At risk – at risk losses are deductible because they are not nonrecourse loans or loss stop by a guarantee. All at-risk amounts are then used to offset the taxable income in the year.
If the loss is greater than the taxable, NOL is then created. An NOL can carry forward to offset 80% of the taxable income in the following year.
Start-up costs if less than $50,000 can have $5,000 deducted in the first year, while the rest will be deducted over the 180 months (15 years). Any amount over $50,000 will offset the current year $5,000 deduction dollar for dollar. Organization/incorporation costs follow the same rule.
Health insurance premiums deduction – deductible if you are self-employed and you are not offered by any (including spouse’s) employer. Long-term care could also be deductible. The amount deductible is the lesser of the premium paid or the net profit subtracts 1/2 SE tax.
SE Retirement Plans: The following retirement plans are mostly the same other than the contribution amount assuming the business has no employees. Individual 401k generally allows you to contribute more. These are above-the-line adjustment meaning they help to reduce income tax but not SE tax.
- SEP IRA – contribution amount is the lesser of 22% of Sch C profit minus 1/2 SE tax or $55,000
- SIMPLE IRA – employee portion of $12,500 (catch-up contribution is $3,000) plus 3% of sch C profit
- Individual 401k – employee portion of $18,500 plus 20% of net sch C profit (catch-up contribution is $6,000)
- Roth 401k – only employee portion of $18,500 (catch-up contribution is $6,000)
Clashes with other retirement plans
- no affects on your ability to contribute to traditional or Roth IRA
- Having SEP/SIMPLE/solo 401k means that you are “considered to be covered by a retirement plan at work”, so if your AGI is over a certain amount, traditional and roth IRA may not be available.
- Having a W-2 job with you contributed to a 401k account will limit the amount you can contribute to SIMPLE and solo 401k.
Benc Tan 