Can I write off time spent learning my trade - Two-Man S-Corp
"I'm not sure what you mean by ""writing off your time,"" but to answer your questions: Remember that, essentially, you are a salaried employee of a corporation.  So if you are spending time at your job, even if you are not billing anything to a client, you are earning your salary. If there are costs involved with these activities (maybe class fees, a book purchase, or travel expenses), the corporation should be paying the costs as business expenses.  However, the logistics of this, whether the corporation writes a business check to the vendor directly, or you put the expenses on a personal credit card and are reimbursed with an expense check from the corporation, don't matter.  Your accountant can show you the right way to do this."
Good answer.  I set up an S-Corp on my own, but I intend to transfer our intellectual property to an LLC at a later date.  I would say hiring an attorney to draft an operating agreement is a must and worth the expense. Let me first start off by saying that you need to be careful with an S-Corp and defined contribution plans.  You might want to consider an LLC or some other entity form, depending on your state and other factors. You should read this entire page on the irs site:  S-Corp Retirement Plan FAQ, but here is a small clip: Contributions to a Self-Employed Plan You can’t make contributions to a self-employed retirement plan from your S corporation   distributions. Although, as an S corporation shareholder, you receive   distributions similar to distributions that a partner receives from a   partnership, your shareholder distributions aren’t earned income for   retirement plan purposes (see IRC section 1402(a)(2)). Therefore, you   also can’t establish a self-employed retirement plan for yourself   solely based on being an S corporation shareholder. There are also some issues and cases about reasonable compensation in S-Corp.  I recommend you read the IRS site's S Corporation Compensation and Medical Insurance Issues page answers as I see them, but I recommend hiring CPA You should be able to do option B.  The limitations are in place for the two different types of contributions:  Elective deferrals and Employer nonelective contributions.  I am going to make a leap and say your talking about a SEP here, therefore you can't setup one were the employee could contribute (post 1997). If your doing self employee 401k, be careful to not make the contributions yourself. If your wife is employed the by company, here calculation is separate and the company could make a separate contribution for her. The limitation for SEP in 2015 are 25% of employee's compensation or $53,000.  Since you will be self employed, you need to calculate your net earnings from self-employment which takes into account the eductible part of your self employment tax and contributions business makes to SEP.  Good read on SEPs at IRS site. and take a look at chapter 2 of Publication 560. I hope that helps and I recommend hiring a CPA in your area to help. There is such a thing as a buy-write, which is buying a stock and writing a (covered) call simultaneously. But as far as I know brokers charge two commissions, one stock trade and one options trade so you're not going to save on commissions. IRS pub 521 has all the information you need. Expenses reimbursed. If you are reimbursed for your expenses and you   use the cash method of accounting, you can deduct your expenses either   in the year you paid them or in the year you received the   reimbursement. If you use the cash method of accounting, you can   choose to deduct the expenses in the year you are reimbursed even   though you paid the expenses in a different year. See Choosing when to   deduct, next. If you deduct your expenses and you receive the   reimbursement in a later year, you must include the reimbursement in   your income on Form 1040, line 21 This is not unusual. Anybody who moves near the end of the year can have this problem. The 39 week time test also can be an issue that span over 2 tax years. I would take the deduction for the expenses as soon a I could, and then count the income in the later year if they pay me back. IF they do so before April 15th, then I would put them on the same tax form to make things easier. thanks for the advice, I still have few weeks before my master course starts and would like to do more reading regarding trading, any books that you would recommend ?   Also I always assume that modelling skill is not that important in sales and trading, is my assumption correct ? Modelling is probably one of my weak skills but if it is needed I would like to work further on it   thank you "You should probably have a tax professional help you with that (generally advisable when doing corporation returns, even if its a small S corp with a single shareholder). Some of it may be deductible, depending on the tax-exemption status of the recipients. Some may be deductible as business expenses. To address Chris's comment: Generally you can deduct as a business on your 1120S anything that is necessary and ordinary for your business. Charitable deductions flow through to your personal 1040, so Colin's reference to pub 526 is the right place to look at (if it was a C-corp, it might be different).  