New LLC, Tax write off's, and Decals

[shnknapp]

Tax accountant here. In order do depreciate a vehicle, it needs to be used at least 50% for business purposes. If it were used 50%, you could deduct 50% of the true cost along with operational expenses. If it was used 75%, you would take 75% of the expenses. It should also be noted that if you sell/trade in property that is depreciated, you end up reporting that as income.

In lieu of depreciation, you can always just take the mileage deduction instead. MileIQ is a great app for tracking mileage.

Since you are an LLC, make sure you look into the option of electing to be treated as an S-Corp. That election can save you thousands in self-employment tax once you start showing a profit.

Update: I will also add that make sure that you "need" any equipment that you purchase. We have some clients that are so against paying any tax, that they will purchase equipment just to save tax dollars. For example, one client wanted to lower his tax liability so he bought a skid steer for $50k and took the 179 deduction (deducted entire price the first year). The problem is he doesn't use it as he has two other skid steers that work just fine. I understand not wanting to pay tax but financially it was a dumb move. Total spent will be 58K (Loan plus interest) and it saved him 14k in tax so basically an extra 44k spent for an asset that isn't used.

 

[Yambers]

Tax accountant here. In order do depreciate a vehicle, it needs to be used at least 50% for business purposes. If it were used 50%, you could deduct 50% of the true cost along with operational expenses. If it was used 75%, you would take 75% of the expenses. It should also be noted that if you sell/trade in property that is depreciated, you end up reporting that as income.

In lieu of depreciation, you can always just take the mileage deduction instead. MileIQ is a great app for tracking mileage.

Since you are an LLC, make sure you look into the option of electing to be treated as an S-Corp. That election can save you thousands in self-employment tax once you start showing a profit.

Update: I will also add that make sure that you "need" any equipment that you purchase. We have some clients that are so against paying any tax, that they will purchase equipment just to save tax dollars. For example, one client wanted to lower his tax liability so he bought a skid steer for $50k and took the 179 deduction (deducted entire price the first year). The problem is he doesn't use it as he has two other skid steers that work just fine. I understand not wanting to pay tax but financially it was a dumb move. Total spent will be 58K (Loan plus interest) and it saved him 14k in tax so basically an extra 44k spent for an asset that isn't used.

Dont I first have to meet certain requirements before I can be an S Corp? I believe I am now a c-corp. Is that how it normally is? It defaulted when I was applying, so I went with what it defaulted to.

 

[shnknapp]

Dont I first have to meet certain requirements before I can be an S Corp? I believe I am now a c-corp. Is that how it normally is? It defaulted when I was applying, so I went with what it defaulted to.

When setting up an LLC through IRS.gov, they would have either classified you as a disregarded entity (aka Sole Propriertiship) or as a partnership if you indicated you had more than one more member If you are a disregarded entity, you would report all business activity on a Schedule C of your 1040. If you are partnership, you will file a partnership return (Form 1065), and net profit/loss will be reported on a K-1 form. That K-1 form will be reported on your 1040 on the Schedule E.

C-Corps are typically used for large scale corporations (Amazon, Yamaha, etc). The problem with C-Corps is that the corporation is taxed on any profit but any distributions the owners (you) take, are taxed on your personal return.

With disregarded entity's and partnerships, the total net income is reported on your individual return and you pay income tax on that income. You also pay self-employment tax (15.3%)on that income.

Now we look at S-Corps where like the LLC, the net income is reported on your individual return but it is not subjected to self-employment tax. However, the IRS expects you to pay yourself a reasonable compensation (wages). So basically you are an employee of your own company and would pay FICA on your wages.

Now some would say, either way I am paying FICA (self-employment tax) so why do the S-Corp? Here is a quick example:

Partnership
Net income of 100K, means you pay income tax on that as well as the Self-Employment tax of 15.3% which would be $15,300.

S-Corp
Net income of100K but you pay yourself 50K in wages. Now the net income is 50K but you also have a W2 of 50k so you will still pay income tax on 100k. But your FICA on 50k is $7650. You just saved $7650 and you are adhering to the IRS rule of reasonable compensation.

I would look at your EIN assignment letter (Form SS-4) to clarify how you are setup and at that point, talk to a local professional.

 

[Yambers]

When setting up an LLC through IRS.gov, they would have either classified you as a disregarded entity (aka Sole Propriertiship) or as a partnership if you indicated you had more than one more member If you are a disregarded entity, you would report all business activity on a Schedule C of your 1040. If you are partnership, you will file a partnership return (Form 1065), and net profit/loss will be reported on a K-1 form. That K-1 form will be reported on your 1040 on the Schedule E.

C-Corps are typically used for large scale corporations (Amazon, Yamaha, etc). The problem with C-Corps is that the corporation is taxed on any profit but any distributions the owners (you) take, are taxed on your personal return.

With disregarded entity's and partnerships, the total net income is reported on your individual return and you pay income tax on that income. You also pay self-employment tax (15.3%)on that income.

Now we look at S-Corps where like the LLC, the net income is reported on your individual return but it is not subjected to self-employment tax. However, the IRS expects you to pay yourself a reasonable compensation (wages). So basically you are an employee of your own company and would pay FICA on your wages.

Now some would say, either way I am paying FICA (self-employment tax) so why do the S-Corp? Here is a quick example:

Partnership
Net income of 100K, means you pay income tax on that as well as the Self-Employment tax of 15.3% which would be $15,300.

S-Corp
Net income of100K but you pay yourself 50K in wages. Now the net income is 50K but you also have a W2 of 50k so you will still pay income tax on 100k. But your FICA on 50k is $7650. You just saved $7650 and you are adhering to the IRS rule of reasonable compensation.

I would look at your EIN assignment letter (Form SS-4) to clarify how you are setup and at that point, talk to a local professional.

Wow I have a lot to learn.. This is all new, but I will figure it out. More worried now about missing a deadline for a report.

Thanks for the advice.

 

[shnknapp]

Wow I have a lot to learn.. This is all new, but I will figure it out. More worried now about missing a deadline for a report.

Thanks for the advice.

You're welcome. Here are the deadlines to be concerned with.

4/15/2022 - C-Corp (Form 1120) and Sole Prop (Schedule C on your 1040)
3/15/2022 - S-Corp (Form 1120S) and Partnership (Form 1065)

All returns can be extended 6 months if you file an extension. It should be noted that an extension only extends the filing due date. The payment date will not change.

https://www.irs.gov/pub/irs-pdf/p509.pdf

 

[lazergeek]

I think I’ve seen @jocolo21 talk about making graphics.

#2 seems like a stretch if you’re talking about depreciating your boat because it’s included in videos and has marketing stickers on it.

You may get away with the business paying for your fuel and maintenance as an advertising fee for the boat which will lower your taxable income. I would confirm with an accountant however.

 

[Bluewater272]

This is incorrect. You do not need a captain's license to charter your boat unless you are in waters controlled by the US coast guard. Inland lakes do not apply. You just need a commercial insurance policy with $1,000,000 in coverage.

I don't think that's true? CG issues an inland lake OUPV/6 pack license (in addition to great lakes, near coastal).