Business Plan Rules
What is consider to be a Business?
For tax purposes, what is a business according to IRS rules? My plan is to have a business dealing with lending money to other people and paying delinquent real estate property taxes. I am not interested in getting customers. I want to be able to take off expenses for tax purposes when I am ready to attend real estate tax sales in other states.
I will be bidding on loans through a company call Prosper.com. This company does all of the paperwork for every state. I do not contact customers, I just help fund their requests, and then collect after Prosper receives the payments. The real estate property taxes are another part of my business. I would pay the county the property taxes and then the county will place a lien on that person’s property. Again, I would not have any contact with the property owners.
If you want to compute profit after deducting related expenses from income, then it is business. That is you file schedule C with your 1040.
Make sure to keep proper record of income and expenses. Better have a separate bank account for this activity so that you don’t mix personal expenses and business expenses.
On schedule C you record your income and expenses and the net income from schedule C is put on line 12 of Form 1040. Your business income is also subject to self-employment taxes @ 15.3%.
There is another alternative. You lend money on interest. You show all this income as interest income on your 1040. You can’t deduct related expenses. Interest income is passive (or unearned) income and is not subject to 15.3% taxes. However, IRS may have objection in treating this income as unearned income if you are actively engaged in it.
Community Rules and Your Business
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