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I do hard money lending, which right now I report as

I do hard money...

I do hard money lending, which right now I report as 1099-int income. I think I'm better off declaring I'm a sole propriertor, and then paying the self employment tax (I already pay 100% of SS limit on my W2), and getting deductions on Schedule C for my expenses (the expense deduction is about equal to the medicare tax). So my question is; will I get an additional tax break under the new tax law? For example, I think I've read that I can reduce my taxable business income by 20% before adding to my other income; example; if my lending biz made $40K and I had $5K in expenses, my net is $35K less 20% so I pay the medicare tax on $35K, and income tax on $28K. is that right?

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Answered in 9 minutes by:
3/9/2018
Carter McBride
Carter McBride, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 1,039
Experience: Adjunct Professor
Verified

Hey! I'm Carter, I'm a CPA and can help you out with this.

That is exactly right. The new 20% deduction does not affect self-employment taxes, so you'd be S/E tax on the $35 and only pay income taxes on the $28.

Let me know if you need anything else. If not, please leave a rating. Thanks!

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Customer reply replied 1 month ago
1st question; Is there an issue with declaring interest income on a schedule C? Hard money lending takes a lot of time and effort, going out and looking at properties, for example. And the 2nd question is; i redid my mortgage to get additional capital to lend, so I have a higher interest cost, can I put that on a schedule C or must it go unspder schedule A?

1) There is not as long as you consider yourself in the business of lending money. If you're running as a business and just loaning friends money, then you are a business activity and fine to do a Schedule C.

2) That can go to your Schedule C as long as you can demonstrate the funds were used by your business activity.

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Customer reply replied 1 month ago
Is the self employment tax calculation going to change? It used to be 2.9% for Medicare with no cap, and I thin 10.2 or 12.2 for SS but stood at $106k, I will hit +$106k on my W2 in ‘18, so will I just be paying 2.9% or has the formula totally changed?

No. It has not changed, but the cap for SS has gone up a lot. It's up to about $128k now.

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Customer reply replied 1 month ago
That is a lot! My gross is about $110k, before 401k, is SS before or after 401k? For example, if I have $20k on 401k, is SS $110 or $90?

You do not pay SS on 401k distributions.

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Customer reply replied 1 month ago
Maybe I didn’t ask right, I’m not taking a 401k distribution. If I make $110k, and have an election to put $90k into my 401k plan, my net income is $90k. Is SS calculated on $110k or $90k?

It's calculated on the entire amount.

Carter McBride
Carter McBride, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 1,039
Experience: Adjunct Professor
Verified
Carter McBride and 87 other Tax Specialists are ready to help you
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Customer reply replied 1 month ago
Ok. I mistyped. Meant to wrote “put $20k into...” but you saw that. Thx! Good info
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