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.
Best answer:
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!
I got news for you, you are already a small business, you will have to report this income on Sch C which is the sole proprietor, small business entity
and your se taxes are approx. 15.3% on the Sch C net, anyway you look at it
if you are referring to incorporation etc., don’t get into that complicated situation before you really need to
Starting your own business doesn’t mean you get out of paying taxes. You’ll need to see an accountant to determine how to legally minimize your tax liability.
Yes, you can replace huffpuff post
Rather than save 30 to 40% for taxes…
What? Where the heck did that come from?
The only way to do what you’re suggesting is to form a C corporation. With a C corporation, you can be both employer and employee and write off all those fringe benefits.
And also be subjected to the “double taxation” of a C corporation (C corp pays tax, then you pay tax when dividends are distributed).
You’re not straight on what’s going on. Forming a legal business entity would be a disaster. If you really want to do anything like this, you need to see a professional. Otherwise you’re going to get it screwed up so fast it will make your head spin.
If you’re just looking to game the system, that’s a different story.
You didn’t mean you would save 30 to 40% as a 1099 worker because you just wouldn’t report it, did you?
” 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)….. ”
No, no, no.
1. You already have a small business. If you do your freelance business sitting on the couch using a laptop while watching tv, you won’t have a home office to deduct.
2. Even if you start a 2nd small business, in the eyes of the IRS, you don’t have a business unless you intend to make a profit (and eventually do). You can’t intentionally create expenses to reduce your income. The IRS frowns on that. Especially a no-no if you try to claim expenses in excess of income to reduce your taxes on your regular job.
There are 3 ways to be a business. Schedule C. Cheap, easy and all income is on your tax return where it should be. S-corp. A mess because you have to file 2 returns, PLUS pay yourself wages, necessitating W-2s and 941s. You only “save” money if you underpay yourself and the IRS is on to that trick. C corporation is even worse as the C corp pays taxes as well and then you pay them a second time on any dividends.
Unless you form a corporation, tax filing for a small business is the same as filing as self-employed. Non-corporate small business IS self employed. And if you form an S-corp, you complicate your tax filing. but any profits stll pass through to your personal return.
Not sure what you’re talking about, re paying yourself a lot of fringe benefits.