Advertisement costs is a necessary and ordinary expense for any business, but you need to look at the essence of the transaction. Did you expect the sponsorship to provide you any new clients? Did you anticipate additional exposure to the potential customers? Was the investment (80 hours of your work) similar to the costs of paid advertisement for the same audience? If so - it is probably a business expense. While you can't deduct the time on its own, you can deduct the salary you paid yourself for working on this, materials, attributed depreciation, etc. If you can't justify it as advertisement, then its a donation, and then you cannot deduct it (because you did receive something in return). It might not be allowed as a business expense, and you might be required to consider it as ""personal use"", i.e.: salary." "This seems to depend on what kind of corporation you have set up. If you're set up as a sole proprietor, then the Solo 401k contributions, whether employee or employer, will be deducted from your gross income.  Thus they don't reduce it. If you're set up as an S-Corp, then the employer contributions, similar to large employer contributions, will be deducted from wages, and won't show up in Box 1 on your W-2, so they would reduce your gross income.  (Note, employee contributions also would go away from Box 1, but would still be in Box 3 and 5 for FICA/payroll tax purposes). This is nicely discussed in detail here. The IRS page that discusses this in more (harder to understand) detail is here. Separately, I think a discussion of ""Gross Income"" is merited, as it has a special definition for sole proprietorships. The IRS defines it in publication 501 as: Gross income.    Gross income is all income you receive in the form of money, goods, property, and services that is not exempt from tax. If you are married and live with your spouse in a community property state, half of any income defined by state law as community income may be considered yours. For a list of community property states, see Community property states under Married Filing Separately, later. Self-employed persons.    If you are self-employed in a business that provides services (where products are not a factor), your gross income from that business is the gross receipts. If you are self-employed in a business involving manufacturing, merchandising, or mining, your gross income from that business is the total sales minus the cost of goods sold. In either case, you must add any income from investments and from incidental or outside operations or sources. So I think that regardless of 401(k) contributions, your gross income is your gross receipts (if you're a contractor, it's probably the total listed on your 1099(s))." Unless you own a business and the car is used in that business you can't write off your auto repairs. If you start a sole-proprietorship in your own name there are all sorts of things you can write off as long as there is a reasonable expectation of profit. This includes a portion of your car repairs, a portion of your home expenses (assuming it's a home-based business), any tools used in the business, all kinds of stuff. The portion of your auto is based on total miles driven in the year vs. total miles driven for business purposes. Eligible auto expenses include repairs, gas/oil, insurance, parking, and interest on the auto loan. There are some things to remember: I'm no expert on California business law. Talk to a lawyer and an accountant if you wish to go this way. Many offer a half-hour free session for new clients. Only if your work on the side is making you at least £60,000 profit a year. The overheads are just not worth it if you make less. Working as a sole trader, you can still claim for expenses incurred in the course of your business. You can also claim a percentage of your computer costs, even though you may use the computer for gaming. This is not unreasonable as the computer is necessary for your work. The Inland Revenue accept the fact that some assets are part work-related. In your case, as a web and mobile phone developer, I expect the percentage to be at least half, if not a lot more. If you need to travel in the course of your work you can claim a percentage for your car. You can include other small expenses such as telephone, stationery, electricity etc but don't go overboard. The important point to remember is that you must be able to defend the expenses claimed as work-related, so long as you can do this there is no problem. Remember to keep good records of all your expenses. This is on-going throughout the year and is much more work than filling out your tax return. The software on the IR self-assessment site is excellent, so it's conceivable that you may not need an accountant if you are prepared to do your own tax return. However, if you feel unsure employ an accountant initially and take it from there. How much is your time worth This has been useful for me, judging things based on how much their time value is worth to me, weighted more heavily than their actual worth. For instance, there was a time when I used to work on the weekends and pay to have my laundry done. Doing the laundry myself would have cost 25 cents, but taken two hours at least. Since I was making $45 an hour, I would have lost $90 dollars by doing my laundry, instead of paying specialists $28 to do it for me, much better than I would. Your own capital should begin growing at a rate that makes