Can you "expenses-in-a-corp V. standard deduction" in the USA?
This seems like a "too good to be true" tax dodge in the USA milieu.
Is it correct?
Sally is a graphic designer married with a typical family. She gets 0,000 in 2017 as 1099 income.
She buys a Graphics Monitor in 2017 for 00. We'll say, it is genuinely and absolutely a true and honest deductible expense for her work/clients. (She bought it for "a particular job" so the entire amount is deductible at once.)
She files her taxes. She gets the "standard deduction" of ,700. So it's completely pointless itemizing deductions.
In short she gets ,700 deductions.
She goes back in time and tries this:
She has an S-Corp (or LLC as an S-Corp). It is paid the 0,000 in 2017.
The monitor is a deduction, a cost, for the S-Corp. Which thus profits ,000 in 2017.
Sally gets ,000 income, and takes the standard deduction of ,700.
In short she gets ,700 deductions.
This appears to be an absolutely correct way to save 1000- in taxable income.
Any deductions ("costs") totaling under 12700 in situation "A" are totally wasted; in situation "B" you get them.
It seems too good to be true - am I correct?
Just a clarification for any future googlers, in fact I am not correct. IE, there is no advantage, you "get" the 00 either way. HartCO explains it below!
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It goes on Schedule C, which is business profit/loss, and has no impact on itemized deductions.
Business expenses (deductions) offset business income, so no matter which type of pass-through business entity she is using (Sole proprietorship,LLC,S-Corp,Partnership), the expenses will offset her business revenue. She's taxed on the profit from her business, not the revenue.
In both cases, she only has ,000 in business income reported in the income section of the 1040, and nothing further down on her tax return changes that. The only tax-disadvantage she faces filing as a sole-proprietor (example 1) is that she might pay more self-employment tax than if she has an S-Corp.
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