self-employed tax trap???? - Posted by SteelStampede

Real Estate Investing Real Estate Law
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Posted by SteelStampede on October 04, 2007 at 19:33:40:

Thanks for your response.
DK

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self-employed tax trap??? - Posted by SteelStampede

Posted by SteelStampede on October 02, 2007 at 19:40:59:

I recently read info that mentioned protecting yourself from the self-employed tax trap. Also, I am presently trying to decide the best entity for asset protection and am confused. Can someone guide me toward a book that you recommend that covers this?

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Not a Trap - Posted by Jimmy

Posted by Jimmy on October 06, 2007 at 06:56:29:

self-employed folks pay the same income taxes as do employees. the difference in with the employment taxes, where the SE people pay both halves.

before you call this a trap, consider the advantages of being SE:

  1. SE folks can deduct a lot more stuff than can employees. a lot of otherwise “personal” stuff can reasonably be deducted as business expenses.

  2. SE folks do not have bosses. or a$$es to kiss. to me, this is PRICELESS. I was 31 the last time I had a boss. that was 16 year ago.

  3. those of us REIs who buy and hold rental poperties sidestep the employment tax system altogether. Net rental income is not subject to emplyment taxes, because Congress (in their wisdom) considers it to be “passive.” and the occasional sale of properties creates capital gains, which is also not subject to employment taxes. [warning: investors can cross the line and become “dealers” in real estate by flipping properties].

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Re: self-employed tax trap??? - Posted by Bill Jacobsen

Posted by Bill Jacobsen on October 04, 2007 at 10:43:02:

I am not familiar with a book that covers this but here is my opinion. First, develop a business plan. Second,never borrow money to start or expand a business. Third, buy adequate insurance to protect assets.

I don’t know what tax trap they are talking about but I do know that you are required to pay both the employer’s and employee’s ssocial secutity portion. The best way to lesson that burden is to pay yourself a small salary and use any remaining cash to grow the business and/or distribute by way of dividends which are not subject to social security. The salary should be on the low end of what someone doing the same kind of work would make.

You should consult with a CPA and Lawyer.

Good Luck.

Bill