So i purchased a local website that is a restaurant review site. It is/was fairly popular but the owner let it sit for the last 6 months. Its a PR2 gets about 50 uniques a day, still, somehow...blah blah blah.
I don't know what that last sentence bolded above means, or if it's relevent.
How was this purchase structured, an asset sale or a stock sale?
Now to the tax question. One day I hope I can make a few bucks off the site selling ads and things like that. If I were to create a business and get a tax ID and everything else that goes with starting a business.....could I take the fees of hosting, going to restaurants to review them, and any other costs and use them as deductions? Does this help my personal income taxes or is it totally seperate?
There are several ways to structure a business, or several different types of 'enities'
1.
Sole proprietor This is an unincorporated business. Generally no need to get a tax ID #, your SS# will suffice (However, if you have employees you will need to get an employer ID# from the IRS for filing payroll reports).
The income or loss from this business will affect your personal tax situation. The income or loss is computed (generally) on Sch C and attached to your personal return (Form 1040). The income or loss is carried to page 1 of your return (also goes to Sch SE where self-emloyment taxes are calculated)
2.
S Corp. This is an incorporated business and you will need a tax ID# for it.
The income/loss will affect your personal tax situation. An S-corp does not pay income tax, rather the shareholder(s) agree to put their portion (assume 100% in your case) of it's income/loss on their personal tax return. You report it's income/loss on a Sch E attached to your return, the income/loss is carried to page 1 of your return. There is no self-employment tax.
3.
Regular or C-corp. Again, this is incorporated and needs a tax ID#.
The income/loss from it will NOT your personal taxes. It pays it's own taxes. You just (generally) report any salary or dividends from profits you receive from it.
4.
Partnership. Again, it's a legal entity (but a partnership instead of an incorporated entity) and it needs it's own tax ID#.
The income/loss will affect your personal taxes. A partnership doesn't pay income taxes, instead the partners put their share of it's income/loss on their personal returns. Again, goes on Sch E etc. However, in general profits from a partnership are subject to self-employment taxes.
5.
A Limited Liability Company - or LLC This can be taxed as anything from #1-#4 above, depending upon an election you would make in it's first year. There is no such thing as an LLC tax return'
If there is only one owner ("member") it cannot be taxed as a partnership - #4
Th expenses of the business can be deductible. Depending upon how your purchase was structured (asset or stock) you may be able to deduct the cost of purchase.
Im sure im not asking some things so if you can think of anything after reading this that I should know please include it. I just think this is a good way to combine my love for journalism and eating lol and want to make a nice hobby out of it.....and maybe make like $100/month to pay for small bills.
thanks guys
"Hobby"?
There are hobby loss rules (google them irs.gov). Well here:
http://www.irs.gov/newsroom/article/0,,id=169490,00.html
If you make a profit in 3 out 5 yrs the presumption is that it is a business and losses will be allowed (this is relevent to entities above #1, 2, and 4). However, even if you have losses for all 5 yrs you still might be able to overcome th ehobby loss rules and get a deduction for the losses.
Edit: If it's a restaurant review site of course you can deduct the cost of the meals (and tips). You can deduct travel to the restaurant also.
I also see you intend to make a monthly profit, if so the hobby loss ruyles will not apply (the are only for disallowing losses, if no losses no problem)
Hope that helps,
Fern
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