many MANY things worth less than the time it takes for you to entertain it. So in your cable bill example, you shouldn't have argued for a $5 credit for two hours, unless you make $2.25 an hour, after tax. This is simplistic, as you would extrapolate how much this would cost you over a year or two, but such cost benefit analysis' become easy with this simple concept. This can also be used to rationalize your lavish expenditures. Such as not really comparing the costs for a flight, because its a 2 hour flight for $400 and you've found yourself making at least $200 an hour with your $416,000 annual earnings and capital gains. This will cure your frugality while retaining safe guards on your spending. If I sell it for $50 can I write off the $50 loss. Only if you can establish that it is a normal part of your business and that you did not get $50 worth of use out of it.  That's the technical, legal argument.  As a practical matter, it's unlikely that they'll ding you for selling something after using it, as they won't know.  If they did catch you, you would be in trouble.  You can't deduct loss due to personal use.   The larger problem is that if you sell one TV for a $50 loss, they aren't going to believe that you are in the business of selling TVs.  If you sell a larger amount for a loss, then they still are unlikely to believe that you are in business.  If you sell a large amount for an overall gain, they are unlikely to notice that you took a loss on one TV.  They could only notice that if they were already auditing you, as that wouldn't be visible in your tax forms. Probably not. If you were at a small company and asked such a question, you'd get advice and links to erisa or other case law, etc.  it's safe to say that a Fortune 500 company such as IBM is going to have their facts in order, and not going to run afoul of the rules in these cases (vesting rules and takeover of other company).  I was in a company that cancelled its pension program. Those of us with the required years got the option of a lump sum payout, those with less than 5 years had no vested value and got nothing. One month longer employment, in the case of a particular coworker, would have given him a lump sum worth nearly 6 months pay. Assuming your country is the United States there is.  See schedule C line 9 and the corresponding instructions.   There are many rules associated with this, in some cases the entire purchase can be written off but typically if the truck is only used for business.  Most people write off partial usage in the form of credits for mileage. You are best to consult with a CPA once your business earns a profit.  Good luck. You need to clarify with Bob what your agreement is. If you and Bob are working together on these jobs as partners, you should get a written partnership agreement done by a lawyer who works with software industry entity formation. You can legally be considered a partnership if you are operating a business together, even if there is nothing in writing. The partnership will have its own tax return, and you each will be allocated 50% of the profits/losses (if that's what you agree to). This amount will be reported on your own individual 1040 as self-employment income. Since you have now lost all the expense deductions you would have taken on your Schedule C, and any home office deduction, it's a good idea to put language in the partnership agreement stating that the partnership will reimburse partners for their out-of-pocket expenses. If Bob is just hiring you as a contractor, you give him your SSN, and he issues you a 1099, like any other client. This should be a situation where you invoice him for the amount you are charging. Same thing with Joe - figure out if you're hiring him as an independent contractor, or if you have a partnership. Either way, you will owe income and self-employment tax on your profits. In the case of a partnership, the amount will be on the K-1 from the partnership return. For an independent contractor who's operating as a sole proprietor, you report the income you invoiced for and received, and deduct your expenses, including independent contractors that you hired, on your Schedule C. Talk to your tax guy about quarterly estimated payments. If you don't have a tax guy, go get one. Find somebody people in your city working in your industry recommend. A good tax person will save you more money than they cost. IRS Circular 230 Notice: Please note that any tax advice contained in this communication is not intended to be used, and cannot be used, by anyone to avoid penalties that may be imposed under federal tax law. Your freelance income will not qualify you for the work-from-home deductions, for that you would need a T2200 form signed by your employer. But, you are allowed to be self employed as a sole-proprietorship while still being an employee of another company. If you take that route, you'll be able to write-off even more expenses than those you linked to. Things like a portion of your internet bill can be claimed, for example. But note that these deductions would only apply to offset the self-employment income, so if you're not earning very much from the freelance work, it might not be worth all the hassle. Filing taxes when self-employed is definitely more complicated, and many people will get professional tax preparation help - at least for the first time.