Taxes on small business

[Anonymous]

I started an at home tutoring business this year and am curious the best way to pay taxes, as I know nothing about this. Do I just do a 1099 and add my salary or is it more lucrative to make an LLC. Is there a way to deduct part of my home (the room that I use) or supplies? Who is the best type of person to ask about this - an attorney or a tax person?
I don't work besides this job, but my husband does, so we would be paying on his income bracket.
I would love any advice! Thanks in advance

[Anonymous]

You are self employed— a 1099 is what you would give someone you hired as an independent contractor. An LLC is irrelevant for taxes (in theory it might have some benefits for limiting liability if you got sued). You will just report incomes and expenses, and pay your self-employment taxes, on your income tax form (you may need to pay withholding now though)

You can track expenses and deduct them and if you have a room you use exclusively for tutoring you can take a home office deduction but it’s an audit red flag so make sure you are following the rules if you do.

[Anonymous]

You and your husband would continue to file a 1040. Your income will go on a schedule C which is just another form that will be a part of your filing. As a single member LLC your taxes “pass thru” to you as an individual. The LLC does not pay the taxes.

Establishing yourself as a single member LLC creates a buffer between your business and your family assets. If you were to be sued, the only assets at risk are whatever belongs to the business. It’s cheap and easy to do.

You also might consider a Solo401k for yourself. You can do either traditional or Roth. You may find you are in a position to contribute the max and 25% of your profits depending on your family situation.

As for taxes, you will need to file quarterly. It’s not hard but you do not want to be in a position with the IRS where you did not pay quarterly and then you owe a lot of money. Same for state taxes.

The home deduction isn’t as advantageous as it used to be. Business expenses like a professional membership or your costs for supplies are deducted from your profit. That’s what is taxable. There are a bunch of other expenses that are available to be deducted. Also, since you are the company, you pay both the employee and employer sides of SS and Medicare costs which gets called the self employment tax.

A CPA or tax accountant can guide you through the taxation side of an LLC and would probably help you set it up for a fee.