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Old 03-23-2009, 09:52 AM   #21
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Money is money. It doesn't matter whether it comes from your right pocket or your left pocket. Whether you contribute $16,500 from your day job or your free-lance work just does not matter except in the case of employer match. Note that you could contribute $16,500 from your day job and still be able to contribute some of your free-lance income to a solo-401(k).
One big difference is that I have more control over the Solo 401(k). I would rather manage my own plan than be tied to my employers. If I go with my employer 401(k) I have to use Fidelity and only have a limited # of funds. If I go with a solo 401(k) I can choose which company (planning on Vanguard) and I have more control over the account. You can also contribute more to a solo 401(k).
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Old 03-24-2009, 12:57 PM   #22
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I do my son's taxes and I have a question about free-lance income and taxes. My son is employed full time. He's trying his hand at free-lance photography on the side. Last year he took pictures for a company (not the company he works for) and received a 1099-Misc. for the $1,000 he billed them. My question is, since the amount was inserted in box 7, which I assume tells IRS he is self-employed, am I asking for trouble if I deduct expenses such as the camera, tripod, mileage, and computer he used? My thoughts are to depreciate the camera and computer and take full deduction on the tripod.
Any advice will be greatly appreciated.
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Old 03-24-2009, 01:05 PM   #23
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Last year he took pictures for a company (not the company he works for) and received a 1099-Misc. for the $1,000 he billed them. My question is, since the amount was inserted in box 7, which I assume tells IRS he is self-employed, am I asking for trouble if I deduct expenses such as the camera, tripod, mileage, and computer he used? My thoughts are to depreciate the camera and computer and take full deduction on the tripod.
Provided the camera and the computer are ONLY used in that side business (i.e. not also for personal uses), that sounds like it would be reasonable. Keep in mind that the IRS doesn't like to see a "business" that usually loses money -- if you lose money as a sole proprietorship on Schedule C three times in a five year period, you're likely to be reclassified as a "hobby" and lose the deductions. (Seeing a loss in the first year because of capex and other startup costs isn't at all unusual, though.)
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Old 03-24-2009, 01:55 PM   #24
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As a photographer and someone who gets a W2 and also has Schedule C income, I would say that if your son uses his equipment outside of his free-lancing, then it is not deductible. I would find it is very difficult to have 2 computers: one for work and one for games, fun, hobbies, reading this forum.

OTOH, the IRS would never know unless an audit occured. And for such low income would probably never trigger an audit.

If son bought some photography books, then they could be 100% expensed on Schedule C (where the income goes) including a book on how free-lance photographers should do their taxes.

But in the end what you decide to deduct really depends on how aggressive you want to be. If the return is audited and the taxes changed, that is actually a very small consequence.
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Old 03-24-2009, 02:37 PM   #25
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I have a full-time day j*b, and I earn some additional income as an artist. I've never been audited, but my understanding is that if you start claiming business deductions, the IRS really likes to see evidence that you're trying to run a profitable business, as opposed to trying to deduct expenses for a hobby.

If your son's only side income was that one job for $1000, then I don't think I'd try deducting too many expenses. On the other hand, if he's had a few jobs like that throughout the year, was keeping good business records, actively promoting himself as a photographer, etc, then he should go for every deduction that he's legally entitled to.
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Old 03-24-2009, 05:54 PM   #26
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Thank you all for the advice. It's been very helpful.
This has been an interesting discussion.
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Old 03-27-2009, 05:18 PM   #27
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This was really helpful to me. I just started an individual qualified 401k/Roth 401k at E*Trade after reading through this thread. I can dump most of my self emplyment income into the Roth version and some of it into the non-Roth. And I can make regular Roth IRA contributions in addition to the Roth 401k. Just what I was looking for.

Kind of complicated to wade through all the tax requirements, applications, and getting an employer identification number. But it should be worth it for the extra Roth funds.
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Old 03-27-2009, 06:27 PM   #28
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Quote:
Originally Posted by Poundkey View Post
I do my son's taxes and I have a question about free-lance income and taxes. My son is employed full time. He's trying his hand at free-lance photography on the side. Last year he took pictures for a company (not the company he works for) and received a 1099-Misc. for the $1,000 he billed them. My question is, since the amount was inserted in box 7, which I assume tells IRS he is self-employed, am I asking for trouble if I deduct expenses such as the camera, tripod, mileage, and computer he used? My thoughts are to depreciate the camera and computer and take full deduction on the tripod.
Any advice will be greatly appreciated.
I do my own Schedule C, and have done a few for son, and in-laws.

If you receive a 1099, it is not unusual to have legitimate expenses. If the tripod is used 25% or 50% or 100% for business, write it down. If he will continue to receive 1099 income, take the depreciation over time, instead of writing off $1500 for equipment against $1000 income. He probably has auto expenses too. If using these legitimate expenses gets the profit margin to 50%, it would not surprise me, or the IRS.
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