For those of you who are teaching online - from a tax-savings/tax write-off perspective & other benefits for being an adjunct instructor, what is the best route to establish a business (sole proprietor, LLC, etc.)???? Thanks!!!
I am assuming most of you are not receiving a check made-out to your personal name.....maybe so ??????????????
From a tax perspective, I think being a sole proprietor is the way to go -- unless you're in a higher-liability field. ie Once I become a psychologist, I'll go for LLC because I may be able to get better insurance rates. But with an S-corp you'd effectively pay taxes twice (if memory serves), so that's out for me.
No, S-corps were established so that income would not be taxed twice. S-corp taxable income flows to Schedule E of an individual's tax return. http://en.wikipedia.org/wiki/S_corporation LLCs are similar, in that the entity does not pay tax, and income flows through to the owner(s) via their personal tax return(s). Mike Hanrahan CPA posted some info on taxation for online adjuncts here I believe or on the yahoo group onlineadjuncts - search function might bring it up.
It's only the regular C-corp that gets double taxed (once as a corporation, once as income of the owners); the S-corp's taxes "flow through" to the owner's personal taxes, i.e., the S-corp pays no taxes but the owner(s) declare the S-corp's income (or their portion thereof) on their personal taxes.
Tax Entity S corps and Partnerships are "flow-through" entities that do not pay income taxes, but instead pass the paper income through to their shareholders/partners. LLC's have no separate tax status under the law - they must adopt the tax status of either a partnership/proprietorship, C-corp or S-Corp, and file the appropriate tax form (1065, Sch C, 1120 or 1120S). A single member LLC is what they call a "disregarded entity" for federal tax purposes. How it is treated for state income tax purposes varies and could be taxed for state income tax purposes but not federal. You need to check the rules in your jurisdiction. There is legislation under consideration that would cause all earnings form S-Corps and partnerships to be taxable for self employment tax purposes. I don't think it will get far, but you never know. I do not generally recommend setting up a separate entity for teaching. Although I am a single member LLC, I am so because of my professional CPA practice. Golden Gate issues me a W-2. Technically, because they treat me as an employee, my directly related expenses should be treated as unreimbursed employee business expenses on Schedule A to the 1040. Under the 20 factor test, I could probably challenge Golden Gate's treatment of me as an employee, and include the revenue on my Schedule C, but it is not worth it to me. If you are getting a 1099, then it depends on how the earnings are being shown on the form. If they show as "nonemployee compensation", you should probably do a schedule C and deduct your expenses, including, if warranted, an office in the home deduction. The office in the home deduction is generally the greatest for a schedule C business. If the income is shown as "Other Income" then you can get away with putting it on line 21 of your 1040, and including the related expenses on Schedule A. Or possibly as a deduction on line 21. The LLC and other entities are more of an asset protection move than a tax move. If you choose to be an S or C corp, you must issue your self a formal paycheck and do the required tax deposits and file the required 990s, 941s and state payroll tax forms. I find it to be a real pain, which is why I elected to be a single member LLC rather than an S-Corp, which I was when I had my previous firm with 5 employees and had to do payroll anyhow. There are certain advantages to filing a Sch C, which include being able to employ your children (they do not pay payroll taxes, you get a full deduction, including a reduction of self employment taxes, and the income is shifted to their lower tax rate, plus it allows them to do an IRA). Of course, the previous comments could all change depending on your particular circumstances, and should not therefore be considered to be professional advice. You should go see a GOOD tax person. Mike Hanrahan
