It’s pretty common to form an LLC for your own, self run business even at one person. The business makes all the money, you pay your “employee” (you) a small amount and you save on taxes. Wife does this, her employee paycheck is like $25k/year.
If you ever have a friend who’s not doing this, tell them to get a good accountant lol
Alongside settling yourself up as a limited company, you also make not only your taxes much simpler to do, but getting shit like indemnity insurance is easy as a company - but very challenging to do as a sole trader.
She gets income from two sources: as an employee (“normal” income), and as a business owner. There’s something called an owner’s draw, which essentially lets you take money from the business for personal use, and it gets taxed as personal income (i.e., normal job income taxes).
This is my loose understanding. We have a CPA for our stuff, and she sorted all this out before we even started dating.
Edit: you can also pay yourself dividends from the business, but this is considered supplemental income and can’t be a majority. These dividends are taxed at a lower rate than your income.
I would highly recommend asking an accountants advice, I assume there are similar services for when you file in the UK. Finding a CPA (Chartered Accountant in the UK) is huge, they’ll generally charge more but they can represent you in the event you get audited (had to look it up and confirm it’s the same for UK). Now if you get audited, they have a vested interest in protecting you. In the US they’re often legally obligated to protect you (and themselves).
This is so dumb I can’t believe people aren’t getting audited left and right.
A single member LLC is simply you. All the income becomes your income. It doesn’t matter if you pay yourself through a draw or not. If you’re finding ways to get your write offs over the standard deduction without spending a bunch on actual business related expenses, you’re probably doing it wrong and committing tax evasion, plain and simple.
There are still benefits to an LLC if you’re alone. Suggesting that everyone is committing tax fraud is speculative at best. Fun fact, she actually was audited for 2017-2019 because of shit her ex husband did, and no tax fraud (on her part, he was definitely guilty and we successfully argued for Innocent Spouse Relief). You can also pay yourself dividends which are taxed at a lower rate, though the IRS checks this income to make sure you aren’t using this stupidly.
Generally, you’re protected with your assets, piercing the veil can only occur if there’s egregious fraud and clearly no separation between yourself and the business. Just keep your business and personal accounts separate and you’ll have the legal protections.
Edit: I went back and asked her and there’s definitely tax benefits, she files as an s corp and it saves a bunch on taxes. It’s more expensive to file so the income must be over like $70k-$80k to really make it worth it.
It doesn’t have to be egregious. I seriously doubt she has legitimate business expenses above $29,200, assuming you’re filing jointly.
Sorry, a bit frustrated as someone who does everything above board but sees all these pavement princess 4x4 lifted trucks running around with commercial bumper stickers who clearly aren’t running a real business.
She does exceed that in cost of goods sold actually, we have whole ass pallets of wood slices in the garage. She makes a $15k order alone every year for Christmas.
If it helps, we don’t deduct anything for our vehicles. We technically could do miles or gas for travel to shows but it’s relatively little.
One of the law’s changes allowed owners of pass-through businesses—partnerships, sole proprietorships, and S corporations—to deduct 20 percent of their qualified business income (QBI) when calculating their taxes.
I know a guy (independent contractor) who formed a 1-man corporation and paid himself out of it as an employee. Saved a ton on taxes.
It’s pretty common to form an LLC for your own, self run business even at one person. The business makes all the money, you pay your “employee” (you) a small amount and you save on taxes. Wife does this, her employee paycheck is like $25k/year.
If you ever have a friend who’s not doing this, tell them to get a good accountant lol
Yeah, this is essentially contracting.
Alongside settling yourself up as a limited company, you also make not only your taxes much simpler to do, but getting shit like indemnity insurance is easy as a company - but very challenging to do as a sole trader.
How does this work if you want to take money out? Like give yourself a bonus that’s taxable? I mean legally.
She gets income from two sources: as an employee (“normal” income), and as a business owner. There’s something called an owner’s draw, which essentially lets you take money from the business for personal use, and it gets taxed as personal income (i.e., normal job income taxes).
This is my loose understanding. We have a CPA for our stuff, and she sorted all this out before we even started dating.
Edit: you can also pay yourself dividends from the business, but this is considered supplemental income and can’t be a majority. These dividends are taxed at a lower rate than your income.
That actually sounds really good 👍 Would need to read how this works across the pond, but hoping fairly similar.
I would highly recommend asking an accountants advice, I assume there are similar services for when you file in the UK. Finding a CPA (Chartered Accountant in the UK) is huge, they’ll generally charge more but they can represent you in the event you get audited (had to look it up and confirm it’s the same for UK). Now if you get audited, they have a vested interest in protecting you. In the US they’re often legally obligated to protect you (and themselves).
Thanks, will take a look at that. Actually got an accountant acquaintance so il pick his brain one day :)
This is so dumb I can’t believe people aren’t getting audited left and right.
A single member LLC is simply you. All the income becomes your income. It doesn’t matter if you pay yourself through a draw or not. If you’re finding ways to get your write offs over the standard deduction without spending a bunch on actual business related expenses, you’re probably doing it wrong and committing tax evasion, plain and simple.
Look into piercing the veil.
There are still benefits to an LLC if you’re alone. Suggesting that everyone is committing tax fraud is speculative at best. Fun fact, she actually was audited for 2017-2019 because of shit her ex husband did, and no tax fraud (on her part, he was definitely guilty and we successfully argued for Innocent Spouse Relief). You can also pay yourself dividends which are taxed at a lower rate, though the IRS checks this income to make sure you aren’t using this stupidly.
Generally, you’re protected with your assets, piercing the veil can only occur if there’s egregious fraud and clearly no separation between yourself and the business. Just keep your business and personal accounts separate and you’ll have the legal protections.
Edit: I went back and asked her and there’s definitely tax benefits, she files as an s corp and it saves a bunch on taxes. It’s more expensive to file so the income must be over like $70k-$80k to really make it worth it.
It doesn’t have to be egregious. I seriously doubt she has legitimate business expenses above $29,200, assuming you’re filing jointly.
Sorry, a bit frustrated as someone who does everything above board but sees all these pavement princess 4x4 lifted trucks running around with commercial bumper stickers who clearly aren’t running a real business.
She does exceed that in cost of goods sold actually, we have whole ass pallets of wood slices in the garage. She makes a $15k order alone every year for Christmas.
If it helps, we don’t deduct anything for our vehicles. We technically could do miles or gas for travel to shows but it’s relatively little.
2017 tax law changed this
One of the law’s changes allowed owners of pass-through businesses—partnerships, sole proprietorships, and S corporations—to deduct 20 percent of their qualified business income (QBI) when calculating their taxes.
Edit: Better source https://www.irs.gov/newsroom/tax-cuts-and-jobs-act-provision-11011-section-199a-qualified-business-income-deduction-faqs
~~https://www.americanprogress.org/article/the-2017-tax-bills-pass-through-deduction-largely-favors-the-wealthy-and-encourages-gaming-of-the-tax-code/~~
That 20% is not in addition to the standard deduction. It only comes into play if your total deductions exceed the standard deduction.
Correct.