Outsourcing deduction?

christianbed

christianbed

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In the very early stages of setting up an online biz, which I hope to step into when I move back to the states in a year. I've been studying/working/travelling around the world for the past 5 years or so, so I'm not as conversant on home business deductions as some of you will be.

My question is if I throw up a site in the next 6 mos, use my paypal business account to accept payment, but outsource most of the work, whether that cost of outsourcing can be claimed as a business expense. E.g. I source clients offline who need websites, but farm the site construction out to another firm. Let's say $700 in revenue from client, I pay $200 to site designer and pocket the $500...is that $200 cost something I can expense, and if so, what is it deductible as, category-wise?

Thanks in advance.
 
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Does this mean that nobody on BHW pays taxes? :-)
 
richelld said:
paying taxes is not blackhat, take it to the warriorforum
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Seriously dude? Are you just having a laugh? There are long threads here about various tax strategies...I was looking for helpful advice from professionals here who may have dealt with a similar situation; but you gave me a snarky comment? Not paying taxes is called evasion, and it is a federal offense...so I hope nobody here follows your advice unless they want to meet the ugly side of a team of federal prosecutors. Not paying MORE taxes than necessary is what I'm interested in, and is totally legal. Moreover, when one purchases a home, bankers tend to feel tax statements are pretty important, so I'm not sure what you're on about, but please keep it to yourself next time.
 
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If you are US based then its deducted as an expense. I also assume you are starting this business as unincorporated (ie. sole proprietorship). If that is the case then the applicable form you will be filling out is the schedule c form on the 1040. I am sure most of it will be classified as contract labor or other expenses. You can deduct every expense that is directly used to operate the business but that expense must be 100% used for the business. Everything you contract out can be deducted. Your internet connection cannot be deducted because you use it for personal use.

Remember, you only pay tax on your PROFIT. Make sure to either report a loss or profit. If you are constantly reporting break-even then it looks like a red flag to the IRS. Make sure to keep your nose clean in terms of taxes and make sure to have good records. If you are going to expense something make sure you can PROVE that expense was used for the business. You want to keep good records in case of an audit. If that happens the IRS agent is going to make you prove all your expenses. If you can't prove it then the IRS will consider it an invalid expense and make you pay tax + interest + penalties on the invalid expenses. If you are using paypal as your primary business account then make sure to PRINT out the transaction records.

Also remember, if you have generated a taxable activity then pay the taxes. The only way to get around paying taxes is by avoiding them, not evading them.

I would post the link myself but I don't have the sufficient post count. The relevant document you want to read is the schedule c 1040 instruction manuel from the irs website. Type, "2011 Instruction 1040 Schedule C - Internal Revenue Service" into google to find the document.
 
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adf23aadf23adsf23adf said:
If you are US based then its deducted as an expense. I also assume you are starting this business as unincorporated (ie. sole proprietorship). If that is the case then the applicable form you will be filling out is the schedule c form on the 1040. I am sure most of it will be classified as contract labor or other expenses. You can deduct every expense that is directly used to operate the business but that expense must be 100% used for the business. Everything you contract out can be deducted. Your internet connection cannot be deducted because you use it for personal use.

Remember, you only pay tax on your PROFIT. Make sure to either report a loss or profit. If you are constantly reporting break-even then it looks like a red flag to the IRS. Make sure to keep your nose clean in terms of taxes and make sure to have good records. If you are going to expense something make sure you can PROVE that expense was used for the business. You want to keep good records in case of an audit. If that happens the IRS agent is going to make you prove all your expenses.
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That was my hunch. We currently run an LLC in SE Asia, and as an international couple with two different nationalities who have lived the last 5 years in countries other than our own, taxes are a nightmare to figure out.

Anyway, I appreciate this overview, because I'll be sure to keep meticulous records of expenses. I was classified as self-employed about 8 years ago when living in the States, and if memory serves, I had to prove that my home office was not being used for other purposes. My guess is that even mileage is an expense if I'm driving around to drum up business, have lunch with clients, etc. However the car itself wouldn't be because I will use it for personal use. However, I could expense a fiber connection and vps if used for biz only, then get a second line for personal use...I suppose browsing bhw counts as business-related? :-)
Anyway, as for records, do you use QuickBooks or something like that, or do you just keep a shoebox full of receipts under the bed? Refreshing to hear from someone who has their head on straight though...thanked and repped.
 
That would be considered a business expense in every sense of the term. So deductible.

However, NEVER EVER trust an internet forum when dealing with taxes. Hire a professional, but more importantly, educate yourself so you know that you're doing it right. Even the professionals get it wrong.
 
iiaok said:
That would be considered a business expense in every sense of the term. So deductible.

However, NEVER EVER trust an internet forum when dealing with taxes. Hire a professional, but more importantly, educate yourself so you know that you're doing it right. Even the professionals get it wrong.
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Nah, you don't need to hire professional. Like I said, read that schedule c 1040 instructions it lists every little rule you need to follow.

Back in the day i used to do taxes and that's what I did when I didn't know how to do something. Go to the relevant form instructions. Despite what people think, the IRS lays the rules out very clearly in those instructions.

Anyway, I appreciate this overview, because I'll be sure to keep meticulous records of expenses. I was classified as self-employed about 8 years ago when living in the States, and if memory serves, I had to prove that my home office was not being used for other purposes. My guess is that even mileage is an expense if I'm driving around to drum up business, have lunch with clients, etc. However the car itself wouldn't be because I will use it for personal use. However, I could expense a fiber connection and vps if used for biz only, then get a second line for personal use...I suppose browsing bhw counts as business-related? :-)
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All the answers to these questions are in the schedule c 1040 manuel.

Anyway, as for records, do you use QuickBooks or something like that, or do you just keep a shoebox full of receipts under the bed? Refreshing to hear from someone who has their head on straight though...thanked and repped.
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When I first started I just logged everything with paypal, had very little expenses. Domain, hosting and few seo services here and there. 100% of revenue went into paypal account. Now I use quickbooks.
 
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adf23aadf23adsf23adf said:
If you are US based then its deducted as an expense. I also assume you are starting this business as unincorporated (ie. sole proprietorship). If that is the case then the applicable form you will be filling out is the schedule c form on the 1040. I am sure most of it will be classified as contract labor or other expenses. You can deduct every expense that is directly used to operate the business but that expense must be 100% used for the business. Everything you contract out can be deducted. Your internet connection cannot be deducted because you use it for personal use.

Remember, you only pay tax on your PROFIT. Make sure to either report a loss or profit. If you are constantly reporting break-even then it looks like a red flag to the IRS. Make sure to keep your nose clean in terms of taxes and make sure to have good records. If you are going to expense something make sure you can PROVE that expense was used for the business. You want to keep good records in case of an audit. If that happens the IRS agent is going to make you prove all your expenses. If you can't prove it then the IRS will consider it an invalid expense and make you pay tax + interest + penalties on the invalid expenses. If you are using paypal as your primary business account then make sure to PRINT out the transaction records.

Also remember, if you have generated a taxable activity then pay the taxes. The only way to get around paying taxes is by avoiding them, not evading them.

I would post the link myself but I don't have the sufficient post count. The relevant document you want to read is the schedule c 1040 instruction manuel from the irs website. Type, "2011 Instruction 1040 Schedule C - Internal Revenue Service" into google to find the document.
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nice fuckin username.... how do you rememeber that shit?

auto complete HAS to be a must.

Sorry for the off topic post I just had to say, but back on topic yes I think it would be an expense
 
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