AboutGlenn D Schnabel Expertise I can answer most federal individual income tax questions.
I can not provide legal advise.
Experience I have worked for a CPA firm for over 11 years.
I have worked in private as well as government
I have recently been running a tax preparation office, mainly focusing on
individual income taxes
Organizations I have been affiliated with managing condo associations and as a member of a coalition to educate condo owners as to their rights and responsibilities.
Education/Credentials I have my B.S.B.A in Business Administration . Concentration in Accounting
I have gone to yearly tax seminars and have tried to keep up with the
evolving tax changes
Awards and Honors Over my years I have received local awards for contributions to worthy
organizations.
Past/Present Clients This, of course remains confidential
Question I was laid-off approximately 3 months ago as a result of an office closure and have decided to go back to school to receive an MBA. However, I am about to receive a $70,000 payment from a client that I retained. I have two questions.
1) What is the best way for me to receive this payment for tax purposes? As an individual, contract employee, or should I form a company of some sort?
2) The amount of this payment is just over the tuition for the MBA program. Is there a tax advantage to using this money to lump sum the tuition?
Thanks!
--Sam
Answer Sam,
Thank you for your question.
1) What is the best way for me to receive this payment for tax purposes? Are there any expenses associated with the $70,000 you will collect? Will there be a 1099 issued to you or are taxes taken out?
If a 1099 will be issued , then you will be responsible to pay the 15.3 self employment tax on it. You would file a Schedule C and SE with your Form 1040 You maybe able to take deductions against it, such as cell phone usage, office at home (only if for the convenience of the employer), auto expenses and any other expenses associated with generating the income.
If you will get it on a W-2 , you may have unreimbursed business expenses, which pass to as an itemized deduction subject to a 2%
adjustment of your total income.
Maybe you could set up a corporation, but the check needs to be paid to the business . You have set up fees. The corporate rates are lower.
2) The amount of this payment is just over the tuition for the MBA program. Is there a tax advantage to using this money to lump sum the tuition?
You will be able to take
1) a credit against tax which will reduce your taxes, as long as your income is under $57000 (single status) (max credit lower of $2000 or tax) (IRS form 8863)
2) or else you can claim it as a deduction against income (IRS form 8917) ,as long as your income is not more than $80,000
3)or as an unreimbursed business expense. The criteria is "To be deductible, your expenses must be for education that maintains or improves your job performance or serves the purpose of your employer and is required by the employer or by law to keep your salary, status or job."
