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'[OT] Tax Tips?'
2005\08\10@143522 by dave

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I have just started doing consulting (or
contracting at widlar would have it) on the side,
and I was wondering if anyone had any tips for
dealing with taxes.  Right now I am living in
Oregon.  I am keeping all my receipts for
everything and I am planning to jsut set aside a
third of my consulting income in a seperate bank
account for taxes (I already have a seperate set
of bank acounts for all the consulting $).
Should I set aside more/less?  Should I wait til
christmas time to get a new O-Scope?  Do I get to
write off my apartment as a place of business?
Do I need to get a small business liscence or
something?  I just graduated college and I don't
know anything about this consulting stuff outside
of the people giing me money to make stuff for
them part...


               
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2005\08\10@150258 by John J. McDonough

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Dave

Run, do not walk, to your friendly favorite CPA.  Yeah, sometimes these guys
can be expensive, but they are worth their weight in gold.

You probably want to formally set up a business.  This will involve a lawyer
(even more expensive than the CPA).  Depending on your goals and tax
situation, there may be value in setting up the business as a separate tax
entity (i.e. C Corp).  You need to understand your goals, which your CPA can
help you with.  Once you have that in hand, and an understanding of your tax
situation, then you can figure out what sort of entity to form.  There are
several choices, and each has plusses and minuses.

Without a business you might not be able to consider all the possible tax
benefits, and many of those you might take are more likely to draw an audit
if you are operating as yourself.  You need to consider not only federal
taxes but state taxes.  I'm not sure, but I think Oregon is nasty.

Before I formed my corp I had to turn down a $100K gig because after
expenses and taxes I couldn't break even.  As a corp, my taxes are a lot
less and I can deduct all the expenses, instead of some.  That was in MI and
I was in a nasty tax bracket. YMMV.  See your accountant.

Oh yeah.  Get yourself an accountant, too.  Oh, I said that.  Well, do it
anyway.

--McD

{Original Message removed}

2005\08\10@162045 by Harold Hallikainen

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I agree about visiting the CPA! Here are a few quick comments, though.

1. One way or another, I think you need a local business license.

2. If the business operates under a name other than its legal name (your
name if sole proprietorship, corporation name if corporation), you need to
file a fictitious business name statement (at least in California) with
the county.

3. If a sole proprietorship, business income and expenses are reported on
IRS 1040 schedule C. California has a similar schedule.

4. Profit out of the sole proprietorship, whether taken out or not, is
taxable income to the proprietor.

5. Since employers make contributions to social security on your behalf,
you, as a sole proprietor, also need to make this payment. This is, I
believe, the "self employment tax."

6. Corporations pay taxes on their profits, whether distributed to their
shareholders or not. When corporate profits ARE distributed to
shareholders, they also pay income tax on the money they got. Some say,
therefore, that corporate profits are "double taxed," once at the
corporate level, again at the personal level.

7. Small corporations can be "subchapter S" corporations as far as the IRS
is concerned. As I recall, California does not have a similar provision.
For the IRS, a subchapter S corporation pays no taxes. Instead, the
shareholders pay personal income tax on their share of the profits,
whether distributed to them or whether they stay in the corporation. If a
subchapter S corporation has losses, the individual shareholder can take
that loss. If the subchapter S corporation has income, the shareholder
pays taxes on that income. In this way, a subchapter S corporation is
treated like a partnership.

So, there are a few comments. The IRS has LOTS of publications on small
businesses. You might want to read those, then see that CPA!

Harold

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2005\08\10@163852 by alan smith

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Some states you can setup as a DBA or doing business as....  so register your consulting company name with the state and get er done.

Can you write off the apt? be very carefull.  Even tho I have a home office, my wife and kids use it and the computer in it....so it can NOT be written off.  It can only be if its soley used for the business use.  I figured it wasn't worth the hassle of an audit for a few dollar write off.

Anything you buy and use FOR the business can be written off.  Materials, travel miles, etc

The one thing I am trying to decide....how much of my cell phone bill can I write off, and how much of my DSL since the rest of the family uses it as well  BUT it is imparative to my work to have it.



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2005\08\10@204653 by Kenneth Lumia

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Dave,

I suggest that you go to your local bookstore and look
at some "starting a business" books, especially if they
are targeted to your state.  You can incorporate (S-corp),
perhaps a LLC, or maybe a sole proprietor.  Each form
of business has its advantages and disadvantages - the
books should help you sort it out.  After reading up and
then setting up the business with the help of an attorney,
find yourself a CPA to setup the accounting. Some CPAs
want to handle everything, others will let you fill out the
monthly and quarterly tax stuff. You will need to decide between
paying him to do it all or just some of it.  You will be totally
amazed at the taxes you will be paying.  You will be filing
quarterly Federal and probably State taxes, as well as
monthly sales taxes (if applicable).  You will also need to
remit the employers social security taxes, your personal
federal and social security taxes, unemployment insurance
for yourself (no kidding) and workers compensation tax.
Probably a few others I'm not thinking about.  The CPA will
guide you in this and how to minimize the bite.  For example,
he will probably tell you to take "draws" from the business,
then later in the year he will figure out what should be salary
and what should be dividends (capital gains are taxed at a
lower rate and are not subject to social security and all the
other little obnoxious taxes).  The above is based on my
experience with an S-Corp, the other forms maybe slightly
different.  Capital equipment can be purchased at any time
during the year - don't wait until December if you really need
it.  The general idea for tax purposes is to make the company
barely break even so it doesn't pay taxes.  Buying equipment
helps - you can either write your scope off this year or
depreciate it over 5 years as I recall (there are $ limits to the
immediate write-off).  Forget writing off the apartment, it will be too
much hassle as  well as the room must not be dual use space.
Other issues - you will most likely need a business license for
your county or city.  You need to setup state and federal taxes
for your business, including an EIN number.  You need to setup
sales tax as well, and educate yourself if it will need to be collected
and at what percentage (depending on where the product is sold).  
As far as setting aside 1/3, it may or may not be enough,
depending on the total amount collected. Ask the CPA.

