No, not at all,. Unless you've incorporated or separated he business into to different taxable entities, (two different tax ID numbers, for example) you're fine here...
Woops, sorry I just saw that you said truck driver for a company.... QUESTION: do they pay you W-2 wages... or are you an independent contractor for them, wigh a 1099 at the end of the year
Again, my apologies I misread the question, thinking that you were a contractor (1099, rather than w-2)
OK, that IS a little different
What kind of loss are you showing on the side business, and do you think you'll get it to profitable?
I see the 2 year piece now
Isee you're tyuping I'll wait
Still don't see ya coming in .. the answer (the way you're framing it ) is no, you aren't disqualified from writing off some things ... FIrst here's how the IRS puts it:
Use Schedule C (Form 1040) to report income or loss from a business you operated or a profession you practiced as a sole proprietor. An activity qualifies as a business if your primary purpose for engaging in the activity is for income or profit and you are involved in the activity with continuity and regularity. For example, a sporadic activity or a hobby does not qualify as a business
OK, let me get something for you .. there IS a way to get the benefit... (maybe not all up front) ... just a sec
Have you been doing a schedule C for the Welding co?
OK, when you do a schedule C - the income statement for your business - which is also a tax return attachment that will flow to your regular 1040 on line 12 (business income or loss), your business losses DO offset that w-2 wage income that comes in on the top of your 1040, line 7
Sure, you can and should, but you won't be able to write of ALL of the equipment purchases, as if they were an operating loss, you'll need to depreciate those over th life of the equipment
regular maintenance, rent or lease for space, office costs, thos oare the things that will coum out a an operating loss that WILL end up reducing mthe W-2 income on the personal return
so, the effest IS that they are a deduction
Here it is: You must depreciate tools expected to last longer than 1 year over their useful life. You can usually depreciate tools over a 7-year recovery period. These tools also qualify for a Section 179 expense deduction. Under Section 179, you can expense the full cost of a tool the year you place it in service. The deduction is limited to the amount of your self-employed income
SO you see the write it all off in one year can only be used to offset your business income
But you CAN do a year's worth of depreciation on everything, along with other legit expenses
Nope, you really should sit down with a CPA on this but the botXXXXX XXXXXne is this ... (1) Some things like improvement to property have to be capitalized (added to your investment - basis - in the investment... which WILL cut down on the taxable gain later when you sell it) ... (2) you can create a legitimate business loss that will flow to line 12 and offset w-2 wage income with legit expenses on the schedule C, (correct depreciation on equip., rent, utilities, other office costs, etc)
But this all sounds very real, so to be tax compliant you SHOULD do the schedule C and start doing the business as a part of your taxes
It's only when you do it for 2 to three years in a row, and they don't any income ever coming in that they start to look hard at it
MOST businesse aren't profitable right off the bat
Still with me?
sounds like you've got your arms around it pretty well ... ever use turbotax?
I see your typing I'll wait
OH yeah ... the GOOD thing about having everything under YOU SS# XXXXX XXXXX you can basically operate all these things an departments/divisions of the same company (and it IS all very related)
You can do different schedule C's and have them all flow into the same return ... but honestly, if you do it all as one schedule C XYZ services, whatever income is there cna be offset with whatever expenses are there
Eventually what you'll want to do is set up an LLC (to protect your assets, etc) BUT ...
