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A few things. Careful planning of selling stocks that are in the red and in the green to minimize the amount of capital gains paid. I have a LLC for my startup

A few things. Careful planning of selling stocks that are in the red and in the green to minimize the amount of capital gains paid. I have a LLC for my startup and can write off quite a bit of business expenses to offset the business income.

zanny 11y ago
This is the trick. You have your own LLC and writeoff everything as business expense. My dad is a contract construction worker, and writes off his vehicles, his gas, his phone, his tools, and all manner of insurance costs for work as business expenses and pays a really low effective tax rate as well.
- nodesocket 11y ago
  A few big gotchas with LLC though. Every year you have to pay a flat $800 to the state of California. Sucks if your business is not making that much, $800 can be a significant cost. Self employment tax hurts bad. Basically this is Medicare and social security. Can be a huge amount owed seperate and in addition to income taxes.
  - dublinben 11y ago
    Why would you incorporate your LLC in California? You can get an LLC in other states for under $100/year.
    - nodesocket 11y ago
      Quite honestly ignorance and just did what Legalzoom recommended. Also, if you have to go to court, it is much easier to do so in the state that you live.
    - gamblor956 11y ago
      And if you are physically present in California, you still have to pay California taxes for the LLC's income, so you accomplish nothing except exposing yourself to liability in another jurisdiction.
      - dublinben 11y ago
        There's a reason why most companies incorporate in states like Delaware, and additional liability isn't it.
  - abalashov 11y ago
    Self employment tax hurts bad. Basically this is Medicare and social security. Can be a huge amount owed seperate and in addition to income taxes. Does it ever! I owe over $100K in back taxes, and the majority of it is SE tax. Income tax accounts for a relatively modest portion. Self-employment tax is assessed against gross personal income (aka net business income off Sch C, in my case) prior to any personal Sch A deductions. In my case, the latter proved to be quite significant, especially since I was paying a lot of interest on a mortgage for much of the period in question. So, I had years where my taxable income for SE tax purposes was (just making up numbers here), say, $50K, while my net income for federal income tax purposes was something like $19K.
    - nodesocket 11y ago
      Sorry, I feel your pain for sure. Curious to hear more about your VoIP startup. Want to shoot me an e-mail (in my profile)?
      - abalashov 11y ago
        Shot you one. FWIW, I recently wrote a blog post about how I ended up in this strange place, professionally: https://likewise.am/2016/03/30/ten-years-of-voip-sip/ https://likewise.am/2016/03/30/ten-years-of-voip-sip/
- beachstartup 11y ago
  it's not really a trick. it's designed to get companies and individuals to spend money (and thereby improve the economy) instead of hoarding it.
  - harryh 11y ago
    That's not the reason at all. Businesses pay taxes on their profits and not their revenues because doing otherwise would be nearly nonsensical and make low margin businesses unworkable.
    - beachstartup 11y ago
      so in other words... it encourages spending... because those businesses wouldn't exist otherwise.
      - harryh 11y ago
        Sure. In the same way me not hitting you in the head with a baseball bat encourages you to keep on living.
        beachstartup 11y ago
        do you own a business? i do, and let me tell you, the tax system encourages me to spend, because otherwise i pay a fucking shitload in taxes.
- sliverstorm 11y ago
  From what I hear it gets morally hazardous fast. Supposedly plenty of people out there with their own one-man LLC, writing off things like lunch with their friends, and just about everything else.
  - abalashov 11y ago
    LLCs in particular are a creature of state statute, and are disregarded at both state and federal levels for tax purposes. In other words, they provide the liability protection of a separate entity without paying their own taxes; the underlying tax personality(ies) of an LLC is (are) their owner(s). All this to say, an LLC is in no way required in order to deduct lunch with one's friends. :-) One can do that with a sole proprietorship that has no registered entity or other formal dimensions, effectively immediately. Business expenses can be deducted on the 1040 Schedule C, and anyone who considers themselves to have expenses related to self-employment may avail themselves of that. Obviously, it would be wise to ensure that your business is a legitimate going concern and is in pursuit of revenue and profit. The IRS is not fond of businesses, LLC or not, whose sole raison d'être is to serve as a vehicle for business deductions. :-)

zanny 11y ago

This is the trick. You have your own LLC and writeoff everything as business expense. My dad is a contract construction worker, and writes off his vehicles, his gas, his phone, his tools, and all manner of insurance costs for work as business expenses and pays a really low effective tax rate as well.