The list just goes on and on and on!!!  

Disclaimer: Don't trust anything I've said as I may not be
remembering everything correctly. Get an attorney and a
CPA to advise you.

Good luck.

Ken
spam_OUTklumiaTakeThisOuTspamadelphia.net

{Original Message removed}

2005\08\10@210220 by John J. McDonough

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----- Original Message -----
From: "Kenneth Lumia" <.....klumiaKILLspamspam@spam@adelphia.net>
Subject: Re: [OT] Tax Tips?


> are targeted to your state.  You can incorporate (S-corp), perhaps a LLC,
> or maybe a sole proprietor.  Each form

For most small outfits the knee-jerk is the S corp or LLC, but don't
overlook the C corp.  Depending on your goals and your tax situation, it can
be a real winner, in spite of the "double taxation", which really isn't.
But you need to do some real soul searching over your objectives, and share
them with your CPA.  Then you can figure out the real differences to you.
After all, what works for the next guy might not be best for you.

--McD

2005\08\10@211137 by Spehro Pefhany

picon face
I advise reading up on things, maybe taking a free or cheap course or two on
starting a business, then getting the most you can out of free, then paid
consultations with taxation, accounting, legal, insurance and bookkeeping
professionals. Get references for the professionals from other people,
preferably others in similar businesses. Find lean young pros you get along
with, and don't waste their time getting them to explain the differences
between basic business structures to you.

One specific suggestion- make sure you understand the difference between
working as a contract employee and working as an independent consultant.
You can search on "IRS 20 questions" to get some ideas. It's not what you
call yourself, but the factual basis of the relationship.

Best regards,

Spehro Pefhany --"it's the network..."            "The Journey is the reward"
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2005\08\11@014142 by Vitaliy

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>I have just started doing consulting (or
> contracting at widlar would have it) on the side,
> and I was wondering if anyone had any tips for
> dealing with taxes.  Right now I am living in
> Oregon.  I am keeping all my receipts for
> everything and I am planning to jsut set aside a
> third of my consulting income in a seperate bank
> account for taxes (I already have a seperate set
> of bank acounts for all the consulting $).
> Should I set aside more/less?

Depends on how much money you're planning to make.

> Should I wait til
> christmas time to get a new O-Scope?

As long as you buy it this year, it doesn't really matter.

> Do I get to
> write off my apartment as a place of business?

You can definitely write off one room in your apartment if you can prove
that it is used exclusively for business.

> Do I need to get a small business liscence or
> something?

If you're operating as a sole proprietor, no license is required. However,
if you incorporate, you may be able to save a bunch of money on taxes and
protect your personal assets.

>  I just graduated college and I don't
> know anything about this consulting stuff outside
> of the people giing me money to make stuff for
> them part...

The best piece of advice I can give you is to talk to a good accountant.
Initial consultation is usually free, and you're going to need an accountant
to help you do your taxes later, anyway.

Best regards,

Vitaliy

2005\08\11@015335 by PicDude

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On Thursday 11 August 2005 12:41 am, Vitaliy scribbled:
> > Do I get to
> > write off my apartment as a place of business?
>
> You can definitely write off one room in your apartment if you can prove
> that it is used exclusively for business.

IIRC, in the U.S., you have to pay use tax (sales tax) on your rent if you
plan to write off part of it.  Not sure how it works if you own it.


> > Do I need to get a small business liscence or
> > something?
>
> If you're operating as a sole proprietor, no license is required. However,
> if you incorporate, you may be able to save a bunch of money on taxes and
> protect your personal assets.

Depending on which state you are in, you may be required to register with a
simple DBA.  In Texas, that cost me $9.  In Florida, you don't need one.  But
it's a good idea anyway.  And you'll probably be required to get a Sales tax
#.

> >  I just graduated college and I don't
> > know anything about this consulting stuff outside
> > of the people giing me money to make stuff for
> > them part...
>
> The best piece of advice I can give you is to talk to a good accountant.
> Initial consultation is usually free, and you're going to need an
> accountant to help you do your taxes later, anyway.

Absolutely agreed -- speaking with an accountant is well worth the money when
you're new at this and much more accurate than the general info in books.  I
use an accountant for my taxes only, but he'll give me free bits of advise on
various things such as business/corporation setup, purchases, taxes, etc.

Cheers,
-Neil.



2005\08\11@072553 by Gerhard Fiedler

picon face
Vitaliy wrote:

> If you're operating as a sole proprietor, no license is required.

That depends on your city/county. Many places require a business license
from sole proprietors.

Gerhard

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