HN Explorer

Ask HN: Best place to learn about self-employed tax deductions

7 points by akulbe ↗ HN
Just getting ready to leave my day job of ~9 years, and go full-time contractor with a customer I've been doing side work for.

I want to mitigate as much tax liability as I can. However, reading our tax code is not very easy/helpful.

Any advice?

9 comments

[ 3.3 ms ] story [ 28.2 ms ] thread
kspaans
Similar question: are meals tax-deductible for self-employed people? If not, how come meals at full-employment workplace aren't taxable?
patio11
Meals for self-employed folks are not generally tax deductible. The exceptions are business entertaining (50% deductible; must have clear connection to immediate prospect of a business goal) and meals during business travel (50% deductible; you must spend a full day or more away from one's home).

Meals furnished on an employer's premises for their own convenience are not considered income to the people receiving them. Why? Tax code says so. The business can typically deduct whatever it costs to provide them, either materials and chef salaries (etc etc) or whatever they pay to the meal provider. Why? Tax code says so.

Why the disparity in treatment? "Overwhelming potential for abuse" covers most of it.

Fun fact: in Japan, while it is theoretically not allowed by the tax law, actual practice among many small businessmen (encouraged on not just a wink-and-a-nod level by the National Tax Agency) is that all or almost all personal food expenditures are business expenses. It's widely considered "one of the perks" you get for paying e.g. self-employment taxes. (In the vanishingly rare event that the NTA audits a small businessmen the discussion goes like "Why did the business pay for this meal?" "To soothe my body from the rigors of work and maintain productivity." "Approved.")

patio11
Get an accountant as soon as you have $10k in revenue. Open a new CC account; put all business expenses on the CC. Keep a detailed travel log so that you'll be sustained on the possible eventual audit of your travel expenses.

The single best thing a consultancy can do to decrease tax burden is keep really good books on expenses. Don't drop $14k worth of CC receipts on the floor prior to entry; that costs you $5k+.

Also as a software engineer you get far, far, far more economic advantage from working on your business than from tax optimization. Get people to do that for you; spend as little time and brain sweat on it as possible.

I use bench.co for bookkeeping. Best money I every spent.

Talk to your accountant about retirement funding options; they're the modestly-more-brainsweat required option for decreasing present-year tax burden.

akulbe
Hi, Pat. Thank you for responding.

I just had my first 5-figure month. Early on, I'd set up a separate bank account its own card attached.

I've been using Freshbooks, so far. I'll check out bench.co

codegeek
If you are going to be solo, check out self employed 401k a.k.a solo 401k that allows contributing upto 53,000 per year in retirement which will give you a Huge tax benefit.
atmosx
Is it true that when using Freshbooks and PayPal business (e-check) option cuts the PP cost down to 0.50 USD per transaction?
akulbe
I haven't used the PP biz option, so I don't have an answer for that one.
brudgers
To be honest, tax liability is probably a poor place to focus much optimization effort. Saving money isn't a sound basis for a business and the best way to reduce tax liability is to reduce income to zero...or less.

What matters more are things like cash flow, liquidity, and diversity of customers. Most of what a small consultancy needs to know about taxes is to pay them on time and to separate business expenses from personal with separate accounts.

My last piece of advice is to not spend money on the business. A new $2000 computer isn't necessary to get the work done. Use what's already available and gets the job done.

Good luck.

brudgers
I'll add that if you're in the US and filing a schedule C (sole proprietorship), standard tax software like TurboTax covers pretty much everything a one person consultancy is likely to encounter.