nodesocket 11y ago
A few big gotchas with LLC though. Every year you have to pay a flat $800 to the state of California. Sucks if your business is not making that much, $800 can be a significant cost. Self employment tax hurts bad. Basically this is Medicare and social security. Can be a huge amount owed seperate and in addition to income taxes.
- dublinben 11y ago
  Why would you incorporate your LLC in California? You can get an LLC in other states for under $100/year.
  - nodesocket 11y ago
    Quite honestly ignorance and just did what Legalzoom recommended. Also, if you have to go to court, it is much easier to do so in the state that you live.
  - gamblor956 11y ago
    And if you are physically present in California, you still have to pay California taxes for the LLC's income, so you accomplish nothing except exposing yourself to liability in another jurisdiction.
    - dublinben 11y ago
      There's a reason why most companies incorporate in states like Delaware, and additional liability isn't it.
- abalashov 11y ago
  Self employment tax hurts bad. Basically this is Medicare and social security. Can be a huge amount owed seperate and in addition to income taxes. Does it ever! I owe over $100K in back taxes, and the majority of it is SE tax. Income tax accounts for a relatively modest portion. Self-employment tax is assessed against gross personal income (aka net business income off Sch C, in my case) prior to any personal Sch A deductions. In my case, the latter proved to be quite significant, especially since I was paying a lot of interest on a mortgage for much of the period in question. So, I had years where my taxable income for SE tax purposes was (just making up numbers here), say, $50K, while my net income for federal income tax purposes was something like $19K.
  - nodesocket 11y ago
    Sorry, I feel your pain for sure. Curious to hear more about your VoIP startup. Want to shoot me an e-mail (in my profile)?
    - abalashov 11y ago
      Shot you one. FWIW, I recently wrote a blog post about how I ended up in this strange place, professionally: https://likewise.am/2016/03/30/ten-years-of-voip-sip/ https://likewise.am/2016/03/30/ten-years-of-voip-sip/
beachstartup 11y ago
it's not really a trick. it's designed to get companies and individuals to spend money (and thereby improve the economy) instead of hoarding it.
- harryh 11y ago
  That's not the reason at all. Businesses pay taxes on their profits and not their revenues because doing otherwise would be nearly nonsensical and make low margin businesses unworkable.
  - beachstartup 11y ago
    so in other words... it encourages spending... because those businesses wouldn't exist otherwise.
    - harryh 11y ago
      Sure. In the same way me not hitting you in the head with a baseball bat encourages you to keep on living.
      - beachstartup 11y ago
        do you own a business? i do, and let me tell you, the tax system encourages me to spend, because otherwise i pay a fucking shitload in taxes.
sliverstorm 11y ago
From what I hear it gets morally hazardous fast. Supposedly plenty of people out there with their own one-man LLC, writing off things like lunch with their friends, and just about everything else.
- abalashov 11y ago
  LLCs in particular are a creature of state statute, and are disregarded at both state and federal levels for tax purposes. In other words, they provide the liability protection of a separate entity without paying their own taxes; the underlying tax personality(ies) of an LLC is (are) their owner(s). All this to say, an LLC is in no way required in order to deduct lunch with one's friends. :-) One can do that with a sole proprietorship that has no registered entity or other formal dimensions, effectively immediately. Business expenses can be deducted on the 1040 Schedule C, and anyone who considers themselves to have expenses related to self-employment may avail themselves of that. Obviously, it would be wise to ensure that your business is a legitimate going concern and is in pursuit of revenue and profit. The IRS is not fond of businesses, LLC or not, whose sole raison d'être is to serve as a vehicle for business deductions. :-)