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June 26, 2024
Question

LLC vs. Sole propertier

  • June 26, 2024
  • 3 replies
  • 0 views

I am thinking about starting a llc just or be a sole proprietor to help with taxes. Is it worth writing off taxes just to have a side hustle? Is it possible to still write off taxes if all my tax deductions are greater than the income I generate?

3 replies

Employee
June 26, 2024

What, exactly, are you trying to determine?

 

A single-member LLC (without an election to be treated as a corporation) is essentially treated the same as a sole proprietorship for federal income tax purposes.

Employee
June 26, 2024

You seem to be asking about having self-employment income.  If you are a sole proprietor or single person LLC, you will be paying self-employment tax for Social Security and Medicare, as well as ordinary income tax, and you will need to prepare a Schedule C for business expenses---which is different from the Schedule A you might complete when you enter mortgage interest, property tax, charity donations etc.

 

 

 

If you have self-employment income  you will pay self-employment tax for Social Security and Medicare.   You will need to use online Premium software or any version of the CD/download so that you can prepare a Schedule C for your business expenses.

 

 

 

https://ttlc.intuit.com/questions/2926899-how-does-my-side-job-affect-my-taxes

 

 

https://ttlc.intuit.com/turbotax-support/en-us/help-article/form-1099-nec/1099-nec/L5qTsBiSe_US_en_US

 

https://ttlc.intuit.com/community/self-employed/help/how-do-i-report-income-from-self-employment/00/26653

 

https://ttlc.intuit.com/community/self-employed/help/what-is-the-self-employment-tax/00/25922

 

https://ttlc.intuit.com/questions/2902389-why-am-i-paying-self-employment-tax

https://ttlc.intuit.com/questions/1901340-where-do-i-enter-schedule-c

 

 

https://ttlc.intuit.com/questions/3398950-what-self-employed-expenses-can-i-deduct

 

 

https://blog.turbotax.intuit.com/self-employed/self-employed-tax-deductions-

calculator-2021-2022-50907/

 

https://ttlc.intuit.com/questions/1901110-do-i-need-to-make-estimated-tax-payments-to-the-irs

 

 

https://turbotax.intuit.com/tax-tools/calculators/self-employed/

 

 

**Disclaimer: Every effort has been made to offer the most correct information possible. The poster disclaims any legal responsibility for the accuracy of the information that is contained in this post.**
jad56061Author
June 26, 2024

Seems like a lot of work haha. I was just wondering if people start businesses just to write their taxes off?

June 26, 2024

There can be benefits to starting an LLC or remaining a sole proprietor for both legal and tax purposes.  For the legal benefits, you will want to consult with a business attorney.  For tax purposes it breaks down as follows:

 

1. A Single Member LLC is considered a disregarded entity meaning that all income and expenses are reported on a Schedule C on the individual's personal Form 1040.  The resulting net income would be subject to self-employment tax as well as income tax.

 

2. A Multi Member LLC is considered a partnership entity meaning that all income and expenses are reported on a Form 1065..  All partners will receive a K-1 from the partnership and then report the resulting income or loss on a Schedule E on the individual partner's Form 1040.

 

3. If the LLC files Form 2553, it can elect to be taxed as an S-corporation.  If the IRS approves, the LLC will report all income and expenses on Form 1120S.  All shareholders will receive a K-1 from the s-corp and then report the resulting income or loss on a Schedule E on the individual shareholder's Form 1040.

 

In neither case can you deduct federal income taxes.  However, state taxes can be deducted on the federal tax return but not the state tax return.  In all cases, the resulting income is subject to income tax.  In all cases, the resulting loss may reduce other taxable income depending on the nature of the activity, if the owner materially participates, and if the owner has basis in the entity.