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I am currently working an Independent Contractor at an agency for my Art Direction services. This is my main source of income. Additionally, from time to time I do graphic and video work. Now I am considering diving into Event Production as a new opportunity has come to me.

My main goal is to maximize my tax deductions as last year I paid 30% off my income. I filed as self-employed. I know the answer is incorporating but not sure as to which type of Corporation will allow me to deduct the most (equipment, furniture, car, insurance, food, travel, hiring other independent contractors, etc - can't think of any thing else). This is money that is currently getting out of my pocket - after taxes -. Any recommendation or past experiences?

2007-05-07 16:36:08 · 5 answers · asked by QuestionHead 1 in Business & Finance Taxes United States

Just a side note.
As an Independent Contractor my car expenses were only $ .44 cents per mile. Apparently, if incorporate more is deducted (car payment, gas, insurance oil change, etc).

2007-05-07 17:03:14 · update #1

5 answers

You don't have to be incorporated to deduct the cost of an auto used in your business. You have a choice to capitalize the auto and depreciate it over 5 yrs, add the cost of gas, oil changes. car washing, etc., or take the standard mileage rate. The deductions you'd have with a S corp are the same as you'd have with a sole proprietorship.
People usually form a corporation to protect their personal assets from law suit or if the corp goes bankrupt, it doesn't take your personal assets down too.
If you was gonna incorporate,, /s corp would be the way to go, but not for tax reasons.
What some do is take a salary, then let the company profits flow through to them on a K1, and that profit is not subject to self employment tax, so there is a savings of 15.3% on that money. Also, a S corp can hold a board of directors meeting each year and deduct the cost of that meeting. Bot it's not free to form the corp and if you don't know about the tax forms, the savings is offset by cost of tax prep.(yes, it is a deduction)

If you are the only partner in a LLC, the IRS considers you to be a sole proprietorship.

2007-05-07 18:05:21 · answer #1 · answered by Jo Blo 6 · 0 1

There nothing much beneficial tax-wise by incorporating. The same exact business expenses that a corporation could use are available to the Sole Proprietor.

The principal benefit of incorporating is that it limits your personal liability to your investment in the corporation. If you get sued as a corporate entity, a judgement against you can only affect the corporation, not your home, car, investments etc.

The simplest way for a small business to handle this would be an S-Corp. You get the benefits of limited liability but without much of the hassle and expense of corporate tax returns and reports. All of the income from the business goes straight to your Form 1040 so you don't have to deal with multiple tax bills, payroll taxes, or the rest of that hassle.

2007-05-07 20:16:51 · answer #2 · answered by Bostonian In MO 7 · 0 0

There is a loophole in the S Corp tax structure where you can pay lower taxes overall by declaring part of your profits as a salary and part as an owner's draw. The funds taken as an owner's draw are not subject to to the 15.3% SS/FICA taxes. From a taxation perspective, an S Corp is a pass-through entity just like an LLC. I would highly suggest you speak with a CPA in your area because you are able to deduct work-related expenses whether you are incorporated or not. If deductions are your main goal, that can be done without the expense of incorporating.

2007-05-07 16:56:37 · answer #3 · answered by Anonymous · 0 1

I think that an LLC is the best - it is flow through taxation which means that you will be taked only - not you and the corp.

2007-05-07 16:43:07 · answer #4 · answered by dredma1 2 · 0 0

definitely LLC

2007-05-07 16:44:29 · answer #5 · answered by Dfire 3 · 0 0

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