Author Topic: Small Business and Miscellaneous Income Best Practices  (Read 13404 times)

tj

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #50 on: February 11, 2017, 02:20:16 PM »
For those of you who sold AU's last year, what type of business are you filing your schedule C as? IIRC there's a list of numeric code to choose from which you put on the schedule C near the top corner?

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #51 on: February 11, 2017, 05:12:50 PM »
SEP Plan Creation Deadline: You can set up a SEP and make the contribution right up until the tax return deadline. If you extend, you can use the extended return deadline. Note that other options, like a Simple-IRA, have earlier deadlines.
So for someone who has side hustle business income from the previous year and didn't think about sheltering the taxes earlier, it sounds like a SEP would be the only choice after the year ended, but before the tax filing deadline. With the caveat that you should consider the implications if you also performed a backdoor Roth:

Yes, I think that's right.

P.S. Sorry I didn't answer or address all comments in same message. The nested quotes made it hard for me to keep things straight on a small screen...

For someone who does has a backdoor Roth to worry about, would it be legitimate to open a SEP and fill with the maximum allowed for 2016, then immediately (or shortly there after) open a solo 401k based on current years income and do a roll over before the tax filing deadline, to be on the right side of the IRA pro rata rule?

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #52 on: February 11, 2017, 09:33:42 PM »
For those of you who sold AU's last year, what type of business are you filing your schedule C as? IIRC there's a list of numeric code to choose from which you put on the schedule C near the top corner?

In Taxact, there were two drop down selections.  I chose something like Professional Services - Other and then Consulting.

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #53 on: February 12, 2017, 01:36:34 AM »
I don't know if it's legal to file as misc income and not claim small bus and pay FICA. That being said it's going to be the cheapest for everyone who hasn't already hit or is close the SSA max. If you're close it becomes a sliding scale.  I only made 2500 in 2016 so I'm not filing as a bus

In 2017 I'll probably make 30k so I'm going to file as as business. Sole proprietor. Using a SEP IRA is the most efficient. But you need to make sure you open these in the tax year. You can still contribute up to tax day but there is a date in the previous tax year it must be established by.

I'd like to see info on using an scorp LLC. BC this is such a low time job I think it would come out way ahead.

Or any other ways to minimize taxes

I'm not sure how you guys want content collected here. But here are some comments to issues raised and answers to questions posed above...

Miscellaneous Income: If you're doing something business-y or that requires your effort for the income, you should report on Schedule C and if over $400 on Schedule SE. Yes, this means you pay SE tax. This also means you can use the earnings to fund a pension.

SEP Plan Creation Deadline: You can set up a SEP and make the contribution right up until the tax return deadline. If you extend, you can use the extended return deadline. Note that other options, like a Simple-IRA, have earlier deadlines.

S Corporation Breakeven Threshold: I love S corporations. I have an entire website that's about nothing but S corporations. And S corporations do provide a way to really save on self-employment taxes because you avoid FICA or SE tax on anything you can turn into a nontaxable fringe benefit or a shareholder distribution... but they are not economical, usually, for side hustles or part-time or sideline businesses. You'll pay between $1K and $2K annually in extra taxes and CPA fees to gain entrance to this "club" and given that you're saving a 15.3% tax, you need therefore more escape tax on about (say) $10,000 of earnings just to break even. (The math: $1500 in costs divided by 15.3% tax equals roughly $10,000.)

SeattleCPA,

Any ideas how to find a good CPA in Michigan other than just 'ask around'? Is there any way to know if they are really a good CPA for all our typical FIRE requirements (rentals, vanguard, small business hussles, roths and IRAs and rollovers etc)?

sw1tch

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #54 on: February 14, 2017, 11:29:57 AM »
posting to follow...

tj

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #55 on: February 15, 2017, 09:10:28 PM »
For those of you who sold AU's last year, what type of business are you filing your schedule C as? IIRC there's a list of numeric code to choose from which you put on the schedule C near the top corner?

In Taxact, there were two drop down selections.  I chose something like Professional Services - Other and then Consulting.

When you get a chance can you note the specific numeric code that was, so that everyone has that here for future reference?

Thanks!

katsiki

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #56 on: February 16, 2017, 05:07:13 PM »
For those of you who sold AU's last year, what type of business are you filing your schedule C as? IIRC there's a list of numeric code to choose from which you put on the schedule C near the top corner?

