[multimastery]

How do I properly file my taxes if I worked as an Employee and an Independent Contractor at various times throughout the year?

[ScottGem]

Use a Schedule C to report 1099 income.

[AtlantaTaxExpert]

Correct! A Form 1040 for the W-2, with Schedule C and SE attached for the contractor income.

[multimastery]

Thanks for the helpful answers!


... Also I made less than I spent in business so I want to possibly claim a loss. Will this help to lower my overall personal tax liability by deducting legitimate business deductions and claiming a loss.

... And if I do end up owing, will I be double-taxed i.e. personal and business or just liable for only one.

(sorry for all the questions)

Thanks Again :-)

[ScottGem]

You can enter legitimate business expenses on the Schedule C. The result will be a net income (or loss) which is then transferred to the 1040. Resulting in a decrease in taxable income. Your tax liability is then calculated on the total taxable income.

One other thing to consider is how you run this business. Generally the IRS considers it a valid business if you make a profit in 3 of the first 5 years. Otherwise they may rule it as a hobby. If you claim a lot of losses, you have to prove you are actually operating as a business (advertising, maintaining a business phone, separate accounts etc.). If you do you may get past the 3 of 5 rule.

[AtlantaTaxExpert]

The 3-in-5 rule is NOT etched in stone. Some businesses, like tax preparation, are very competitive and hard to show a profit until you build a client base.

I started my business in 1992 with ONE client. It did not show a profit until 1998, but I had a steadily increasing income flow that showed that I was on the road to profitability.

Scott's advice is solid, but as long as you can show progress towards profitability, the IRS will probably not bother you unless you show year after year of NEVER showing a profit nor any prospect of EVER showing a profit. THAT is when the IRS will hit you with the hobby loss rules.

[multimastery]

You can enter legitimate business expenses on the Schedule C. The result will be a net income (or loss) which is then transferred to the 1040. Resulting in a decrease in taxable income. Your tax liability is then calculated on the total taxable income.

One other thing to consider is how you run this business. Generally the IRS considers it a valid business if you make a profit in 3 of the first 5 years. Otherwise they may rule it as a hobby. If you claim a lot of losses, you have to prove you are actually operating as a business (advertising, maintaining a business phone, separate accounts etc.). If you do you may get past the 3 of 5 rule.

Thanks!

When you say "tax liability is then calculated on the total taxable income" does that mean (If I owe) that I'd be subject to the employee tax rate or self-employed tax rate at 15%+.

[multimastery]

The 3-in-5 rule is NOT etched in stone. Some businesses, like tax preparation, are very competitive and hard to show a profit until you build a client base.

I started my business in 1992 with ONE client. It did not show a profit until 1998, but I had a steadily increasing income flow that showed that I was on the road to profitability.

Scott's advice is solid, but as long as you can show progress towards profitability, the IRS will probably not bother you unless you show year after year of NEVER showing a profit nor any prospect of EVER showing a profit. THAT is when the IRS will hit you with the hobby loss rules.

Thanks!

I'll definitely take this info. Into consideration.

[ScottGem]

Thanks!

When you say "tax liability is then calculated on the total taxable income" does that mean (If I owe) that I'd be subject to the employee tax rate or self-employed tax rate at 15%+.

Only the Schedule C NET income would be subject to the self employed tax rate.

[multimastery]

So if I'm claiming a loss then I shouldn't be subject to self-employment tax right?. I assume the business deductions (schedule C) added on my personal tax return would just lower my overall tax liability... am I understanding correctly?

[ScottGem]

Yep

[Jaykid007]

No Self employment tax if there is no profit. The net loss will offset any income such as w-2 wages, capital gains, etc.

[multimastery]

Thanks A Million Guys... I finally got it!

[AtlantaTaxExpert]

Glad to help!