Do you want to go into business for yourself? - Crawford Ellenbogen
Many people who launch small businesses start out as sole 1. You may qualify for the pass-through 2. Report income and expenses on Schedule C 3. Pay self-employment taxes. For 2020, 4. Make quarterly estimated tax payments. For 2019, these are due 5. You may be able to deduct home office 6. You can deduct 100% of your health 7. Keep complete records of your income and 8. If you hire employees, you need to get a 9. Consider establishing a qualified Seek assistance If you want additional information regarding the tax aspects of
proprietors. Here are nine tax rules and considerations involved in operating
as that entity.
deduction. To the extent your business generates qualified business income,
you are eligible to claim the 20% pass-through deduction, subject to
limitations. The deduction is taken “below the line,” meaning it reduces
taxable income, rather than being taken “above the line” against your gross
income. However, you can take the deduction even if you don’t itemize
deductions and instead claim the standard deduction.
of Form 1040. The net income will be taxable to you regardless of whether you
withdraw cash from the business. Your business expenses are deductible against
gross income and not as itemized deductions. If you have losses, they will
generally be deductible against your other income, subject to special rules
related to hobby losses, passive activity losses and losses in activities in
which you weren’t “at risk.”
you pay self-employment tax (Social Security and Medicare) at a 15.3% rate on
your net earnings from self-employment of up to $137,700, and Medicare tax only
at a 2.9% rate on the excess. An additional 0.9% Medicare tax (for a total of
3.8%) is imposed on self-employment income in excess of $250,000 for joint
returns; $125,000 for married taxpayers filing separate returns; and $200,000
in all other cases. Self-employment tax is imposed in addition to income tax,
but you can deduct half of your self-employment tax as an adjustment to income.
April 15, June 15, September 15 and January 15, 2021.
expenses. If you work from a home office, perform management or
administrative tasks there, or store product samples or inventory at home, you
may be entitled to deduct an allocable portion of some costs of maintaining
your home. And if you have a home office, you may be able to deduct expenses of
traveling from there to another work location.
insurance costs as a business expense. This means your deduction
for medical care insurance won’t be subject to the rule that limits medical
expense deductions.
expenses. Specifically, you should carefully record your expenses in
order to claim all the tax breaks to which you’re entitled. Certain expenses,
such as automobile, travel, meals, and office-at-home expenses, require special
attention because they’re subject to special recordkeeping rules or
deductibility limits.
taxpayer identification number and withhold and pay employment taxes.
retirement plan. The advantage is that amounts contributed to the plan are
deductible at the time of the contribution and aren’t taken into income until
they’re are withdrawn. Because many qualified plans can be complex, you might
consider a SEP plan, which requires less paperwork. A SIMPLE plan is also
available to sole proprietors that offers tax advantages with fewer
restrictions and administrative requirements. If you don’t establish a
retirement plan, you may still be able to contribute to an IRA.
your new business, or if you have questions about reporting or recordkeeping
requirements, please contact us.