In Taxact, there were two drop down selections.  I chose something like Professional Services - Other and then Consulting.

When you get a chance can you note the specific numeric code that was, so that everyone has that here for future reference?

Thanks!

Business Activity Type=Professional, Scientific, & Tech-Other
Business Activity Code=541990 - All Other professional, scientific, and technical services


SeattleCPA

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #57 on: February 16, 2017, 05:35:34 PM »
I don't know if it's legal to file as misc income and not claim small bus and pay FICA. That being said it's going to be the cheapest for everyone who hasn't already hit or is close the SSA max. If you're close it becomes a sliding scale.  I only made 2500 in 2016 so I'm not filing as a bus

In 2017 I'll probably make 30k so I'm going to file as as business. Sole proprietor. Using a SEP IRA is the most efficient. But you need to make sure you open these in the tax year. You can still contribute up to tax day but there is a date in the previous tax year it must be established by.

I'd like to see info on using an scorp LLC. BC this is such a low time job I think it would come out way ahead.

Or any other ways to minimize taxes

I'm not sure how you guys want content collected here. But here are some comments to issues raised and answers to questions posed above...

Miscellaneous Income: If you're doing something business-y or that requires your effort for the income, you should report on Schedule C and if over $400 on Schedule SE. Yes, this means you pay SE tax. This also means you can use the earnings to fund a pension.

SEP Plan Creation Deadline: You can set up a SEP and make the contribution right up until the tax return deadline. If you extend, you can use the extended return deadline. Note that other options, like a Simple-IRA, have earlier deadlines.

S Corporation Breakeven Threshold: I love S corporations. I have an entire website that's about nothing but S corporations. And S corporations do provide a way to really save on self-employment taxes because you avoid FICA or SE tax on anything you can turn into a nontaxable fringe benefit or a shareholder distribution... but they are not economical, usually, for side hustles or part-time or sideline businesses. You'll pay between $1K and $2K annually in extra taxes and CPA fees to gain entrance to this "club" and given that you're saving a 15.3% tax, you need therefore more escape tax on about (say) $10,000 of earnings just to break even. (The math: $1500 in costs divided by 15.3% tax equals roughly $10,000.)

SeattleCPA,

Any ideas how to find a good CPA in Michigan other than just 'ask around'? Is there any way to know if they are really a good CPA for all our typical FIRE requirements (rentals, vanguard, small business hussles, roths and IRAs and rollovers etc)?

I don't. Sorry. My default idea, which I've shared a few places, is to keep your finances simple enough that you don't need a CPA. Or an EA.


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Re: Small Business and Miscellaneous Income Best Practices
« Reply #58 on: February 23, 2017, 09:04:58 AM »
Question for y'all who have a normal job and side income reported to the IRS. Obviously your tax withholding is through your employer and come April you'll pay taxes due on the side income. If those taxes are high enough, will you be subject to a penalty for not paying them throughout the year?

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #59 on: February 23, 2017, 09:19:58 AM »
Yes, the IRS does not care about the source of the income or tax payments. If you are over the threshold for the safe harbor payment, you will owe penalties. The safe harbor is either based on current year tax or PY tax, depending on which is most beneficial (please read the publication for the exact calculation).
I have it this year just with W-2 earnings. I managed to screw up my W-4 apparently, and too little tax was withheld, so now I have to pump money into my IRA to avoid the penalty.

cheapass

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #60 on: February 23, 2017, 09:22:13 AM »
Yes, the IRS does not care about the source of the income or tax payments. If you are over the threshold for the safe harbor payment, you will owe penalties. The safe harbor is either based on current year tax or PY tax, depending on which is most beneficial (please read the publication for the exact calculation).
I have it this year just with W-2 earnings. I managed to screw up my W-4 apparently, and too little tax was withheld, so now I have to pump money into my IRA to avoid the penalty.

That sucks, especially for an income source like the tradelines which is very unpredictable...

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #61 on: February 23, 2017, 09:28:03 AM »
Yes, the IRS does not care about the source of the income or tax payments. If you are over the threshold for the safe harbor payment, you will owe penalties. The safe harbor is either based on current year tax or PY tax, depending on which is most beneficial (please read the publication for the exact calculation).
I have it this year just with W-2 earnings. I managed to screw up my W-4 apparently, and too little tax was withheld, so now I have to pump money into my IRA to avoid the penalty.

