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I am currently Massachusetts resident and married. I am transitioning

from being a full-time employee...
I am currently Massachusetts resident and married. I am transitioning from being a full-time employee at my place of employment to a part-time consultant. From now until the end of the year I plan to make approximately 20k in additional income from consulting fees. YTD I have made approx 50k from my employer.

Additionally I am becoming a Partner of a Colorado based non-profit. I do not expect to receive income from the non-profit this year but do expect to incur business expenses.

I am seeking advice on how I
1) minimize taxes on the consulting income I'm going to receive
2) ensure that I can deduct business expenses related to the non-profit
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Answered in 1 minute by:
7/2/2013
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 16,581
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Verified

MyVirtualCPA :

Hello, and welcome to JustAnswer.com

MyVirtualCPA :

Congrats on deciding to venture out with your own business

MyVirtualCPA :

To minimize your consulting income, make sure you are taking all deductions you are entitled to

MyVirtualCPA :

You can deduct any expense that you incur in order to generate the income

MyVirtualCPA :

You can deduct your home office expense and also deduct mileage that you drive for business purposes

MyVirtualCPA :

Those are the two big expenses that you will be able to deduct that will help you tax wise

Customer:

Do I need to incorporate and/or register for a tax ID number as a consultant?

Customer:

I am not sure that I will continue consulting long-term so I don't want to incur the cost of incorporating uncessisarily

MyVirtualCPA :

You don't need to register for a tax ID unless you want to

MyVirtualCPA :

some people prefer to, so that they don't have to give their social security number out

MyVirtualCPA :

And you don't have to incorporate. You can be a sole proprietor

Customer:

As a consultant do I have to arrange to pay taxes on a monthly basis since they will not be deducted? How do I go about doing this?

MyVirtualCPA :

What you do is quarterly you file a 1040-ES and estimate your taxes

MyVirtualCPA :

and send it in with 1040-V which is a payment voucher

MyVirtualCPA :

You only do this quarterly

Customer:

Do you do it at the beginning or end of the quarter? For example I will be consulting from September to December

MyVirtualCPA :

Your first year you don't have to estimate your taxes quarterly ...and since you are doing this primarily in the fourth quarter you will simply pay the additional tax with your tax return

Customer:

Perfect

Customer:

What about the expenses associated with the Colorado based non-profit

MyVirtualCPA :

Well, you won't deduct expenses that you incur on behalf of the nonprofit

MyVirtualCPA :

The non profit should reimburse you for any expenses

MyVirtualCPA :

Now, if they are a charity, you can deduct your donations to them...but only if they meet the qualifications of being a charity

Customer:

But I am Partner not an employee so therefore I won't get reimbursed

MyVirtualCPA :

Not for a nonprofit

MyVirtualCPA :

For a regular, for profit company then you can deduct ordinary and necessary expenses

Customer:

Hmm.

Customer:

But to be a Partner I will have expenses. Business meetings, travel and professional development.....

MyVirtualCPA :

You are on the board of directors?

MyVirtualCPA :

You can read this article about deducting expenses:

MyVirtualCPA :

http://yourbusiness.azcentral.com/tax-deductions-officers-nonprofit-organization-10706.html

MyVirtualCPA :

Do you need anything additional?

Customer:

i'm not clear on the non-profit aspect yet

Customer:

so how i offset travel expenses related to the non-profit for business meetings?

Customer:

for example my Partner lives in DC and Colorado so we travel to meet face-to-face

Customer:

additionally I'm doing continuing education related to the nonprofit

MyVirtualCPA :

A "non profit" can only be set up as a corporation or LLC

MyVirtualCPA :

If you are not an employee of the nonprofit, then you would not be able to deduct the continuing education expenses of the nonproft

Customer:

Apprently in Colorado though its not an LLC or a corporate it is just a non-profit.

MyVirtualCPA :

Yes, but a partnership implies taxation ... there are no taxes on a nonprofit

Customer:

I am a partner / owner of the non-profit. I am not an employee because I'm not getting a salary.

MyVirtualCPA :

You aren't taxed on the net income of the nonprofit

MyVirtualCPA :

You have to be a nonprofit corporation, not a corporation etc

MyVirtualCPA :

You can't own a nonprofit

Customer:

Okay but there aren't any tax credits or deductions for these types of business expenses?

MyVirtualCPA :

No, because non profits are not taxed on their nonprofit income

Customer:

Okay thank you.

MyVirtualCPA :

You're welcome

MyVirtualCPA :

Is there anything else you need assistance with today?

Customer:

No that's it. Thank you.

MyVirtualCPA :

Thank you for your positive rating. Please come back and visit MyVirtualCPA for any of your tax needs. It was a pleasure working with you today.

Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 16,581
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Verified
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Megan C
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 16,581
16,581 Satisfied Customers
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

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