Tax Lawyer's Blog

Joe Kristan reminds us once again of why you should not use the sole proprietor form of business:

A scary headline:  “Freelance? An IRS audit may be in your future.”

A Tax Court case yesterday shows why a Schedule C on your return might interest the tax man. A New York City taxpayer filed a Schedule C return for his “marketing” business showing no income, but $14,027 in expenses  — reducing his tax liability by $3,995.

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Early in my career another preparer told me that she made sure all of her clients had a Schedule C so they had a place to deduct personal expenses.  That motive is behind many multi-level marketing Schedule C businesses.  It’s not that easy.  The IRS over the decades has caught on, and money-losing Schedule C’s, especially those with little or no top-line income, have become invitations for a visit from your neighborhood revenue agent.

Some of our more cynical brethren will, no doubt, accuse Mr. Kristan of denigrating sole proprietorships in favor of corporations and LLC’s filed as S corporations simply in order to increase his fees. The last time we had this conversation and I suggested that businesses incorporate rather than file as Schedule C’s , El Maestro said this:

Returning to Peter Pappas – he gives us another blog list with “59 Tips for the Self-Employed” at THE TAX LAWYER’S BLOG. No disrespect meant to Pete, but I am not surprised that a lawyer would list “incorporate” as #1. As a general rule lawyers often get a huge fee for having their secretary type up some proforma papers and selling a corporate “kit”.

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