That sucks, especially for an income source like the tradelines which is very unpredictable...

Make quarterly estimated tax payments.
« Last Edit: February 23, 2017, 01:12:23 PM by Joel »

CareCPA

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #62 on: February 23, 2017, 09:30:03 AM »
Yes, the IRS does not care about the source of the income or tax payments. If you are over the threshold for the safe harbor payment, you will owe penalties. The safe harbor is either based on current year tax or PY tax, depending on which is most beneficial (please read the publication for the exact calculation).
I have it this year just with W-2 earnings. I managed to screw up my W-4 apparently, and too little tax was withheld, so now I have to pump money into my IRA to avoid the penalty.

Make quarterly estimated tax payments.

That sucks, especially for an income source like the tradelines which is very unpredictable...
Yea, sorry, I thought estimates were implied.
The other option is to bump up your withholding a little. Then you don't have to worry about whether you made the estimates early enough in the year.

cheapass

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #63 on: February 23, 2017, 09:55:28 AM »
The other option is to bump up your withholding a little. Then you don't have to worry about whether you made the estimates early enough in the year.

Do we know approx. what the penalty % is? Because it may money out to not withhold additional, invest those dollars instead, and pay the penalty to the IRS for "borrowing" the money.

CareCPA

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #64 on: February 23, 2017, 10:05:01 AM »
https://www.irs.gov/pub/irs-pdf/f2210.pdf
https://www.irs.gov/pub/irs-pdf/i2210.pdf
Looks like it's ~2.6% of the difference between your safe harbor and actual payments, less a discount for paying before 4/15.
Safe harbor is 90% of current year, or 100% of PY tax due. For "high incomes," safe harbor amount for the prior year is 110% instead of 100%.

I would fill out a dummy 2210 to see what the effect really is.
« Last Edit: February 23, 2017, 10:06:37 AM by FrugalGrad »

cheapass

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #65 on: February 23, 2017, 10:08:03 AM »
https://www.irs.gov/pub/irs-pdf/f2210.pdf
https://www.irs.gov/pub/irs-pdf/i2210.pdf
Looks like it's ~2.6% of the difference between your safe harbor and actual payments, less a discount for paying before 4/15.
Safe harbor is 90% of current year, or 100% of PY tax due. For "high incomes," safe harbor amount for the prior year is 110% instead of 100%.

I would fill out a dummy 2210 to see what the effect really is.

Good idea. For 2.6% (or less if discounted) I'd just "borrow" that money and invest it instead.

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #66 on: March 04, 2017, 08:32:33 PM »
Hello all

If someone has a W2 income of 100K, and trading income of ~100K, can he file a sole prop (schedule C)?
In that case, does need to file schedule SE (self employment taxes). If yes, than can he contribute to a SEP IRA?

Someone told me that trading income is not earned income, so cannot contribute to SEP, even though self-employment taxes are paid.
If SE taxes are paid, doesnt that income become "earned income"

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #67 on: March 04, 2017, 09:06:05 PM »
Hello all

If someone has a W2 income of 100K, and trading income of ~100K, can he file a sole prop (schedule C)?
In that case, does need to file schedule SE (self employment taxes). If yes, than can he contribute to a SEP IRA?

Someone told me that trading income is not earned income, so cannot contribute to SEP, even though self-employment taxes are paid.
If SE taxes are paid, doesnt that income become "earned income"

What is trading income?  Trading stocks? That is not earned income and not subject to self employment.

I don't know of a way that you pay SE taxes on something that is not earned.

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #68 on: March 04, 2017, 10:37:29 PM »
What is trading income?  Trading stocks? That is not earned income and not subject to self employment.

Why can't (some little portion of) it be earned income?  Most asset managers will charge between 1 and 2% per year to manage your investments.   If you start your own business and then manage your own assets, why can't you pay yourself 1.5% per year as salary?

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #69 on: March 04, 2017, 10:39:27 PM »
What is trading income?  Trading stocks? That is not earned income and not subject to self employment.

Why can't (some little portion of) it be earned income?  Most asset managers will charge between 1 and 2% per year to manage your investments.   If you start your own business and then manage your own assets, why can't you pay yourself 1.5% per year as salary?


Because that's at best a hobby. Certainly not a business.

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #70 on: March 04, 2017, 11:55:23 PM »
What is trading income?  Trading stocks? That is not earned income and not subject to self employment.

