Deductions for W2 Employees + Sole Proprietorship income?

[JHOU9116]

Hello all,

I am doing a bit of research online, but I cannot find a clear answer on this topic. Currently, I am a full time W2 employee but I've made a little bit of side income this year that I could classify as a sole proprietorship.

Unless I am reading something incorrectly, do deductions that outpace sole proprietorship income eat into tax liability on the W2 side since you are filing everything together? I.E, let's say you have $50,000 in income from your day to day job, then another $5,000 as a sole proprietorship. If your deductions for vehicle expense, portion of rent etc are more than the $5,000 generated on the sole proprietorship side, are you able to write off the delta as an offset into the W2 income?

Thanks. 

[VolvoGirl]

Yes.  You enter self employment on schedule C.  You enter your gross self employment  income then expenses and Turbo Tax calculates the Net Profit or Loss which goes to your 1040 return.  So if you have a loss it is deducted from your other income like W2.  And don't confuse the personal Standard Deduction or Itemized Deductions with Business expenses on schedule C.  You get both.

Self Employment tax (Scheduled SE) is automatically generated if a person has $400 or more of net profit from self-employment.  You pay 15.3% SE tax on 92.35% of your Net Profit greater than $400.  The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare.  So you get social security credit for it when you retire.  You do get to take off the 50% ER portion of the SE tax as an adjustment on 1040 Schedule 1 line 27.   The SE tax is already included in your tax due or reduced your refund.  It is on the 1040 Schedule 4 line 57 which goes to 1040 line 14.  The SE tax is in addition to your regular income tax on the net profit.

Schedule C net Profit or Loss now goes to 1040 Schedule 1 line 12.  Then the total on schedule 1 line 22 goes to 1040 line 6.  It is listed to the left of line 6 and is added into the total on line 6.  So line 6 can be more or less than the total of lines 1-5.

Here is some IRS reading material……

IRS information on Self Employment
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center

Pulication 334, Tax Guide for Small Business
http://www.irs.gov/pub/irs-pdf/p334.pdf

Publication 535 Business Expenses
http://www.irs.gov/pub/irs-pdf/p535.pdf

[Anonymous]

but understand only expenses relating to the schedule C income are deductible on schedule C.