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I recently picked up a consulting project on the side. The

project will be completed in...
I recently picked up a consulting project on the side. The project will be completed in phases and each phase will get me somewhere between $5k to $10k. I don't anticipate this project getting me more than $20k and I dont foresee any more projects as of yet.

However, I want to expense all my travel costs, training costs, fuel and dinner costs that I have incurred while working on this project. Some of those I incurred from back in February.

My question is, do I sign up for an LLC or an S CORP. I want to know how I can expense all those past expenses and reap the most tax benefits.

THANK YOU!
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Answered in 2 minutes by:
10/7/2013
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

Megan C :

Thank you for your question, and thanks for using JustAnswer.com.

Megan C :

It is not required to establish an LLC or S Corp in order to deduct these expenses that you incurred in order to generate this income.

Megan C :

The costs that you incurred prior to generating revenue on the project will be considered a startup cost. These will be capitalized and then expensed over time.

Megan C :

If you do not get income in the current year for this activity, then you would not be able to deduct expenses (you can only deduct expenses to the extent you generate income.)

Megan C :

If this is a one time thing, then you will report the income and expenses on Schedule C of your 1040.

Megan C :

If you plan on having other consulting engagements, then you may consider the expense of starting up an LLC or S Corp.

Customer:

I live in Virginia. If I don't form an LLC and I generate $5,000 from this project. How much would I be paying in taxes?

Megan C :

You would pay taxes on your 1040 using schedule C

Megan C :

You would claim all the revenue you earn, and deduct any expense you incur for this project.

Customer:

For arguments sake, lets say I make $100,000 through my current employer. This is my day time job. Then on top of that, I made another $5,000 through this side project. My client wants me to file a W-9 with them and apparently thats how they will give me th is $5,0000. Is there anyway you could give me a rough number that lets me know how much of that $5,000 is going to go in taxes? Because that

Megan C :

Well, from that $5,000 if you had $4,000 of expenses you will only pay tax on $1,000.

Customer:

Hmm..say I took training before taking on this project. The training cost me about $6,000. Yet I only made $5,000 for this client. Do I pay taxes?

Megan C :

Did the training come before the contract?

Megan C :

If the training came before you earned any income, then that's a startup cost. You can only deduct $5,000 of startup costs in the current year, and the rest are expensed over the next 180 months.

Customer:

aah

Megan C :

In this case, if the training came before the contract, then you would deduct $5,000 of the cost this year - so you would not pay tax

Customer:

and training costs AFTER the contract came in? is there a cap on that as well?

Megan C :

But if you got the contract, and then took the training then you would have $1,000 in loss

Megan C :

And you would reduce your other taxable income from your work by $1,000

Customer:

nicee

Megan C :

Yes, when you are starting up a business there are typically losses

Customer:

so that means..even in LOSS I can reduce my taxable salary to $99,000?

Megan C :

That's correct

Customer:

so based on what you are saying, I gain no advantage by forming an LLC or S CORP?

Customer:

I just need to decide if I want this client to bill to my "LLC" or "CORP"

Customer:

and the only reason I would do that is to protect my money

Customer:

Last time I did a project like this, I feel like I paid A LOTT of money for my taxes

Megan C :

No. The LLC would be taxed exactly the same way, and the Corp costs money to start up, and it wouldn't be worth it unless this is something you will be doing for several years

Customer:

okay

Customer:

Okay so just submit the W-9 using my personal name

Customer:

Kinda wanted to have an LLC... :(

Megan C :

Well if you want an LLC then you can get one - the tax won't be any different

Megan C :

The LLC is taxed just as you earned the income individually

Customer:

hmm okay

Customer:

no point then

Megan C :

Not for tax purposes

Customer:

Can I think about this to make sure know other questions come up?

Customer:

wait

Customer:

what advantages would there be?

Customer:

if I had an LLC

Megan C :

Liability protection is all

Customer:

can you expand on that?

Customer:

I imagine just protecting my personal money?

Customer:

in case the LLC went under

Megan C :

That, and if you were sued because you did something wrong in the business, then they couldn't get your personal assets

Customer:

okay got it.

Customer:

Is it fair if I sit on this tonight before I give you a rating?

Customer:

I just need sometime to absorb this information

Megan C :

You can still ask questions, even after you rate

Megan C :

So you could rate this before leaving, and then come back tomorrow if you wanted to continue the conversation

Customer:

for additional money though right?

Megan C :

no

Megan C :

You only pay once for this - just come back to this page, and you can answer follow up questions for no charge

Megan C :

It's only if you start all over again and post a new question that you pay again

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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Thanks for your positive rating. Please come back and visit me any time you have a question that needs answered. It was a pleasure working with you today.
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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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