Question by therainman: Saving on taxes, small business or no?
I have been doing freelance writing and journalism on the side, and it has been a steady couple hundred bucks a week (around $ 100 to 150 or so on average). Rather than saving 30 to 40% for taxes as a self-employed 1099 worker, would it make sense to just start my own small business?
I mean, isn’t there a way I could be an employee of my own company and then just take the profits of the company without having to worry about benefits paid to myself? I would also be able to take out just a little bit of the money (under a certain amount) and leave the rest in the business for tax purposes … correct or no?
Just looking for a way to possibly get by in this economy! Thanks everyone!
I understand the idea of what you guys are all saying, and I get it because I have a degree in accounting, so you know I get at least basic level taxation.
My question is, if I am able to form some sort of entity because I want to try to minimize my losses and expenses. I have been making close to $ 100 per week, but “saving” close to $ 40 (or 40%) in the bank so that I have enough to pay taxes. Then I realized, if I form a small business of some sort, I might be able to claim my internet, electricity, home office, etc. as business expenses (not sure if I can, but just an idea)…..
Anyway, the point is will I end up being able to just put the money into the small business and then take draws against the business or only take profit instead of having to worry about paying a lot of fringe benefits? I have heard of doing this before, and I’m not sure if it’s a class C corp or not.
Answer by Wayne Z
If you are a “self-employed 1099 worker” you already have a small business in the eyes of the IRS. Nothing else would become magically deductible.
The taxes on John Smith (an independent contractor) would be the same as the taxes on “John Smith, LLC”.
At that income, you would probably lose money by forming a corporation as the legal, accounting, payroll and other fees would greatly exceed your tax savings.
What do you think? Answer below!