Running a small business has many tax benefits, but it has many tax pitfalls too. To make sure none of us get on the wrong side of the IRS, we will discuss small business tax questions with Johnny Horta.
LMM’s resident tax expert schools us on small business taxes for all our side hustlers out there.
If you run a small business, you’ll have more write-offs than if you are an employee. The downside is, you have to pay all 15.3% of your FICA and social security taxes rather than paying 7.65% while your employer picks up the other half.
If you’re self-employed, it’s a good idea to set up a Simple or SEP IRA. A Simple allows you to defer up to $12,500 and a SEP, up to $53,000. This can help lower your tax burden while helping you save for retirement.
If you’re just starting out, it’s a good idea to schedule a consultation with an accountant or a tax attorney. Just ask for a certain amount of time, an hour maybe and ask what they charge for that. Be sure to have a list of questions to make the most of the time.
According to the IRS, you are a business if you make money for three of five years. Otherwise, it’s classified as a hobby.
Lots of people want to use a home office deduction. But to do so, the office has to be “regularly and exclusively used as a home office for the business.” So if you work on your computer by day and watch Netflix on it by night, sorry, you’re out of luck.
Your home office is a mullet set up. Business in the front, party in the back.Tweet This
When you decide how to set your business up, sole proprietorship, LLC, etc., the most important thing to consider is the likelihood that you’ll be sued. If it’s small, a sole proprietorship will probably be suitable.
Remember, Johnny will answer your questions live via our webinar February 2.
Horta Tax and Financial Services: Connect with Johnny on Facebook.
IRS: Get some answers here before spending money on an accountant.
LMM Get Involved: Find out the details for our upcoming tax webinar with Johnny February 2 at 8:30 pm Easter.