Working Solo Minute: Tax Tips for Soloists

This week, I'm turning over the Minute to longtime Working Solo colleague June Walker to share some tips on taxes. June has been a tax and financial advisor to solo entrepreneurs worldwide since 1979. She's based in Santa Fe, New Mexico, and is an advocate of simplicity, order and ease -- elements she brings to her clients as well as the financial seminars she presents to soloists throughout the country. Most of all, June is one of the few tax advisors I know who can make complex financial matters easy to understand -- and fun. Read and profit!

Careful: There's Lots of Bad Advice Out There
Does your tax professional know enough about self-employed taxes? Or is he another Sammy Segar, CPA?

Readers of my book, Self-Employed Tax Solutions, have met Sammy, who knows a lot about stock options and pensions, but nothing about the tax situations that face self-employed people. Sammy is a fictional character but, as they say in the TV dramas, he is "based on a true story." Sammy got his education back in the days when everybody worked for big companies and only the occasional wacko went into business for herself.

Every tax season brings a flood of tax tips on the web, in magazines, on TV -- always brief, usually insubstantial, and often incorrect. Be careful! The source for the tips is often Sammy, or another out-of-touch accountant like him -- whether the info is in the New York Times or on your favorite blog. One of the most frequent categories of misinformation is the home office. Most accountants don't understand the self-employed life, or soloists, or as I call them, indies. Unaware that the IRS has lightened up on home-office deductions, they wag their fingers and tell indies to skip the home office deduction "it's a red flag."

My clients and readers know my approach to self-employed taxes: Learn the rules and take every expense deduction that you have coming to you. So, ignore the behind-the-times advice about audit red flags. If you work at home, and meet the rules, take the deduction.

Here are three up-to-date, reliable tips on home office deductions.

1. If you use an in-town studio and home office, both are business deductions.
Even if you work out of two or three places, if each is used exclusively for your work then they are all legitimate deductions. Yes, both the studio in town that you rent and the spare room at the beach rental where you do your three-hour weekend blogging routine are legitimate work locations and qualify for business expense deductions.

2. Careful, no office sharing allowed.
Keep in mind the all-important IRS exclusive use rule: that your office must be yours and yours only. If you're the designer for Clyde Client and your wife handles the tech side of Clyde's site and both you and your wife use the same office -- sorry, no deduction. Here's one way around that: Make one spouse the employee of the other. There are a lot of other benefits to hiring your spouse.

3. Work at home to increase your business transportation deduction.
If you do most of your work outside your home office you may still deduct costs for the area of your home used exclusively and regularly for your business, no matter how small the area. And by having two work places you'll increase your deduction for auto use or public transportation costs.

Here's why: The IRS does not allow a deduction for commuting from home to work and back. But it does allow a deduction for getting from one workplace to another. If you work in your home office and then drive to your other workplace you are now driving "from one workplace to another." You've increased your business miles and the amount of your auto deduction, or made your subway trip a business expense.

-- June Walker
Tax and Financial Advisor to the Self-Employed

Great advice, June! Working Solo Minute readers can learn more about home office deductions and receive a complimentary copy of June's List of 100+ Typical and Unusual Self-Employed Business Expenses by visiting June's Web site or her blog.

-- Terri Lonier
Founder, WorkingSolo.com