It's that time of year again....

[galagan]

Good news: all you tax procrastinators have an extra couple days this year - April 17 is the deadline.

Bad news: that's just 9 days away.

I'm renewing my annual offering to talk through any tax issues anybody has. If you need me, you know where to find me.

Comments

[galagan]

Welcome to my world - the world of self-employment tax hell! You've got the logistics down pat.

Yes, you're a business, with the world of hurt that results. On 21K, I'd expect you to pay around 3K in self-employment tax alone, not even considering the regular taxes. So yeah, your total tax due sounds roughly right. Sucks, doesn't it? That's why people try to avoid the whole independent contractor gig and become regular employees with W-2s and everything.

Here's the tradeoff though. You own your own business. As a business, you have costs. You get to deduct those costs. Obviously, that doesn't mean that you can write off everything you ever pay. But things like driving to the KAB or your internet access you need to send things back and forth or your computer or whatever else you need to work - you may be able to write off some or all of those expenses.

That's a lot of work. But keep in mind that for every dollar you've spent, you deserve to get back probably about a quarter or so in tax savings. That can be good incentive. And it's legit: you spent that money to earn that business income, so you deserve to write it off.

Maybe it's too late for 2006, but keep it in mind for next year. And you may be able to go back and figure some of it out even now. Best of luck and hit me again if you have other questions.

[ellen_fremedon]

Well, fuck.

I didn't have any business expenses, except for transportation. I never worked from home. It was a pretty casual office, so I don't think I can deduct clothing or drycleaning. Transportation is really it.

Can I just multiply a day's train and bus fare by the number of days I worked there and call it a business expense, without any other documentation?

[samtheeagle]

This is lawyer (but not actual tax lawyer) talking. Let's see if galagan concurs and gives me a gold star on my lawyergeek chart.

Can you deduct commuting expenses? If you didn't have a home office, I don't think so: commuting expenses generally are deductible only for necessary transportation between offices. If you did have a home office, then commuting from the home office to the KAB worksite could be deductible.

Clothing and drycleaning never are deductible unless they made you wear special KAB clothing that you paid for and for which you weren't reimbursed.

This result supersucks given your SE tax situation.

[galagan]

I concur with sam's commuting idea - if you never work from home, then you don't have a home office, so you can't deduct commuting expenses to your regular place of work.

If you feel like fighting with your client/employer, you could see if you think you're really an employee rather than an independent contractor:

http://www.fool.com/investing/small-cap/2006/09/14/the-definition-of-independence.aspx

http://www.irs.gov/pub/irs-pdf/p15a.pdf

but if the contractor thing is legit, then you're probably out of luck. Sorry.

[ellen_fremedon]

Huh. According to that IRS publication, I don't think the contractor thing was at all legit. I was an office manager-- I had a boss who told me what to do and when to do it and I got paid an hourly wage. I was doing exactly what the previous office manager did-- I know this, because sanj held the job before I did-- and she was hired through a temp firm. And the person before that had been a full-time permanent employee. But the particulars of the job didn't change at all. I certainly didn't approach these people as a contractor-- they hired me, and then asked me if it was all right to pay me as one.

If I wanted to fight them on this, what would I do?

[galagan]

You're now well beyond my comfort zone, so take all this with a big grain of salt. I'd probably pay the tax as an independent contractor but then file Form SS-8, which asks IRS to determine whether you're an employee or independent contractor:

http://www.irs.gov/pub/irs-pdf/fss8.pdf

It's long and complicated, but you should be able to see the gist of how the questions fit the factors discussed in that IRS publication I pointed you to before. If the factors are on your side, then you stand a good chance of being able to amend your return to treat yourself as an employee and get all those self-employment taxes back. Company could come back and try to collect half of that amount - it would have been withheld as FICA taxes if you'd been an employee.

Obviously, if you signed something saying it was okay to treat you as a contractor, that's a big mark against you. Typical contracts have boilerplate language tailored to address these issues in favor of contractor status.