Why can't (some little portion of) it be earned income?  Most asset managers will charge between 1 and 2% per year to manage your investments.   If you start your own business and then manage your own assets, why can't you pay yourself 1.5% per year as salary?


Because that's at best a hobby. Certainly not a business.

The IRS certainly don't count most things that make lots of money and you may spend significant time at as a hobby, instead of a business.
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tj

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #71 on: March 05, 2017, 07:42:08 AM »
What is trading income?  Trading stocks? That is not earned income and not subject to self employment.

Why can't (some little portion of) it be earned income?  Most asset managers will charge between 1 and 2% per year to manage your investments.   If you start your own business and then manage your own assets, why can't you pay yourself 1.5% per year as salary?


Because that's at best a hobby. Certainly not a business.

The IRS certainly don't count most things that make lots of money and you may spend significant time at as a hobby, instead of a business.

So you believe that you can just decide to pay yourself a 2% asset management fee and treat it a business because you want to ?


http://www.investopedia.com/articles/trading/09/incorporate-active-trading.asp
Quote
To be engaged in a business as a trader in securities, a person must trade on a full-time basis, and derive most of his or her income through day trading. According to the IRS, a trader is someone who trades significantly and continuously in order to profit from the short-term fluctuations in security prices.

Traders are individuals who make multiple trades daily to profit from intraday market swings and do so continuously throughout the year. They spend a considerable amount of time documenting and researching trades and strategies and incur a significant amount of expenses in order to conduct their business activities. Although not specifically required, most qualified traders will open and close multiple trades daily and hold their positions for less than 30 days.

For active traders, the benefits of qualifying are obvious, but these guidelines are open to interpretation by the IRS and the courts. Only a small percentage qualify, even some whose only income is derived through trading.


The only way to ensure that you are receiving the same tax treatment as a qualified trader is to create a separate corporate entity to trade through. By creating a limited liability company or a limited partnership, you can receive all the same tax treatment as a qualified trader without having to qualify. The legal entity usually receives less scrutiny by the IRS because the assumption is that no one would go through the trouble and expense of forming the entity, unless they were committed to trading as a business venture.
« Last Edit: March 05, 2017, 08:52:12 AM by tj »

arebelspy

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #72 on: March 05, 2017, 11:06:17 AM »


Because that's at best a hobby. Certainly not a business.

The IRS certainly don't count most things that make lots of money and you may spend significant time at as a hobby, instead of a business.

So you believe that you can just decide to pay yourself a 2% asset management fee and treat it a business because you want to ?

No, my point is hobby and business are specific terms to the IRS, and you can't merely tell by whether or not it makes money, or even how much time is spent. You need to go by their guidelines (as you quoted above).  :)

It seems like we're in agreement.

The IRS rules a lot of times are counterintuitive, even. Don't try to use logic or common sense. ;)
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Re: Small Business and Miscellaneous Income Best Practices
« Reply #73 on: March 05, 2017, 12:08:41 PM »
So you believe that you can just decide to pay yourself a 2% asset management fee and treat it a business because you want to ?

Yes, I do.  2% might be pushing it though.  We've had several different reports on this forum of people doing exactly this, legally.

And it doesn't make you a "trader" it makes you an "investment manager". 

Betterment (or any random local "financial guy") will charge you an annual fee to manage your money for you.  They will decide on your asset allocation, rebalance periodically, tax loss harvest at the end of the year, and if you pay them enough they'll even collect your tax forms and file your taxes for you.  These are all things you can learn to do yourself.

Basically, anything that you normally have to pay someone else to do, you should be able to pay yourself to do instead.  It's not usually a good idea, because you have to bear the cost of operating a business and then paying all of the various taxes involved, but it's not impossible.  In some rare cases, it makes sense to decrease your stash by paying extra taxes by operating as a business.  It can be and has been done legally.

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #74 on: March 05, 2017, 01:33:32 PM »
So you believe that you can just decide to pay yourself a 2% asset management fee and treat it a business because you want to ?

Yes, I do.  2% might be pushing it though.  We've had several different reports on this forum of people doing exactly this, legally.

And it doesn't make you a "trader" it makes you an "investment manager". 

