What’s fun to note is that there are supposedly legitimate ways to use this concept for personal gain, such as creating yourself an LLC and then contracting yourself out as a contractor to do work. Weird as hell, but supposedly has some benefits in the tech world.
I do IT contracting. There are some benefits to setting up an LLC and doing your contracting/consulting work out of it, but its nowhere near this Sovcit stuff.
With an LLC you can do things like:
depreciate equipment
recognize certain expenditures as business expenses and reduce your tax liability on the income your LLC gets. This can be things like internet access, office space, computing equipment, travel/meal expenses, mobile phone, and possibly even vehicles.
take loans and recognize that as a business expense.
The thing is you have to track all of the spending and be able to tie it back to business activities of your LLC. Also, these things you’re writing off you can’t also commingle with your personal life. If you buy/lease a BMW for your LLC, and the tax man finds out you drive it for cross country family vacations, you can get yourself in a mess of trouble and all your tax actions in the future (even legitimate ones) will be under a microscope for scrutiny.
You can also leave money you’ve earned in the company accounts to reduce your personal tax liability. If you earn $200k with your contracting in a year, but you only pay yourself a salary of $150k from your LLC, you only pay personal income taxes on the $150k, not the full $200k you earned. That doesn’t mean the other $50k is yours to spend on whatever tax free, though. However you can use that for certain expenses inside the company, which again, lowers the tax you pay.
All of this is nothing like the Sovcit stuff. LLC for contracting doesn’t mean you never pay taxes, it means you have some measure of control of when you pay taxes, and some things you buy can lower your tax burden, thats all.
I do IT contracting. There are some benefits to setting up an LLC and doing your contracting/consulting work out of it, but its nowhere near this Sovcit stuff.
With an LLC you can do things like:
The thing is you have to track all of the spending and be able to tie it back to business activities of your LLC. Also, these things you’re writing off you can’t also commingle with your personal life. If you buy/lease a BMW for your LLC, and the tax man finds out you drive it for cross country family vacations, you can get yourself in a mess of trouble and all your tax actions in the future (even legitimate ones) will be under a microscope for scrutiny.
You can also leave money you’ve earned in the company accounts to reduce your personal tax liability. If you earn $200k with your contracting in a year, but you only pay yourself a salary of $150k from your LLC, you only pay personal income taxes on the $150k, not the full $200k you earned. That doesn’t mean the other $50k is yours to spend on whatever tax free, though. However you can use that for certain expenses inside the company, which again, lowers the tax you pay.
All of this is nothing like the Sovcit stuff. LLC for contracting doesn’t mean you never pay taxes, it means you have some measure of control of when you pay taxes, and some things you buy can lower your tax burden, thats all.