Author Topic: Sole Proprietorship Tax Questions  (Read 506 times)

ooeei

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Sole Proprietorship Tax Questions
« on: March 13, 2018, 12:13:28 PM »
I know this doesn't apply to taxes being filed this year, but I'd like to have an idea what to expect next year.

My girlfriend currently has a few different jobs:

  • A W-2 Job making $30k/year
  • A side job where she is paid by 3 different clients through 1099s making ~$30k/year
  • A different side job where she is paid by a client through a 1099 making ~$10k/year

Until now we basically deducted any work related expenses she had from the 1099s and paid taxes on the remainder. The new tax format has me a bit confused on a few details. Below is what I THINK is correct.

  • She is eligible to claim her 1099 income as a sole proprietorship
  • 20% of the income from said sole proprietorship can be deducted per the new regulations
  • She makes less than $157k as an individual, thus there are no W2 limits on said deduction
  • She makes $40k through the 1099 jobs after expenses, thus will only pay taxes on $32k ($40k-20%) from said jobs

What I'm not 100% clear on is whether work expenses such as travel or office supplies from her 1099 jobs can be deducted when calculating her QBI (qualified business income). If she has $10k in expenses, but makes $50k gross, her QBI would be $40k, is that correct?

Her friends who work in similar businesses are freaking out about the removal of work related deductions for employees, but since she is not an "employee" that doesn't apply to her, right? Is she only restricted from deducting workplace expenses related to her W2?
« Last Edit: March 13, 2018, 12:18:35 PM by ooeei »

LessIsLess

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Re: Sole Proprietorship Tax Questions
« Reply #1 on: March 13, 2018, 12:23:02 PM »
Doesn't your GF have to form an LLC to qualify for the 20% deduction?  Also look into solo 401k / SEP IRA to help her save on taxes.

sirdoug007

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Re: Sole Proprietorship Tax Questions
« Reply #2 on: March 13, 2018, 12:38:48 PM »
Doesn't your GF have to form an LLC to qualify for the 20% deduction?  Also look into solo 401k / SEP IRA to help her save on taxes.

No, the 20% deduction applies to all Qualified Business Income to all pass-through entities including sole proprietors. 

And yes, she can deduct business expenses on her Schedule C.  Those with w2 wages cannot.

Be careful that "guaranteed payments" are not qualified business income.  There are a lot of CPAs and folks at the IRS still trying to sort this stuff out so stay tuned!
« Last Edit: March 13, 2018, 12:41:17 PM by sirdoug007 »

ooeei

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Re: Sole Proprietorship Tax Questions
« Reply #3 on: March 13, 2018, 01:59:06 PM »
And yes, she can deduct business expenses on her Schedule C.  Those with w2 wages cannot.

Be careful that "guaranteed payments" are not qualified business income.  There are a lot of CPAs and folks at the IRS still trying to sort this stuff out so stay tuned!

Good to hear I'm not crazy. Of course once we hit 2019 there should be more clarity on the rules, or at the very least more examples I can look to for guidance.

Thanks for the heads up about guaranteed payments, currently we base it off of the check date. Anything in the calendar year gets counted.

Doesn't your GF have to form an LLC to qualify for the 20% deduction?  Also look into solo 401k / SEP IRA to help her save on taxes.

An LLC is actually a separate entity related to liability, not tax filing.

I've briefly looked at solo 401k/equivalents, but it might be worth checking out again. For now she's just maxing her IRA.

MDM

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Re: Sole Proprietorship Tax Questions
« Reply #4 on: June 27, 2018, 06:43:40 PM »