Betterment (or any random local "financial guy") will charge you an annual fee to manage your money for you.  They will decide on your asset allocation, rebalance periodically, tax loss harvest at the end of the year, and if you pay them enough they'll even collect your tax forms and file your taxes for you.  These are all things you can learn to do yourself.

Basically, anything that you normally have to pay someone else to do, you should be able to pay yourself to do instead.  It's not usually a good idea, because you have to bear the cost of operating a business and then paying all of the various taxes involved, but it's not impossible.  In some rare cases, it makes sense to decrease your stash by paying extra taxes by operating as a business.  It can be and has been done legally.

The person I was initially responding to mentioned trading income specifically.  I didn't get the impression that this person has registered as an RIA to "professionally" manage their own investments.  A random local "financial guy" isn't something that exists in America. Financial management is a very  regulated profession. Either through the RIA  route or the commissioned broker route.

Is there a situation where it's worth pursing that? Maybe there is.

Certainly if you can rationally (in the eyes of the IRS) stretch an income producing hobby (especially one that has any major associated expenses) into a business structure, it would a good idea to do that.

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #75 on: March 05, 2017, 03:05:12 PM »
I have a couple of quick tax questions. Background information: a full time job and 2 side gigs, one of them selling tradelines.

-I made a few hundred dollars selling tradelines last year, but I also paid an annual fee for one of the cards I'm using. Can I deduct the annual fee as expenses?

-I have another side gig which lost money last year (around 2-3K loss). I didn't get 1099 form for that, but I can document my revenues and expenses. Can I subtract this loss from the tradelines business revenue and enter about $2000 business loss for 2016 in the tax form as a result? If I do that, will I get a tax deduction from this loss (from the taxes I pay for full time job income)?

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #76 on: March 14, 2017, 10:47:32 AM »
following

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #77 on: March 21, 2017, 12:28:16 PM »
Seems like most of you are concerned with reporting very large sums.  Anyone understand how smaller ones would be reported/taxed?  I'm thinking less than 2k given I'd be starting with only 1 card.  Seems like hobby income is questionable given that profit is intended... can we just claim as miscellaneous additional income? Or do we need to file as self-employment profit?  I realize it's not as much of an issue for small sums, but in case I decide to go all in I'd like to understand it better.

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #78 on: March 21, 2017, 01:46:50 PM »
Seems like most of you are concerned with reporting very large sums.  Anyone understand how smaller ones would be reported/taxed?  I'm thinking less than 2k given I'd be starting with only 1 card.  Seems like hobby income is questionable given that profit is intended... can we just claim as miscellaneous additional income? Or do we need to file as self-employment profit?  I realize it's not as much of an issue for small sums, but in case I decide to go all in I'd like to understand it better.

If you get a 1099-Misc with box 7 checked, it is self employment income.  You need to fill out Schedule C (or C-EZ) and Schedule SE.

If it's less than $600, maybe they just don't send you a 1099 at all.

https://www.irs.gov/help-resources/tools-faqs/faqs-for-individuals/frequently-asked-tax-questions-answers/interest-dividends-other-types-of-income/1099-misc-independent-contractors-and-self-employed/1099-misc-independent-contractors-and-self-employed-1

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #79 on: March 21, 2017, 02:06:12 PM »
Seems like most of you are concerned with reporting very large sums.  Anyone understand how smaller ones would be reported/taxed?  I'm thinking less than 2k given I'd be starting with only 1 card.  Seems like hobby income is questionable given that profit is intended... can we just claim as miscellaneous additional income? Or do we need to file as self-employment profit?  I realize it's not as much of an issue for small sums, but in case I decide to go all in I'd like to understand it better.

If you get a 1099-Misc with box 7 checked, it is self employment income.  You need to fill out Schedule C (or C-EZ) and Schedule SE.

[snip]

Unless it isn't self employment income.  Per the 1099-MISC, Instructions for Recipient, Box 7, last sentence:  "If you are not an employee but the amount in this box is not SE income (for example, it is income from a sporadic activity or a hobby), report it on Form 1040, line 21 (or Form 1040NR, line 21)."

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #80 on: March 21, 2017, 05:56:24 PM »
Seems like most of you are concerned with reporting very large sums.  Anyone understand how smaller ones would be reported/taxed?  I'm thinking less than 2k given I'd be starting with only 1 card.  Seems like hobby income is questionable given that profit is intended... can we just claim as miscellaneous additional income? Or do we need to file as self-employment profit?  I realize it's not as much of an issue for small sums, but in case I decide to go all in I'd like to understand it better.

