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Situations where one should minimize (or avoid) deductions for small IC/1099 income?

Home Tax Reduction Situations where one should minimize (or avoid) deductions for small IC/1099 income?

  • Avatar Snag75 
    Participant
    Status: Physician
    Posts: 179
    Joined: 12/09/2018

    I have some IC income which is a fraction of my W2 income, but last year I ended up claiming a HO and other business expenses which created quite a (relatively) large deduction.

    This year I won’t be able to deduct job expense for my W2 income (boo!) and will lose out on my high CA state and property tax deductions, so I thought, well at least I can deduct from my business, right?

    But this year I also wanted to open a solo-K and contribute to that (I’m behind on retirement contributions) and if I deduct too much business expenses, that means less I can contribute, right?  Also less for pass-thru deduction?

     

    Does it ever make sense to NOT take business deductions that I could technically qualify for?  Meaning, is my business income worth more as a 20% deduction (and 100% retirement contribution) than what the deductions might be worth?  What kind of numbers are we considering here (if it makes a difference, I plan to keep the money invested for 20yrs more)?

    Besides HO, there is internet and cell phone, as well as routine physician costs (licensing, CME, etc) which I guess I can’t deduct for W2 purposes now.  I’m also wondering that, if I can’t deduct those as job expenses for W2 physician income, can they be deducted (at 100%) for my 1099 income, or still only a fraction?

    Also fyi I do have the TT desktop software, so I could do all the calculations for all business expenses and see what happens to overall refund, but 1. I’d rather not calculate if I know the bottom line is that it’s better to max my investment or whatever, and 2. I want to know what is the “correct” answers are besides the tax consequences to me.

     

    Appreciate any input!

    #189330 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7797
    Joined: 01/09/2016

    To avoid taking business deductions for the purpose of artificially raising your contribution limit could be considered fraudulent. We had a convo about that here sometime in the last couple of years but it would take me forever to track it down. I do remember that @spiritrider had a very well-worded opinion.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #189332 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 2114
    Joined: 03/01/2018

    We had a convo about that here sometime in the last couple of years but it would take me forever to track it down. I do remember that @spiritrider had a very well-worded opinion.

    Click to expand…

    I do recall this as well but don’t recall the original thread

    @snag75 I think we already answered this same question for you

    https://www.whitecoatinvestor.com/forums/topic/damn-this-roth-stuff/page/2/#post-185478

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #189336 Reply
    Liked by jfoxcpacfp

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