A little bit about braden:
Undergrad - Indiana University
Russian, Poly Sci, German, Business
Law School - Cal Western
Tax LLM - San Diego
MEET THE BDL TEAM
WHAT I DO
Business entities and tax returns
Question & upcoming events
How do income taxes work
When must you file
Hobby or business
Small business deductions
HOW DO INCOME TAXES WORK?
biz income - biz expenses = net biz income
biz income + all other income = total income
total income - “adjustments” = Adjusted gross income
AGI - standard or itemized deduction = taxable income
CALCULATE INCOME TAX
ADD SELF-EMPLOYMENT TAX
15.3% ON NET BUSINESS INCOME
BARB MAKES $20,000 IN HER PART-TIME JOB.
SHE EARNS $62,000 IN HER BUSINESS.
& HAD $10,000 IN EXPENSES.
$62,000 - $10,000 = $52,000
$52,000 + $20,000 = $72,000
$72,000 - $12,000 = $60,000
INCOME TAX = $9,139 (EFFECTIVE RATE - 11%)
SE RATE = $7,956
TOTAL TAX = $17,095 (EFFECTIVE RATE - 21%)
ALSO, DON’T FORGET STATE TAX
WHEN MUST YOU FILE?
GENERALLY, WHEN INCOME > THAN STANDARD DEDUCTION
OR net Self-employment income > $400
HOBBY OR BUSINESS?
Here’s the actual rule. If you have made a profit in three of the last five year, the IRS will consider you to have a business. Stated in the reverse, if you have a net loss for three out of five years, the IRS will consider you to have a hobby. In that case, you only deduct expenses up to the amount of your income. It prevents a “hobby loss.”
The key takeaways:
If you made any money, you need to report it
These rules are in place to prevent fraudulent deductions. Example: I bought a $700 camera in July. I also pay for Adobe (which I probably need to cancel). Say I also decide to take some expenses courses and buy more photo equipment each year. I take $2,000 in deductions on a side photography business for 5 straight years, but I don’t actively seek clients. The hobby loss rules prevent you from reporting a loss on your return.
If you have a business website and are actually, legitimately trying, you likely don’t need to worry about this.
SMALL BIZ DEDUCTIONS
The entertainment expense is no longer allowed, but 50% of meals for business appears to still be A ok according to the IRS.