If you get a 1099-Misc with box 7 checked, it is self employment income.  You need to fill out Schedule C (or C-EZ) and Schedule SE.

[snip]

Unless it isn't self employment income.  Per the 1099-MISC, Instructions for Recipient, Box 7, last sentence:  "If you are not an employee but the amount in this box is not SE income (for example, it is income from a sporadic activity or a hobby), report it on Form 1040, line 21 (or Form 1040NR, line 21)."


If you weren't an employee of the payer, where you report the income depends on whether your activity is a trade or business. You're in a self-employed trade or business if your primary purpose is to make a profit and your activity is regular and continuous.

oneday

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #81 on: March 26, 2017, 07:28:23 PM »
PTF

ZsMom

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #82 on: April 10, 2017, 12:12:59 AM »
Same question and confused about what to do.

I have ~$1000 in income from selling tradelines. I can't think of any reasonable expenses to offset this on a schedule C, unless I did the card fee (yes...old card with a fee...benefits us enough currently to be worth it).

Do I put this as 1099 box 7 as it is reported, and do a Sched C and pay the extra taxes or do I just call it "misc" income and go the "hobby" route? What do others in a similar situation do?

Thank you.

ZsMom

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #83 on: April 10, 2017, 06:55:45 PM »
Arebelspy - could you clarify what you mean? Report as nonemployee compensation with a Schedule C as if you're running a "business", or go the "hobby" route and report under misc income? I'm talking a small amount, ~1000





Because that's at best a hobby. Certainly not a business.

The IRS certainly don't count most things that make lots of money and you may spend significant time at as a hobby, instead of a business.

So you believe that you can just decide to pay yourself a 2% asset management fee and treat it a business because you want to ?

No, my point is hobby and business are specific terms to the IRS, and you can't merely tell by whether or not it makes money, or even how much time is spent. You need to go by their guidelines (as you quoted above).  :)

It seems like we're in agreement.

The IRS rules a lot of times are counterintuitive, even. Don't try to use logic or common sense. ;)

secondcor521

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #84 on: April 10, 2017, 11:08:44 PM »
Arebelspy - could you clarify what you mean? Report as nonemployee compensation with a Schedule C as if you're running a "business", or go the "hobby" route and report under misc income? I'm talking a small amount, ~1000

<<snip>>

Not ARS, but I would refer you to the resources referenced upthread by brooklynguy here:

https://forum.mrmoneymustache.com/taxes/small-business-and-miscellaneous-income-best-practices/msg1413103/#msg1413103

I'd recommend following the rules straight from the horse's mouth rather than what some other random (no offense, ARS :-) ) person on the Internet does.
« Last Edit: April 10, 2017, 11:23:28 PM by secondcor521 »

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #85 on: December 24, 2017, 10:34:40 AM »
I'm trying to decide if doing a SEP would be worth it, if I have regular IRA space available. Do you pay less in FICA if the "employer" deposits the 20% as the employer contribution?

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #86 on: December 24, 2017, 10:38:16 AM »
I'm trying to decide if doing a SEP would be worth it, if I have regular IRA space available. Do you pay less in FICA if the "employer" deposits the 20% as the employer contribution?

SEP contributions definitely don't escape FICA if you're a sole proprietor, I'm not sure about S-Corp.

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #87 on: December 24, 2017, 12:04:16 PM »
I'm trying to decide if doing a SEP would be worth it, if I have regular IRA space available. Do you pay less in FICA if the "employer" deposits the 20% as the employer contribution?

SEP contributions definitely don't escape FICA if you're a sole proprietor, I'm not sure about S-Corp.

Does this change if you already hit the limit on FICA under W2 wages?

terran

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #88 on: December 24, 2017, 02:03:50 PM »
I'm trying to decide if doing a SEP would be worth it, if I have regular IRA space available. Do you pay less in FICA if the "employer" deposits the 20% as the employer contribution?

SEP contributions definitely don't escape FICA if you're a sole proprietor, I'm not sure about S-Corp.

Does this change if you already hit the limit on FICA under W2 wages?

If you've already hit the social security income limit you'll pay the employer portion of FICA and the Employee portion of medicare tax, but not the employee portion of social security tax. A SEP contribution won't matter either way.

