From: mikec@scripps.edu (Mike A Christensen)
Newsgroups: misc.invest
Subject: Re: fat cat investors???
Date: 22 Jul 92 22:00:17 GMT
Distribution: usa
Organization: Research Institute of Scripps Clinic; La Jolla, CA

I appologize in advance for adding to the Great Givens Debate (No. 1992-14554).

In article <2060@tivoli.UUCP> dfavor@logan.tivoli.com (David Favor) writes:
>
>------- starting a software consulting business
>
>unfortunately you can no longer start decide to start a software consulting 
>business and receive payment on a 1099. as of 1986 this became illegal, well
>a better way to say it is that the IRS will penalize you for this activity.

Huh?  Software consulting illegal?  I better call my attorney...  The only thing
the IRS did was increase requirements for a "contractor" who was paid by a
single company to still be considered a "contractor".  I.e. if you look and
quack like an employee, you're an employee.  If the IRS decides you're
really an employee they charge you and the company you work for back taxes and
penalties.  I haven't heard of anyone going to jail over trying to call oneself
a "contractor".  If you have a "day" job and do consulting on the side, you do
not have to "prove" anything to the IRS.

>if you want to start a software consulting business the best form, for most
>individuals, is an S Corporation. be warned though... this is a long term
>choice. for this to work you will be required to spend a tremendous amount
>of time educating yourself. if you do not follow the correct 'Corporate form'
>of doing business (i.e. file appropriate paperwork, conduct/document corrent
>periodic and yearly meetings) the IRS may rule your Corporation is not actually
>a Corporation and penalize you.

If this is a dodge to get around the "employee" test above, good luck if the
IRS audits you.  This seems like overkill unless there is some other reason,
such as limiting liability.

>starting a software consulting business is time consumming, but the financial
>rewards are lucrative.

Hmmm, what's time consuming about keeping track of hours and sending billing
statements?

>------- starting some other business
>
>it may be beneficial to consider some other business that may be run as a
>sole proprietership. the best small business is one that deals with people.
>deductions are numerous and easy to prove. for example, a trading company.
>everywhere you travel you talk to merchants either to buy or sell goods.
>other people (non-merchants) you treat as potential customers. this type of
>business allows most personal expenses to be converted to business expenses.

Got me there, my accountant certainly turned up his nose when I suggested
deducting a visit to my Guru in Nepal as a necessary software business expense.
Maybe I need a new accountant.

>------- a word of caution
>
>for an activity to be considered a business it must be run with the intent to
>make a profit. rule of thumb is this. if a business shows three years of losses
>in the fourth year, close it down and start another small business.

The three year test is merely the simplest test to pass.  If you can show that
your business is not soley a tax-dodge, the IRS will let you lose money as
long as you want.  Reforming an S-corporation every three years seems like a
very expensive way to get the IRS interested in you.  If you want the IRS
interested in you, I can make a phone call (and get 10% to boot...).

>------- best small business
>
>for most people the best small business is based on an activity that is already
>engaged in, usually some form of hobby. just continue to do what you enjoy doing
>and find ways to structure your expenses as business expenses.

No argument there.

>------- this discussion elsewhere

Nah, this is netnews.

Mike Christensen
Newsgroups: misc.invest