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LLC home business for tax buffer?
Posted on 2/21/24 at 7:09 am
Posted on 2/21/24 at 7:09 am
Retiring in a couple years. Want to start purchasing tools and upgrading my garage (electrical/storage) this year for a small woodworking gig for a retirement activity.
Can I benefit personally regarding taxes with this plan? Will likely not make a profit this year or next. Can my LLC "pay" me (as debt?), and I personally pay/loan the LLC money to purchase the tools/upgrades for this year and next? And if I dissolve the LLC would I be able to use that unpaid debt as a tax write-off? Not an alarm raising amount.
Seriously considering the woodworking gig, but I realize it quite likely will not be profitable enough to run beyond hobby status.
Can I benefit personally regarding taxes with this plan? Will likely not make a profit this year or next. Can my LLC "pay" me (as debt?), and I personally pay/loan the LLC money to purchase the tools/upgrades for this year and next? And if I dissolve the LLC would I be able to use that unpaid debt as a tax write-off? Not an alarm raising amount.
Seriously considering the woodworking gig, but I realize it quite likely will not be profitable enough to run beyond hobby status.
7
Posted on 2/21/24 at 7:33 am to eatpie
Talk to a cpa. Starting a business for the sole purpose of tax “benefits” doesn’t seem like a good idea.
Starting a business for extra retirement income will have an impact on your taxes but it depends on how you structure it.
Starting a business for extra retirement income will have an impact on your taxes but it depends on how you structure it.
Posted on 2/21/24 at 9:20 am to eatpie
My husband had a woodworking business, and we had an LLC. I'm not sure about the pay/loan part. We just used the Turbo tax small business for taxes. You can claim the equipment, and if you didn't make enough to offset, it just shows as a loss. If you are planning on selling your product, you have to deal with parish sales tax filing each month, which is a major pain. I'm no tax expert my any means, but we've had several small businesses and we did talk to a CPA when we set them up, so I might can help with questions.
Posted on 2/21/24 at 10:53 am to eatpie
quote:
And if I dissolve the LLC would I be able to use that unpaid debt as a tax write-off?
Tax advisor can help better, but the short answer is you have the thought flipped in your head. If you write-off debt, the amount saved would actually need to be recorded as income.
In theory, if you have a balance of $10k, and write it off on the company, the company now has a $10k benefit that will be taxed as income. As the lender, you would then be able to write-off the $10k as an expense; but that could be subjected to various thresholds. And with all of that said, a related party transaction like this will have a completely different set of rules.
Posted on 2/21/24 at 11:21 am to eatpie
You have to attempt to make money. If it's just a tax deduction with no attempt to make money, then you will get audited and lose.
Posted on 2/21/24 at 12:18 pm to eatpie
The only way an LLC really "benefits" you as far as creating tax losses, is to the extent you are able to take personal expenses and make them business expenses.
This is obviously a huge gray area.
And if you aren't actually trying to make money, and you get audited, the IRS will knock out the deductions and hit you with penalties.
If you want to start a woodworking business as a form of income in retirement, by all means, do so! But if you are thinking this is just a way to write off stuff, remember... it's gotta have a business purpose... and it still costs you money...
This is obviously a huge gray area.
And if you aren't actually trying to make money, and you get audited, the IRS will knock out the deductions and hit you with penalties.
If you want to start a woodworking business as a form of income in retirement, by all means, do so! But if you are thinking this is just a way to write off stuff, remember... it's gotta have a business purpose... and it still costs you money...
Posted on 2/21/24 at 1:08 pm to eatpie
My wife had an LLC and wrote off a portion of bills for her home office at the advice of our accountant. Let's say the office is 10% of your home's square footage, she could write off 10% of electric bill, etc.
Had another accountant buddy that said that's one of the quickest ways to get audited and if wrote stuff like that, you better make sure it really is home office if the IRS comes knocking.
Had another accountant buddy that said that's one of the quickest ways to get audited and if wrote stuff like that, you better make sure it really is home office if the IRS comes knocking.
Posted on 2/21/24 at 3:49 pm to REB BEER
quote:
My wife had an LLC and wrote off a portion of bills for her home office at the advice of our accountant. Let's say the office is 10% of your home's square footage, she could write off 10% of electric bill, etc.
Had another accountant buddy that said that's one of the quickest ways to get audited and if wrote stuff like that, you better make sure it really is home office if the IRS comes knocking.
It has to be a legit office that really isn't used for anything except an office.
If she has a bedroom that she converted into an office, that's fine.
If she works at the dining room table and writes off the dining room square footage, that will be knocked away on audit.
Posted on 2/22/24 at 10:24 am to eatpie
Sell products on ebay, Etsy etc an don't claim home office or shop space, lump expenses into year one and two work toward profit of some type in year three. Read Home based business for dummies
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