Confused about tax benefits of owning a business

[ETBen]

I’ve been considering a side business as a career coach for nurses and also some speaking at team meetings etc. I’m not concerned about the feasibility of me getting this work and I intend for it to be along the lines of “small and personally fulfilling.”

I have friends who talk about having a side business and running it “net zero” to reduce the taxable income of their main job. But I think they make a fair bit less than me. I will gross 200k this year, and while I max out all my deductions I can, I can’t see how a small side business would reduce my taxable income that much.

I also can’t figure out in my reading, if I were to do work without a fee to groups that help women re enter the workforce (after say, domestic violence), can I deduct that as charitable work/time?

[Paul der Krake]

They are most likely referring to deducting the use of certain things for business expenses that they would own any way. Like the extra bedroom used as a home office, or mileage on their car.

[ETBen]

They are most likely referring to deducting the use of certain things for business expenses that they would own any way. Like the extra bedroom used as a home office, or mileage on their car.

Yes and they were talking about using that to get their income below a certain amount. Maybe the next income level %.

[ETBen]

I figured out the answer on charitable work. I should have searched pro bono and I would have easily figured it out.

[SeattleCPA]

the big tax benefits of running your own business are probably...

1. you may be able to legally avoid payroll taxes by using an S corporation... this can be a big deal over the years you work... very possibly a million dollars of extra retirement savings.

2. ability to legally deduct expenses on a business tax return that would not be allowable or might be partially excluded on a regular 1040 return.

3 possible family income splitting (again, assume you're doing this legally...) such as hiring kids

4. setting up a pension plan that optimizes for your specific situation rather than the average employee

Much of this stuff is covered my blog... fwiw...

[ETBen]

Thanks I’ll take a look. I do not come from entrepreneurial people. That fact that I change jobs every few years is strange enough to them. So my only real experience is people that work the same job 50 years. I don’t see myself becoming a “real” business owner beyond running somethingnsmall on the side. But I do want to understand it more n

[Joshua]

There are no tax "benefits", I have owned my business for many years and between Federal, State, Local, and especially self employment tax I usually end up paying 40+% on a majority of the income.

Yes you get a few more write offs but that is because you have costs associated with them that usually balance out.

[Joshua]

I also forgot to note. You cannot use a business to offset your other income through losses. If the business is not profitable for 3 out of 5 years it is considered a hobby by the IRS. You have to show a profit even if nominally. This would not help in your situation.

[SeattleCPA]

There are no tax "benefits", I have owned my business for many years and between Federal, State, Local, and especially self employment tax I usually end up paying 40+% on a majority of the income.

Yes you get a few more write offs but that is because you have costs associated with them that usually balance out.

Sounds like you should have used an S corporation...

The Million Dollar S Corporation Mistake

P.S. Sorry Joshua, I don't want to start an argument but I think if you're not saving taxes with your own business, you probably got bad tax advice.