Ignoramus17245 wrote:
On 2008-08-27, Jon Anderson wrote:

Ignoramus17245 wrote:


But Grant would get rental income, which he would need to report, it
is a wash.

Yes, I noted that, though to be precise, there is a difference
between renting and leasing. I also noted it is considered unearned
income and is taxed differently than earned income. I believe one of
the benefits is that SSI is not applied to unearned income. I've not
done it myself and so don't really know all the details, but know
several people that have. A good tax person can tell him if it's
worth doing in his case, but it is an option.

The IRS has NEVER hasseled me about no profit for several years
on end. If you are making duck decoys or fishing flys, they can
say it is just a hobby. If you are cutting metal for people,
advertising or running a web site, it makes it pretty clear you
are TRYING to make income. The business in home deduction is an
unbelievable bonus, I can't BELIEVE how much that cuts my taxes!
Totally beyond belief. Many years I consider that I have made
a significant profit, somewhere in the general neighborhood of
my "day job" salary, but when you run the numbers through the
tax forms, all the home costs (taxes, utilities, insurance) adds
up to make the business look like a big LOSS, and so I often
don't pay ANY TAXES on ALL my income - day job + investment +
home business! I can't BELIEVE they let you get away with this,
but they DO! I've been doing this for about 22 years, now, and
have gone through several different product genres, but all
small electronic manufacturing.

What I do know is that the IRS is looking for businesses to produce
cash, either as salary or dividends. They also want the owners to pay
themselves a reasonable salary (what is reasonable to them, may be a
pittance compared to market, but it should be something).

A sole proprietor can't really pay himself "salary". He can
"draw" from the till, but his money and the businesses money are
all considered the same. This is GOOD, as you have to pay
income taxes on "salary". With a sole proprietor, you only pay
once, at the end of the year, as income taxes. You don't have
to pay double the payroll tax to the IRS like when you deduct
taxes from a payroll. And be thankful, if you thing the income
tax is complicated, try out setting up a payroll tax system! it
is a TOTAL nightmare, let me tell you. I was so frustrated when
I had a part-time helper, it took me almost as long to deal with
the IRS and state paperwork as the hours he worked! ARRGHHH!
They may frown upon shenanigans such as paying oneself rent etc, and
having no income or SS paying salary. I am all for saving on taxes,
etc, but not at the cost of being flagged for an audit, or worse. A
good accountant would tell Grant what ratios to follow, etc.

There are additional taxes for the "self employed", where 50% or
more of your net income comes from the home shop. But, these
are a VERY simple flat rate, just one line on your 1040 (or one
of the attached schedules) and my tax program does it automatically.

Anyone in Grant's shoes really should cough up the money for
an enrolled agent. If they feel the money didn't save them
enough to justify, they can always go elsewhere the next
year or DIY.

I will say a good CPA is VERY helpful to set up your business
accounting system properly, show you all the forms that need to
be submitted and how to account for different classes of
expenses and income.

Jon