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If I have an LLC that is say a gutter cleaning business and I then want to sell an unrelated product or service, say home made soap (or whatever), can I just do that via the gutter cleaning business? So can I claim that as business revenue and write off expenses and all that? Or must I form another superstar LLC/sole proprietorship/etc.? Thanks.
As long as you account for it as one entity, the government doesn’t care unless YOU want to separate liabilities and risk for some reason. For example if the gutter business gets sued, the soap business is at risk too.
If I have an LLC that is say a gutter cleaning business and I then want to sell an unrelated product or service, say home made soap (or whatever), can I just do that via the gutter cleaning business? So can I claim that as business revenue and write off expenses and all that? Or must I form another superstar LLC/sole proprietorship/etc.? Thanks.
Umm, well, I suppose that depends. If you have a money-making business that would normally be subject to income taxes and then try to incorporate some hobby or fake business in order to decrease your taxable profits, then I don't think IRS would allow that if they catch it.
For example, suppose I have a profitable business selling and installing aluminum siding on houses and then decide to include my baseball card collecting as part of my business so that I can write off all the expenses of travelling to card shows, staying in motels, business lunches, etc. IRS is not going to fall for me including what is actually a hobby as part of my legitimate business.
In this instance, I think IRS would insist that I keep my aluminum siding business separate from my baseball card "business". The reason being is that my baseball card business is really just a sham business designed to provide tax relief for my real business.
IRS has rules about businesses having to show profits for a certain number of years in order to be considered a real business. Trying to include a phony "business" that perpetually loses money in order to shelter profits for a legitimate business is highly frowned upon by IRS and could result not only in your having to pay back taxes but also heavy penalties. I suppose that if you carried it far enough, they could even include prison time if convicted.
Bottom line: I strongly suggest that you keep the business expenses totally separate and report them as separate businesses. When I had numerous rental properties, I couldn't lump them all together for tax reporting. I had to keep income, expenses, and depreciation separate for each property and report it as such.
Umm, well, I suppose that depends. If you have a money-making business that would normally be subject to income taxes and then try to incorporate some hobby or fake business in order to decrease your taxable profits, then I don't think IRS would allow that if they catch it.
For example, suppose I have a profitable business selling and installing aluminum siding on houses and then decide to include my baseball card collecting as part of my business so that I can write off all the expenses of travelling to card shows, staying in motels, business lunches, etc. IRS is not going to fall for me including what is actually a hobby as part of my legitimate business.
In this instance, I think IRS would insist that I keep my aluminum siding business separate from my baseball card "business". The reason being is that my baseball card business is really just a sham business designed to provide tax relief for my real business.
IRS has rules about businesses having to show profits for a certain number of years in order to be considered a real business. Trying to include a phony "business" that perpetually loses money in order to shelter profits for a legitimate business is highly frowned upon by IRS and could result not only in your having to pay back taxes but also heavy penalties. I suppose that if you carried it far enough, they could even include prison time if convicted.
Bottom line: I strongly suggest that you keep the business expenses totally separate and report them as separate businesses. When I had numerous rental properties, I couldn't lump them all together for tax reporting. I had to keep income, expenses, and depreciation separate for each property and report it as such.
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I had a business for 25+ years. The IRS could care less what we sold. People act like because you can apply an expense against profit you are somehow ahead. You aren’t. If you make $100 and have $50 in expenses you still only have $50 left. Taxation of business profits is much more complex than this of course, with rules for food, travel and entertainment, but “writing things off” is not a magic elixir.
The OP didn’t mention real estate or a phony business so I am not sure how that applies.
I had a business for 25+ years. The IRS could care less what we sold. People act like because you can apply an expense against profit you are somehow ahead. You aren’t. If you make $100 and have $50 in expenses you still only have $50 left. Taxation of business profits is much more complex than this of course, with rules for food, travel and entertainment, but “writing things off” is not a magic elixir.
The OP didn’t mention real estate or a phony business so I am not sure how that applies.
THanks. I get what the other poster is saying. In my case, it is not phony but again, I get it.
My wife has a very legit and profitable org. She's been a sole proprietor for years and we are forming an LLC for reasons I don't need to get into. But I also have 2 side gigs that bring in an ok amount but only a side income rather than a living. I'm just wanting to keep it as simple as possible so was thinking that since it's a small(ish) amount per year, that we would just do everything through the one LLC.
We do have a higher end rental property that brings in a good amount but I'm not sure where that fits into all this. It's been past time for us to get all this in order and I am positive we've left a lot of money on the table that hasn't been needed but we have a busy life so its been a challenge, and we haven't been as organized as we should be. Sometimes I feel like losing some money is worth a life of more simplicity.
I reached out to some tax and business advisors for advice but thought I'd ask here too. So far, my on line reasearch says we can put expenses and profits through one LLC no matter where the income derives so this confirms that. But I'll get advice from others as well.
My husband and I both have sole proprietorships and each file a Schedule C. When we were audited years ago there were a couple of expenses that we deducted from one business that should've been deducted from the other. The IRS agent didn't care since we filed jointly. He also didn't care where our sales income came from or what we sold as long as we reported every single penny.
My husband and I both have sole proprietorships and each file a Schedule C. When we were audited years ago there were a couple of expenses that we deducted from one business that should've been deducted from the other. The IRS agent didn't care since we filed jointly. He also didn't care where our sales income came from or what we sold as long as we reported every single penny.
I don't think an LLC would change that.
Just don't confuse "the agent didn't care" with "doing it correctly". The next time, you may get a different agent who does care. Maybe, maybe not. Just saying.
Just don't confuse "the agent didn't care" with "doing it correctly". The next time, you may get a different agent who does care. Maybe, maybe not. Just saying.
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Noted. His point was that because we filed jointly, the end result would be the same either way.
In the OP's situation, they'll need to keep good records of product sales vs service income so they can report their sales taxes properly.
I had a business for 25+ years. The IRS could care less what we sold.
Of course they "could care less" because they actually care quite a bit. Trying to co-mingle non-deductible hobby losses within an otherwise profitable business will almost assuredly be disallowed on audit.
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People act like because you can apply an expense against profit you are somehow ahead. You aren’t. If you make $100 and have $50 in expenses you still only have $50 left. Taxation of business profits is much more complex than this of course, with rules for food, travel and entertainment, but “writing things off” is not a magic elixir.
The OP didn’t mention real estate or a phony business so I am not sure how that applies.
No one is misunderstanding the nature of business expenses.
Of course they "could care less" because they actually care quite a bit. Trying to co-mingle non-deductible hobby losses within an otherwise profitable business will almost assuredly be disallowed on audit.
No one is misunderstanding the nature of business expenses.
Who said anything about commingling hobby losses? The OPs question was about selling unrelated items. And yes, people do misunderstand business expenses. They don’t give you “free” things. They still cost you money and some are not 100% deductible.
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