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Do you have an approximate idea at this point how much you will make total from this contract job?
Hello again designer,
Thank you for the additional information.
Since for at least right now this is going to be a temporary position, and you do not expect earnings of more than $35,000 for that period, I would strongly suggest that you simply operate this business as a sole proprietor, rather than setting up any type of formal business entity.
Many people are under the impression that having a formal business set up will allow you more deductions, but that is really not the case. And setting up a formal business involves much more paper work and registration fees than it may be worth in your case, at least at this point.
Operating as a sole proprietor you will simply report your income and related expenses from this job on Schedule C of your personal tax return. You will then pay taxes only on your net income after deducting your expenses. If you will be working from your home and will be using a dedicated area in your home for this business work, then you can claim a deduction for some of your home expenses for the area being used for your work.
The only reason at this point that you would really want to consider creating a formal business would be if you feel that you need a layer of legal protection. In other words, if you feel there are any possibilities your company might be sued for a faulty product or something of that nature, then it would be beneficial to have a separate legal entity set up so that your personal assets were protected. But from a tax standpoint, you will be just as well to operate as a sole proprietor.
If at some point this becomes a full time venture for you and your income increases significantly from this business, then it might be worth looking in to establishing an S Corporation, as that would offer you a few tax advantages. But the tax advantages of an S Corp would not really even kick in until you were running this as a full time business and had income of at least $50,000 or more each year.
Thank you designer
1. There is no category of business which offers different tax rates. Regardless of the type business you run, all of your net income will be treated as ordinary income, the same as you would have from a regular job as an employee, and will be subject to the same tax rates.
2. You do not need any type of license at all to operate as a sole proprietor, and no special registrations of any kind are required. All of your income and expenses will simply be reported on Schedule C of your personal tax return, using your social security number for reporting purposes.
Thank you designer and let me know if you have more questions.
Thank you designer, and let me know if you have more questions. I am happy to help you with whatever I can.