Small Business Federal Tax Deduction

[b86fiero]

Reminder of the provisions enacted in the sweeping tax law passed by Congress in 2017.

Starting in 2018 many small businesses and independent contractors can get a 20 percent (20%) Federal Tax deduction on their business income.  In other words, they are liable for taxes on only $80 of every $100 they make.

The deduction starts phasing out if the total taxable income surpasses $157,500 if filing single - or double that if married filing jointly.

Other math may be involved given your personal situation, but the probable upshot is lower taxes.

For example, a self-employed person making $40,000 net a year would see a tax cut of $672, according to The Tax Foundation.

Check with your tax professional, CPA or financial adviser to ascertain how to maximize these new tax rules for your 2019 Federal Income Tax report.

Another good news reminder:  The Federal Standard Deduction will nearly double to $12,000 for single filers - and to $24,000 for married couples filing jointly.

People 65 and older filing singly can deduct another $1,600 - while married couples filing jointly are allowed a $1,300 deduction for each spouse 65 and older.  ($2,600 if both are 65+).

Best wishes to all,

BJ

[escuintla]

You mean we won't be able to buy a brand new car or remodel our kitchen?  

[pyrabluestudios]

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@escuintla wrote:

You mean we won't be able to buy a brand new car or remodel our kitchen?  

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Loved that one!

[pyrabluestudios]

I'm quitting at the end of this year (starting stock sell off now) so hoping I can get any and all relief out there 

[b86fiero]

These new tax law changes may serve as impetus for hobby sellers to take the step into operating as a business.

I know many sellers here are careful to stay below the Paypal 1099 threshold, but with eBay moving to a managed payment system and the accompanying sales tax collection, it may make financial sense to obtain a business license if you don't already have one.  It's a given that the IRS and state tax collection agencies will be keeping an eagle out for cheaters since the US Supreme Court ruling gave online marketplaces nexus status.  The cumulative back taxes owed, interest and fines could well bankrupt some sellers.

Check with a tax professional to ascertain how your personal situation is affected by these rulings.  Is your hobby selling really considered a hobby anymore?  

[nobody*s_perfect]

The IRS definitions of hobby vs business are not related to whether you have a business license. And hobby sellers are still supposed to report their profits as income.

[myboardid]

DH & I have several businesses - and we have a wonderful, very competant CPA accountant, who is worth his weight in gold!  Whatever deductions we can take, he will find them for us. 

One of our businesses is about to end, we will "retire" it at the end of this year.  We will miss the income, but it is a physically demanding job and DH is about to turn 75.  time to quit. 

[b86fiero]

Sorry if anyone misconstrued that I implied the IRS definitions of hobby vs business are related to whether you have a business license or not.

Of course hobby sellers are required to report their profits as income.  And just might be required to collect and remit sales tax depending upon state laws where they reside.

Don't know how other states operate but Ohio issues and controls business licenses of entities doing business in the state.  (Not the IRS).

A friend in the state of Ohio bought, collected, mined and sold rocks and minerals for many years.  Both online and at shows.  He thought it was just a hobby until a divorcing spouse demanded half of the inventory and half of that year's profit.  Long story short, he is now a wiser man with a legitimate business license, reports all income, and collects and remits sales tax.

An artist friend of mine dreamed of owning a small boutique.  She obtained an Ohio business license and got her feet wet by renting space inside another business.  She thought it was going well, building a repeat customer base.  After a tad over four years her CPA advised her that she would have to close her business license out because she was not making enough money to be considered a business - she was considered at hobby status and lost the benefits that a business enjoys.  She is back to selling at several shows each year.

I imagine different states have different thresholds determining business vs hobby status.  It is always best to check with your state licensing agency.

My point is that laws have changed with the explosion of ecommerce and that sellers should be cognizant of the changes and determine how those changes affect them personally.

Here's the question:  If you are buying to resell for profit and are generating a trackable income stream are you operating a business or just indulging the hobby of making money?  

No offense meant to anybody.  I was merely passing along info from The Tax Foundation.

[orangehound]

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@b86fiero wrote:

Of course hobby sellers are required to report their profits as income.  And just might be required to collect and remit sales tax depending upon state laws where they reside.

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The only time I ever see a person trying to define the difference between a hobby and a business, they are always trying to argue that a hobby doesn't have to pay taxes.  Wrong.

There is no difference ... these are just synonyms for the same thing.  If you make a profit, you owe taxes.