0

A friend and I are planning on going into business together in California. We plan to purchase $20k worth of parts to build a computer to rent out on vast.ai. We project that our revenue will be $2500 / month.

Our goal is to reduce our tax burden by writing off the $20k purchases, electricity costs, and any future purchases. The problem is both of us plan on taking a standard deduction, as we have very few other items to write off in our personal lives.

The current idea is to form a General Partnership, which we've been told will allow us to deduct the expenses from the business, and pass only the profits to us personally.

Is this the correct way to do this? Will this help us avoid being double-taxed? Are we going about this completely the wrong way? 😅

Improve this question
1
  • Business deductions (Sched C) are separate from standard/itemized deductions (Sched A), so that should not be a concern. There may be other nuances that make a GP worth it, but itemizing deductions on personal taxes should not be one of them.
    – D Stanley
    Oct 13 at 16:44

1 Answer 1

Reset to default
3

General partnership is your default structure. You might want to formalize it with a properly written operating agreement, but when you start a sentence with "my friend and I" - you're describing a general partnership unless you explicitly did something else.

Business expenses are not included in the standard deduction. Your losses from schedule C or schedule E will not get limited because of the standard deduction election.

Improve this answer
2
  • Would it benefit us at all to even form a General Partnership then?
    – uPaymeiFixit
    Oct 13 at 17:39
  • 2
    @uPaymeiFixit you form it by the fact that you're going into business together. "A friend and I" is a general partnership. What you're probably asking is "would it benefit us at all to formalize it with an operating agreement" - yes, very much so, please do that.
    – littleadv
    Oct 13 at 17:43

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .