifts – you know, gift baskets, boxes of chocolate, those inexplicable little inspirational crystal trophies… Those are considered to have such little value that they are not taxable to the recipient as compensation and the value of the items is generally deductible to the employer as part of the cost of doing business.

There is a specific exception to the exception (don’t you just love tax law!) for gift cards. Gift cards are easy to value and are treated just like cash for tax purposes. They are never considered de minimis which means they are taxable to the employee.

Head spinning yet?

But wait. You’re not the employer here. And they’re not your employees. You have an independent contractor relationship, right? This means that the cards should not be taxable to the recipients as income and they are deductible to you as part of the cost of doing business. Unless, of course, you’re giving the gift cards with the expectation of future services – but that doesn’t sound like the case here.

Whew. Got that?

For specific information on holiday gifts and bonuses, see my prior post on the subject.

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Ask the taxgirl: Employer Options for Childcare

Kelly — Wed, 27 May 2009 16:49:58 +0000

Taxpayer asks:

I have an employee whose child care center fees just went up. So to take some of the burden off her shoulders we are paying for the rest it adds up to $300 a month. Now-her babysitter is her sister in law who works part time but does babysitting on the side. My employee is not going to pay her using 1099. How can we handle this? So our company can use this as a tax write off and she can properly handle it?

Taxgirl says:

Ooh yuck.

I understand wanting to keep your employees happy. I love my employees, I want to keep them happy. But you can’t get yourself into trouble doing it. So, tread carefully.

You can’t touch offering the babysitter money because you’ll be dragged into this under the table mess. Trust me, as someone who has seen both sides of that mess, you want to stay out of it. As much as you may love your employee, what she’s doing by not reporting income paid to the babysitter is wrong.

I see two options:

1, Offer your employee more money and tell her to use it as she sees fit with the hope that it goes to shoulder the extra burden of increased childcare expenses. You must include this extra income on her form W-2 at the end of the year. But your employee is still ahead.

2, Set up a pre-tax Flexible Spending Account that the employee can use for childcare expenses. It’s still wages but it’s pre-tax so there’s a savings to your employee. There are some limitations, so make sure that you check it out. In this case, the downside to the FSA (which is a great option for most employers) is that I suspect your employee’s babysitter won’t provide her SS number. That won’t stop you from setting up the plan but it may stop her from using it.

It’s a tricky situation because clearly, you want to help. But your employee is causing this to be a bigger problem than it needs to be. So here’s my final advice: don’t make your employee’s problem your problem. It’s not worth it. You don’t need an audit or an investigation into your payroll over a few thousand dollars a year.

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Ask the taxgirl: S Corporation Deductions for Subcontracting

Kelly — Wed, 15 Apr 2009 19:22:05 +0000

Taxpayer asks:

I own a S-Corporation. If I receive a project from my client and want to subcontract a part of it to another company, where do I show that expense on my business tax return? In deductions, there is a place to show 1099 subcontractor expense. However, this is not really a 1099 sub. It is a corp to corp. So, how do I handle that?

Taxgirl says:

If I understand what you’re doing correctly, you’re taking a job for X dollars and farming part or all of it out to another party to do the job for Y dollars. That party is another company (or individual) and not your employee. Is that right?

If so, then you would either report the payments as nonemployee compensation on a form 1099-MISC (depending on the nature of the compensation and the type of entity) or simply record it as a business expense. Either way, it’s not salary, so I’d put it on line 19 of the 1120-S as “other deduction.” You’ll need to attach a statement with the amounts broken out separately.

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Ask the taxgirl: SMLLC and Estimated Payments

Kelly — Wed, 08 Apr 2009 14:54:10 +0000

Taxpayer asks:

I started a single member LLC this year, and need to make estimated tax payments.

When I went onto the IRS site to make payments, it asked for either my EIN or my SSN for the payments.

Am I making payments on both?

Taxgirl says:

You’re only making payments for the LLC once.

The big question is whether you are operating as a disregarded entity. If you are (and most single member LLCs do), then you don’t need the EIN – just use your SSN. You’ll report your tax info directly on your form 1040 since there’s no separate return for a Single Member LLC treated as a disregarded entity for tax purposes. So, when calculating estimated payments, file your estimated taxes using a form 1040-ES.

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Twitter Tax Tips #19

Kelly — Tue, 07 Apr 2009 12:06:23 +0000

Remember that small biz can expense some business costs in 08 rather than depreciate. Immediate savings! #TwitterTaxTip

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Twitter Tax Tips #11