LLC 1099 deductions

[vze56v6x]

I plan to be a free lance and 1099 contractor and am establishing an LLC so that payments will be made to the LLC and the LLC in turn pays me a salary.

Does the LLC generate a 1099 for the payments it pays me?

If I create an LLC and receive 1099 payments as a contractor, can I deduct training and professional certifications as an expense?    For example if I seek to become certified as project manager (to benefit my career) is the cost associated deductible as a business expense?

if yes, does the training need to be paid by me personally out of pocket or by the LLC?

I am in the process of establishing an LLC and trying to determine if I should initiate paid training/certifications only after the LLC is established. 

If anyone can help clarify the best way to do this so its straightforward at tax time, I would appreciate it.

[Vanessa A · Accepted solution]

If you are the only member of the LLC, then there is no special reporting on a 1065 or other return.  The income and expenses go on a Schedule C on your 1040.  You and the LLC are one.  If you are doing training to better your job, such as getting a license in another state in the same career you are in, but meeting the state licensing to expand, that would be deductible.  If you are getting a degree or training to allow you to start the business or that is not improving what you already have, that would not be deductible. 

"To be deductible, your expenses must be for education that (1) maintains or improves skills needed in your present work or (2) your employer or the law requires to keep your present salary, status or job. However, even if the education meets either of these tests, the education can't be part of a program that will qualify you for a new trade or business or that you need to meet the minimal educational requirements of your present trade or business." Topic 513

To enter your self-employment income click the following:

1. Federal
2. Income and Expenses
3. Show More next to Self-Employment
4. Start next to Self-Employment
5. Yes, to you have any self-employment income or expenses
6. Enter the type of self-employment work you do and you can select that you use your name for your business
7. Click through a few more screens and you will get to a screen that says "Your XX info"
8. Click Looks good
9. Then you will come to a screen that says Let's enter the income for your business.  It will give you the option of 1099-NEC or Other self-employed income including the 1099K , cash and checks.  Here is where you will enter your 1099
10. If you do not select one, it will not let you enter your income
11. Enter your self-employment income on the next screen
12. Continue and on the next screen click add expenses

This income will be reported on Schedule C which is part of your overall tax return. This also means you will be subject to SE Tax.   it may be a good idea to make  quarterly estimated payments to cover your SE taxes of 15.3% and avoid penalties.

If you have health insurance through a non-employer, you may also be able to deduct your health insurance premiums as a business deduction. The Self-Employed Health Insurance deduction is limited to your earnings.  Meaning, you cannot deduct more than you earned. This is also entered in the business expense section. 

Taking Business Expense Deductions

LLC Filing

[vze56v6x]

Since i will be freelance and a contractor, can I still deduct expenses even if I have no success gaining any work?  I am a software engineer and will be actively looking for contractor 1099 work starting June. My question is more around what happens if I have no success securing any work? Are the expenses for education and other business expenses still deductible?

[DawnC]

Yes, business deductions are still deductible even without income.    

If your business claims a net loss for too many years, or fails to meet other requirements, the IRS may classify it as a hobby, which would prevent you from claiming a loss related to the business. If the IRS classifies your business as a hobby, you'll have to prove that you had a valid profit motive if you want to claim those deductions.

When the IRS classifies your business as a hobby

For education expenses - If you’re self-employed, you can deduct education expenses as long as the education maintains or improves skills required by your current line of work, or is mandated by law or industry regulations (for example, if you’re required to take X hours of continuing education every year to keep your license). But if the education only allows you to meet the minimum requirements of your present trade or business, or qualifies you for a new line of work, you cannot deduct the cost.