- quote -

The OP might also note that he/she can very possibly set up
a Keogh and put away up to 20% of their consulting/
self-employment earnings pre-tax -- which can be a very
useful benefit.

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"Stuart O. Bronstein" <spamtrap[at]lexregia.com> wrote:
- quote -

Sole proprietors can deduct EMPLOYEE health cost premiums on
their Schedule C. The proprietor's premiums are deducted
above-the-line on the 1040 form. Charitable deductions are
taken on your Schedule A. They are not a business expense,
unless somehow related to "advertising".

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"Ed Zollars, CPA" <ezollar[at]mindspring.com> wrote:
- quote -

But there are deductions that corporations are allowed that
are not allowed on a schedule C. For example employee
health insurance premiums and charitable contributions.

In the old days pensions were able to be funded to a higher
degree than for proprietors as well. Are there others?

Stu

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jwv wrote:

- quote -

No, no incorporation is required to claim business expenses.
=A7162 provides for a deduction for "ordinary and necessary"
business expenses and applies to everyone from a kid mowing
lawns to Microsoft. It even applies to an employee who pays
expenses related to work, though there a special provision
in =A762 kicks the deduction onto Schedule A and, via the
consequences that come from other sections, imposes a 2% of
AGI limit and denies the deduction for purposes of the
alternative minimum tax. Note that there may be a question
of whether you are truly an independent consultant rather
than really an employee, especially if all of your work is
for one organization and they have significant control over
what you do, with consequences both for you and the entity
that hired you.

If you incorporate, you would owe FICA on the wages the
corporation would pay you--and, even if you elect S, it
still would need to pay you a "reasonable" salary (you can't
dodge FICA that easily). However, if you don't incorporate
then you end up paying the very similar self-employment tax
that covers social security and Medicare taxes.

Due to the issue on employee vs. independent contractor that
I noted above, some entities that want to hire you as a
consultant "off the payroll" may strongly suggest you
incorporate. That doesn't really change the issue (taxpayer
imposed form doesn't necessarily override the substance of a
transaction), but it is perceived by many (including many
corporate payroll departments) as being less likely to be
noticed by the IRS due to quirks in the law on 1099 reporting.

Because you indicate you are so new in this area and are
confused, I would strongly suggest you book some time for an
hour or two of consulting with a local tax professional that
works with small businesses. Yes, you'll incur a fee for
this service, but it could save you a lot of trouble in the
future. And, more importantly, the professional will be
able to do a lot more for you *before* you start down this
path than after the end of a year when everything has
already taken place, and the earlier the professional is
involved the more likely he/she will be able to positively
influence your tax and financial outcome.

--
Ed Zollars, CPA
Phoenix, Arizona

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Ok, I'm really green on this stuff, so although these are
real basic questions please don't beat me up to bad.

I have always had a full-time employment job with benefits,
however I might be taking on a contracting position with a
company. My question is what do I need to do to be able to
write-off things like mileage, parking, lunch, medical, etc.
I assume I need to incorporate to some degree. If I do so
will I then have to pay FICA, unemployment etc. Is that
worth doing. What are the pro's & con's for this.

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