Flag Product

Don't Write Off That Tax Write-Off (extended)

Add to my list

Send to friend

Compare prices

Shop for it: (added from 1 site)

Buy itbusinessweek.com

See more products from this brand »

Added by

knaqvi added to Business

Rate this:

0 Ratings

Added to 1 list

0 comments about it Add Comment

Description:

Consultant June Walker tells the self-employed to be cannier about deductions For many self-employed people, the line between work and personal life isn't always clear. Tax and financial consultant June Walker, author of... See more » Consultant June Walker tells the self-employed to be cannier about deductions For many self-employed people, the line between work and personal life isn't always clear. Tax and financial consultant June Walker, author of Self-Employed Tax Solutions (Globe Pequot, $17.95), argues the confusion often causes people to cheat themselves out of legitimate deductions. BusinessWeek personal finance writer Suzanne Woolley quizzed Walker, who has 25 years of experience and works out of her home in Santa Fe, N.M., about ways to make self-employment less taxing. Edited excerpts of their conversation follow. (Note: This is an extended, online-only version of the interview that appears in the Feb. 14, 2005 issue of BusinessWeek.) Q: Why do the self-employed write off too little? A: They often cheat themselves by considering an expense personal when it's really a business expense. In the corporate world, it's clear who is a business associate, and who isn't. For the self-employed, that line is very wiggly. Just because someone is a friend or a family member doesn't mean he or she isn't a business associate. Q: In that vein, you say that a gift for mom can be a legitimate deduction. How so? A: Say your mother watched the kids because the babysitter didn't show, and you had to do this interview. You thank her by sending flowers. You can write that off. [The limit is $25 per gift.] You note on the receipt that it was a gift for mom because she watched the kids while you did an interview. Or say an information-technology consultant is going out on her own, and her husband is in the ad business. They have three kids. She wants him to look at her brochure and help lay out a business plan, so they go out to dinner. She can write it off even though it's with her husband. She couldn't have had that dinner at home with the kids running around. You can't write off every dinner, but if there's a business motive, you can. Another example where you don't want to discount an expense because there's a personal connection would be if you make something like gift baskets at home and deliver them while dropping the kids off at school. That counts as business miles. If you go from your home office to the school, and from the school to the client, then just the miles from the school to the office count as business miles. But if the client is on the way to the school, and you drop the baskets off, the whole trip counts. Q: What's the mindset self-employed taxpayers need to adopt? A: Look at everything that you do as a possible business connection and define your business as broadly as you can. You might define what you do as tech consulting rather than computer repair. If you're a writer who's a generalist, you can write off a lot more than if you wrote only about sports. Q: The IRS says an expense must be "ordinary and necessary." What does that really mean? A: The IRS defines necessary as "appropriate and helpful." What counts as ordinary? If a computer-game developer buys other people's games, that's an ordinary expense to him. It's not an ordinary expense for me unless I'm writing and have the potential to write about computers or what effect computer games have on the brain. Q: What record-keeping advice do you give to the self-employed? A: I tell people to get a backup for every dollar they spend, whether it's a canceled check, credit-card slip, or a receipt for cash. Just buy something, keep the slips in an allotted space, and then you can go over it later. I don't want people to be thinking about whether their spending is personal or for business all the time. Using one credit card can make your record-keeping easier. The more papers and more statements that come in, the less organized someone is going to be. I always say if a piece of paper comes in, and your name isn't on it, throw it out. Q: Should you set up a separate business checking account? A: I advise clients not to have a business checking account. It costs money to set up, and it doesn't work. Let's say you're starting a cookie business, and you have clients coming over for a tasting. See less »

Tags:

taxes

Comments (0)

Add a Comment:

Not a Kaboodler? Join Now, It's Free!

Email:	We will never share your email with anyone, ever.
Screen Name:	For public display. Between 3-25 characters.
Password:	6 or more chatacters.
Birthday:	Why do I need to provide this?
	I have read and agree to the Terms of Service
	Remember me on this computer.

Kaboodle will send you a newsletter and updates from your friends. You can unsubscribe at any time. Kaboodle does not sell or share your email address or personal information with anyone.

Cancel Already a Kaboodler?