even then, as long as it's what's called a single member LLC, you still do a schedule C and run everything therough your 1040, for tax pruposes
But again, all of these things can be different "divisions of the LLC, especially as related as they are ... somne day when you get enough assets and income coming into more than one of the operations, THEN you may want to set them up as different businesses, so creditor or lawsuits of one can't come after one of the toerh businesses
for now, you'll get more tax advantage and show some income quicker, by running it all through one company
Not for your situation, in my opinion ... the LLC does the same thing as far as liability protection goes ... an LLC is a hybrid (has the liability protection of a corporation with the flexibility of a partnership) ... that's one of the reasons the LLC is the fastest growing business entity ... BUT... the S-corp can save you on self employment taxes ahd that starts to be a benefit at around 50k
that's because, when you are an s-corp... you pay your self a reasonable salary .... (and your company pays 1/2/of the fica and you pay the other half... just like with your w-2 now) BUT
since you ARE the company there's no difference.... the difference ons in that amount of profit IOVER your salary ... you can take that out a an S-Corp without ANY social security taxes, because that's characterized as a dividend
sorry for the typos ... basically, that amount of profits (over and above the salary you have to pay yourself in the S-Corp) has no social security tax attached to it
... in the S-Crop, but otherwise it can be more cumbersome,,, have to do a separate tax return for the busines then a k-a to take that to the 1040, article of incorporation, supposed to have board of directors, etc and mintes of meeting is you do it right ... the LLC is much simpler AND you can bring in other perople and share thins ANY way you want... like a partnership... in the S-Corp if you own 50% of the sahres you get 50% of the profits and 50% of the losses, no matter what
So really it all depends on the situation ... right no, until you really start throwing some income the LLC does everything AND you can the file a 2553 form and elect to be taxed as an S-corp later, anyway
what will happen there is the S-Corp has to do it's own return (the salary you pay yourself will be and expense on the S-corps 1120 form (very much like the schedule C, its loss still flow to the 1040) so from a tax standpoint... until you have some real profits (over and above what your taking out for yourself) the s-corp only adds a lot more administration
AND IRS says you HAVE to pay yourself a reasonable salary in an S-Corp... you can't call it all dividends just to get out of paying social security taxes
so, again, until you get very profitable over and above that salary level there's not a lot of benefit
Nope that's always been the hard part they DO NOT establish that... what they'll do if they audit is look at what other people in the same industry, with the same duties, same responsibility, etc would be getting as a salary if they were an employee
Fro Journal of accountancy: The IRS has the authority to reclassify dividends, distributions, or payments to the shareholder-employee, including loan repayments, as compensation if it deems compensation inadequate or unreasonable. The courts have held that the question of reasonable compensation is one of fact, determined on a case-by-case basis.
You've got the idea ... BUT remember that a (1) sole proprietorship, (2) LLC, (3) s-corp are all passthroughs, (4) partnerships are ALL passthroughs... meaning they will tax you on PROFITS (and on any wages, so that part's kind of a wash) .... It's only in a CCorp (which pays its own taxes at it's own rates) that you can leave it in the business for purposes of avoiding taxes
You can still leave money in the business ACCOUNTS in a pass-through (this will actually increase your basis and allow for more write-offs down the road) BUT they'll tax PROFITS over and above expenses either way in the pass-throughs
NOW, very quickly
IF you DO choose a C-Corp ... the old, standard C-corp what happens is (1) Everything is taxed as income (corporate income at corporate rates) ... (2) ...
No capital gains treatment for sales of assets... no losses against person income ... AND once the company has paid it's own taxes... i you decide to pay your self a dividen of that profit youpay taxes on it again (DOUBLE TAXATION on that part) ... your salary would still be an expense of the corporation so only taxed once at the personal level (W-2) BUT it's only when you WANT to leave money in for reinvestment, new product decelopment, etc... tahte the C-corp starts to be adventageous
I ALL really depends on what you're trying to do ...BUT one more thing and Ill shut up
IF you set up the LLC, in TX, you can always ELECT through a special for 2553 (for S-corp) and 8832 (for C-Corp) to be taxed differently, once that starts to make sense
:) you'been doing some research!
Yes, fringe benefits
YOu CAN really maximize what you puul out tax free in THAT way
Although MANY of those things are still deductible for self employeds.. usiness travel.. self employed heal insurance through you schedule A... but yes, certain things lik busines ness pf a company car and others can only be done in the C-Corp
We've covered some good ground here.. a good place to start ... IF you'd like to ask for me again, just say "For Lane Only" at the beginning of your next question ... at some point you'll get out of the planning phase and the best use of YOU time will be doing what you do ... there was a guy named Peter Drucker, sort of a Business GURU (showing my age here), but he said... do one thing ... do it well ... and do a hell of a lot OF it
Sounds like between the consulting, the welding company and having that real-world experienc in the trusk n(plus I'm betting there's some future business there with THAT company ... ti sound like you're goin down that road
Yep.. takes money to ...