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I'm in the phases of getting two different startups going…

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Hello, I'm in the...

Hello, I'm in the phases of getting two different startups going this year (one with partners and one with just me and my wife) and am wondering what the best business type to register as would be beneficial for tax purposes. I'm not making any revenue at the moment, but want to be able to hire... Read full answer

Hello, I'm in the phases of getting two different startups going this year (one with partners and one with just me and my wife) and am wondering what the best business type to register as would be beneficial for tax purposes. I'm not making any revenue at the moment, but want to be able to hire freelancers to help me develop my product. What's the best way to set this up? And what are the rates to talk to a professional on Just answer?

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I have heard from other entrepreneurs that it's worthwhile to make an LLC that would serve as a shell company to all your other businesses. They've also said I can use the cost of professional development as a deduction some how that way. I just have a lot of question regarding registering a business.

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Answered in 46 minutes by:
2/21/2019
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 38,391
Experience: Taxes, Immigration, Labor Relations
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When you just starting your business - I do not think that you need a complicated structure - just to avoid overhead.

Most likely - you do not even need an LLC as a freelancer.

When your business will take off - then you may start thinking about separate business entities and more complex business structure.

But for tax purposes = that will not make any difference.

.

Regarding deducting the cost of professional development ...

See this publication - page 59 - Business Deduction for Work-Related Education

https://www.irs.gov/pub/irs-pdf/p970.pdf

Qualifying Work-Related Education is education that meets at least one of the following two tests.

• The education is required by your employer or the law to keep your present salary, status, or job. The required education must serve a bona fide business purpose of your employer.

• The education maintains or improves skills needed in your present work.

However, even if the education meets one or both of the above tests, it isn't qualifying work-related education if it:

• Is needed to meet the minimum educational requirements of your present trade or business, or

• Is part of a program of study that will qualify you for a new trade or business.

.

Let me know if that helps.

Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 38,391
Experience: Taxes, Immigration, Labor Relations
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Customer reply replied 4 months ago
Thank you for all the help. Just to clarify and make sure it still pertains, I'm working on two different SaaS companies, not freelance so much. I have to register as a business to receive revenue correct? From what I've researched, it seems like any initial revenue I make this year will get taxed at my normal rate + the self-employment rate. Is there anyway to be able to keep the small amount of startup income to continue to fuel my business in the first year? Perhaps by deducting expenses or something? And does that work as a sole-proprietorship instead of some other format? Are there any downsides to not registering as a different business type upfront?

I have to register as a business to receive revenue correct?

There is no such requirement. You may but you are not required.

From what I've researched, it seems like any initial revenue I make this year will get taxed at my normal rate + the self-employment rate.

That is not exactly correct ... only net business income is taxed that is gross business income minus qualified deductions. That net business income is subject to self-employment tax 15.3% and is added to your other income for income tax purposes.

Is there anyway to be able to keep the small amount of startup income to continue to fuel my business in the first year?

You may keep ALL your income after paying tax liability - not just the small amount...

Perhaps by deducting expenses or something? And does that work as a sole-proprietorship instead of some other format? Are there any downsides to not registering as a different business type upfront?

For deducting business expenses if doesn't matter what type of business entity you have.

Same rules are applied - just different reporting.

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