Gin1984

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #89 on: December 24, 2017, 02:10:15 PM »
I'm trying to decide if doing a SEP would be worth it, if I have regular IRA space available. Do you pay less in FICA if the "employer" deposits the 20% as the employer contribution?

SEP contributions definitely don't escape FICA if you're a sole proprietor, I'm not sure about S-Corp.
So far I'm not seeing the benefit to a SEP then, given that I have IRA space.  Am I missing something?

terran

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #90 on: December 24, 2017, 02:19:55 PM »
I'm trying to decide if doing a SEP would be worth it, if I have regular IRA space available. Do you pay less in FICA if the "employer" deposits the 20% as the employer contribution?

SEP contributions definitely don't escape FICA if you're a sole proprietor, I'm not sure about S-Corp.
So far I'm not seeing the benefit to a SEP then, given that I have IRA space.  Am I missing something?

If you're over the income limit for deducting a traditional IRA you could still deduct a SEP which would probably be better than a Roth, since it means you're in a pretty high bracket compared to a mustachian retirement budget. The SEP would cause issues with a backdoor roth though, so in that case you might be better off with a solo 401k even though you've already maxed the employee portion elsewhere. If you're under the traditional IRA deduction limit, have a good workplace retirement plan, and have not already maxed all other tax advantaged space, then no, I wouldn't bother with a SEP.

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #91 on: February 27, 2018, 12:50:13 AM »
Following.

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #92 on: March 02, 2018, 06:31:22 PM »
I was trying to figure out what my taxes will be for this year, and wanted to see if I understood the new 20% pass-through deduction correctly. 

I will probably make around $5,000 in self-employment income this year (tradelines and a few other things).

Would my available deductions looks like this:

$5,000 total income
20% pass through deduction = $1,000 deducted
20% contributed to SEP IRA = $1,000 deducted
Half of self-employment tax = $382.50 deducted

So I only have to pay tax on 52.35% of the income.  Does this look right?

secondcor521

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #93 on: March 02, 2018, 09:02:29 PM »
I was trying to figure out what my taxes will be for this year, and wanted to see if I understood the new 20% pass-through deduction correctly. 

I will probably make around $5,000 in self-employment income this year (tradelines and a few other things).

Would my available deductions looks like this:

$5,000 total income
20% pass through deduction = $1,000 deducted
20% contributed to SEP IRA = $1,000 deducted
Half of self-employment tax = $382.50 deducted

So I only have to pay tax on 52.35% of the income.  Does this look right?

Others who are more qualified will comment, I am sure.

But three things:

1.  The 20% pass through is only for qualifying pass through entities.  In looking at it I think tradeline sales qualifies, but doublecheck that you do in fact qualify.

2.  The 20% pass through might be after the SEP deduction, so it might only be 20% of $4,000, so $800.

3.  You may only be paying income tax on the remainder, but you're still also paying the 15.3% SE tax on the $5K, so $765.  This offset by the SE tax deduction by about half, of course.

kpd905

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #94 on: March 03, 2018, 06:12:24 AM »
I see, I guess I'll have to wait for some data points to see if it ends up qualifying.

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #95 on: November 27, 2018, 09:30:41 AM »
I don't know if it's legal to file as misc income and not claim small bus and pay FICA.

According to my research, you have the option of reporting side gig income as "hobby" income, which means it is just misc income and not subject to SE.  You would not be able to write off related expenses, though, and my tax guy says that if you make money at your "hobby" for 3 out of the last 5 years, the IRS is likely to consider this a business, so you'd need to start filing as a pass-through at that point, with all the fixins (expense write-offs, SE tax, etc.)

As always, YMMV.

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #96 on: December 17, 2018, 05:01:19 PM »
Long time lurker here.
I'm late to the party. I only started doing tradelines a few months ago.
I see several references above to the small amount of time being put into this and I just want to point out that I think the amount of time actually spent on tradelines is probably quite a bit more than you think. No, it's not 40 hours a week, but just look at this thread and the 'main' 2 threads dealing with this topic that total 65 pages.
How much time have you spent in reading those threads to understandtradelines? How many other articles have you read about tradelines? How much time did you spend researching the new and old companies and figuring out what credit cards would work? How about this thread and others looking at tax strategies? How much time have you spent telling a friend or coworker that they should do this (and you would get 'referral' pay)? How much time have you spent researching what credit cards to apply for so they can be used for this in the future? How many times have you called credit card companies asking for a CL increase (or did it online)? Or called reconsideration lines but first spent the time to look at your credit report and educated yourself with the exact reasons that you need this new, specific card?
I point this out not to minimize the hourly wage or rip on tradelines but to simply state that there is more time involved in this than the 20 minutes a month in adding AU's - and that it might change your taxes. Additionally, people like Boarder42 obviously have even more time invested than others who are doing this from a more passive angle. There also is a lot more time put in for the 'start up' than 'down the road'.
I should also say that I'm not an accountant or lawyer.

