- Mark as New
- Bookmark
- Subscribe
- Subscribe to RSS Feed
- Permalink
- Report Inappropriate Content
Deductions & credits
Congratulations! You sound committed, focused, and you've done a little homework on it, already.
Regarding insurance, take a look at this link. It seems to cover all the bases:
Whether you are simply a sole-proprietor or a single member LLC, the result on your tax return will be the same. You will show income received and all related expenses on a schedule C of your tax return. If you use Turbo Tax, it will automatically take out the required 15.3% for social security and medicare, computed on the end of year income (revenue less expenses) that you'll show on your schedule C . That amount will transfer to your 1040 tax return and be added to any other income tax you may have incurred.
The only advantage to an LLC is the perceived advantage of being personally protected (financially) in the case of a liability lawsuit against you. A single member LLC is easy to form, though depending on the state, you're usually required to register with a modest fee, at least upon inception. Due to the limited protection it may offer, you might want to start out as a sole proprietor, which involves no extra work, and no filing requirements with the state. If things get really successful in subsequent years, you can always crank up an LLC later, at any time.
Either way, it is imperative that you maintain accurate bookkeeping records of all business transactions. You should set up a separate business checking account to help segregate your business and personal expenses.
You are right about the 179 write off of a business auto. However, the limit on a personal vehicle for immediate write off was $10,200 last year. That's the most you can take in the first year under Sec 179. You can, however, continue to depreciate the balance in future years based on the standard depreciation tables. All of those numbers will be reduced by 90%, if that is the estimated business use. However, and this is a big HOWEVER, you need to keep accurate records of the actual mileage used personally and for business. The records must be kept "contemporaneously", that is, you keep a daily journal to record mileage at the start, and at the end, of each day, along with mileage used personally. You can't just "claim" 90% and be done with it. Typically, by the end of a full year, the results of your record keeping may show that personal use was only 8% or was a higher 12%. The recording of actual auto use is what produces the true year end percentage - not the other way around! Check out battery powered as well, since Federal credits have been around $7,500 per car.
Finally, as a profitable sole proprietor, you will need to make estimated payments quarterly, since you will be classified as a contractor. If you were actually employed by DoorDash, you would have Fed and State (and maybe city) taxes automatically withheld from your weekly paycheck. But, as a contractor, it's your responsibility to pay these accumulated taxes to the Fed, State (and maybe city) agencies on a quarterly basis.
So....bottom line: Let's say after 3 months you're earned $13K in revenue and incurred $3K in expenses. That's a $10K profit! But, don't put all of that in your pocket! Whenever you’re successful, the IRS and the state wants to be your partner. I don’t know what your non-business income is and I don’t know what state you are in, but I advise that you pull 25% out of your monthly earnings and put it in a separate account, so that, by the end of the quarter, you have enough to make the required quarterly estimated payments to both the Feds and the State. If you’ve put 25% in a separate account, each month, you’ll have enough, by the end of the quarter, to send $2,100 to the IRS and $900 to the State. That might be more than you need to pay, but worse case, you’ve over estimated your quarterly payments and by year end, you’ll qualify for a refund which you can keep or apply to the first quarter of the next year.
And one final thought: make sure you are fully aware of any city taxes, requirements, or business licensing. Best of luck to you in this exciting new venture!