secondcor521

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #97 on: December 17, 2018, 05:20:30 PM »
Long time lurker here.
I'm late to the party. I only started doing tradelines a few months ago.
I see several references above to the small amount of time being put into this and I just want to point out that I think the amount of time actually spent on tradelines is probably quite a bit more than you think. No, it's not 40 hours a week, but just look at this thread and the 'main' 2 threads dealing with this topic that total 65 pages.
How much time have you spent in reading those threads to understand tradelines? How many other articles have you read about tradelines? How much time did you spend researching the new and old companies and figuring out what credit cards would work? How about this thread and others looking at tax strategies? How much time have you spent telling a friend or coworker that they should do this (and you would get 'referral' pay)? How much time have you spent researching what credit cards to apply for so they can be used for this in the future? How many times have you called credit card companies asking for a CL increase (or did it online)? Or called reconsideration lines but first spent the time to look at your credit report and educated yourself with the exact reasons that you need this new, specific card?
I point this out not to minimize the hourly wage or rip on tradelines but to simply state that there is more time involved in this than the 20 minutes a month in adding AU's - and that it might change your taxes. Additionally, people like Boarder42 obviously have even more time invested than others who are doing this from a more passive angle. There also is a lot more time put in for the 'start up' than 'down the road'.
I should also say that I'm not an accountant or lawyer.

I agree with your central thesis, but in my case the time allocated to much of what you've described is minimal, and time spent on one other thing related to tradelines is something I think you didn't mention.

Probably several hours reading the two main threads and this one, including the time to respond to others who have questions that I could answer.

Zero other articles read about tradelines.

Zero time spent researching the companies.  About 15 minutes spent figuring out which cards would work.

Zero time telling friends.

Zero time researching cards for future use.  I just apply for cards with good bonuses and if they can be used for this also, then great; otherwise I cancel them.

Zero time asking for CL increases or calling recon lines.

Stuff you didn't list:

Time spent getting set up with the companies.  Submitting canceled checks, submitting W-4's, reading their FAQ's, getting a login, etc.  Easily several hours with both companies.

Ongoing maintenance.  Noting when cards pass a milestone and submitting requests for adjusted commissions.

Strategy.  Figuring out in the beginning how this activity would interrelate with my other credit card activities.  Figuring out which cards should go with which companies.  Deciding if and how to do private sales.

Taxes.  Understanding the relevant tax laws and dealing with the 1099s every year.

A lot of the time sink is in the beginning as I went through a learning curve.  Now that I've been doing this for a while, I am really in maintenance mode and it does just take 30 minutes or so per AU to do the add, make a charge, wait, remove the AU, and shred the card.

Padonak

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Re: Small Business and Miscellaneous Income Best Practices
« Reply #98 on: January 08, 2019, 09:40:41 PM »
I was trying to figure out what my taxes will be for this year, and wanted to see if I understood the new 20% pass-through deduction correctly. 

I will probably make around $5,000 in self-employment income this year (tradelines and a few other things).

Would my available deductions looks like this:

$5,000 total income
20% pass through deduction = $1,000 deducted
20% contributed to SEP IRA = $1,000 deducted
Half of self-employment tax = $382.50 deducted

So I only have to pay tax on 52.35% of the income.  Does this look right?

Others who are more qualified will comment, I am sure.

But three things:

1.  The 20% pass through is only for qualifying pass through entities.  In looking at it I think tradeline sales qualifies, but doublecheck that you do in fact qualify.

2.  The 20% pass through might be after the SEP deduction, so it might only be 20% of $4,000, so $800.

3.  You may only be paying income tax on the remainder, but you're still also paying the 15.3% SE tax on the $5K, so $765.  This offset by the SE tax deduction by about half, of course.

Newbie question: what are some examples of qualifying pass through entities for selling tradelines?