Income and Loss

[JimVaPhuong 4,863]

OK maybe you need to look at it if YOU are at the minimum level of income to qualify like this...

I have 30000 in revenues, I have 14000 I can write off giving me 16000 to be taxed BUT I need to show 21800 to qualify therefore as a business owner I lose out on 5800 of my allowable write off....

Ok, sounds like you didn't have a loss after all. You just didn't have enough of a profit to clear the threshold.

The revenues from my business were about $30,000, but I SPENT about $36,000, leaving me with a $6000 loss for the year. That $6000 came out of my pocket, and reduced the line 22 total income by $6000. This was the first year for my business, so the loss was expected. The income from my full time job more than makes up for the loss, so I'm still above the 125% threshold by a very comfortable margin.

A. I didn't say this was me.

B. This has nothing to do with 2nd jobs to cover the amount needed to qualify.

C. This could happen equally to a business having 250k in revenue with payroll, insurance, cost of goods blah blah blah. Carry Over losses from previous years, and depreciation. THE FACT is you could have to NOT take allowable losses just to qualify and IT IS NOT FAIR period. I only used your simplistic AMWAY business model for simplicity. I'm sorry but FACTS are FACTS.

A. Ok.

B. Neither USCIS nor the consulate is going to isolate the various sources you get your money from when they look at your total income. So, yes, this has everything to do with EVERY source of income. If your business is your only source of income, then it has to be enough to meet the threshold.

C. Anything you spend on payroll, insurance, cost of goods, capital equipment, facilities, office supplies, shipping expenses, etc. - these are all legitimate business expenses. They also account for money that is NOT your income. You can't use that money to pay your mortgage, make your car payment, or buy food. This is money that is absorbed by the business. Losses and depreciation for previous years is STILL money spent, even though it wasn't spent last year. You might not take the same depreciation on the same asset next year, but presumably you'll have new assets to claim depreciation on. These average out, over time. One year with extraordinarily high expenses or unusually low revenues CAN make subsequent years look worse, but the truth is that you're only replacing money that was previously lost, and not making new profit.

BTW, my "simplistic AMWAY business model" is an electronics product manufacturing company. I have all of the expenses listed above except payroll (I can't have employees in a home based business in my city), but I do hire contractors to assemble products for me. I have dealers on four continents. The only thing I don't have yet is volume, mainly because I don't have the manufacturing volume to take on any more dealers. The main reason I lost money last year was because I had to spend over $10,000 for mandatory lab testing to have my products certified for FCC and EC standards.

[Steve_and_Lina 0]

Actually, I'm in a discussion now with the US Consulate in Moscow on this very topic, as this is throwing a major wrench in the visa applications for my wife and stepdaughter.

I work mainly as an independent contractor and the majority of my income is reported to me on 1099s. When I do my taxes, I fill out a Schedule C and on line 7, enter my total income. Further down the form, I then enter all my deductions, subtract them from my income, and this figure gets transferred over to my 1040 on line 12.

Now, the issue of contention is this. According to the Foreign Affairs Manual Volume 9 (which is the guidebook for the regulations involving, among other things, immigrant visas), in section 9 FAM 40.41 N5.5-1, income is defined as follows:

"Income", for the purpose of Form I-864, means total unadjusted income as shown on the tax return, before deductions. Total unadjusted income includes not only salary (if any) but also monetary gains from any other source, such as rent, interest, dividends, etc.

It is my argument that the amount that gets transferred over to the 1040 line 12 is not unadjusted income, but adjusted income, since that figure represents my income minus deductions. As you can see, that conflicts with the directive I quoted above.

Instead, when considering income, I am contending that the State Department should use the figure on line 7 of the Schedule C and all other income on lines 7-11 and 13-21 on form 1040.

I will post a new comment when the Consulate issues their ruling. In the meantime, I'll continue to be sick to my stomach from worrying and unable to sleep. Isn't this fun?

[JimVaPhuong 4,863]

Actually, I'm in a discussion now with the US Consulate in Moscow on this very topic, as this is throwing a major wrench in the visa applications for my wife and stepdaughter.

I work mainly as an independent contractor and the majority of my income is reported to me on 1099s. When I do my taxes, I fill out a Schedule C and on line 7, enter my total income. Further down the form, I then enter all my deductions, subtract them from my income, and this figure gets transferred over to my 1040 on line 12.

Now, the issue of contention is this. According to the Foreign Affairs Manual Volume 9 (which is the guidebook for the regulations involving, among other things, immigrant visas), in section 9 FAM 40.41 N5.5-1, income is defined as follows:

"Income", for the purpose of Form I-864, means total unadjusted income as shown on the tax return, before deductions. Total unadjusted income includes not only salary (if any) but also monetary gains from any other source, such as rent, interest, dividends, etc.

It is my argument that the amount that gets transferred over to the 1040 line 12 is not unadjusted income, but adjusted income, since that figure represents my income minus deductions. As you can see, that conflicts with the directive I quoted above.

Instead, when considering income, I am contending that the State Department should use the figure on line 7 of the Schedule C and all other income on lines 7-11 and 13-21 on form 1040.

I will post a new comment when the Consulate issues their ruling. In the meantime, I'll continue to be sick to my stomach from worrying and unable to sleep. Isn't this fun?

Line 7 on schedule C is your gross income after cost of goods, etc., but before your business expenses are deducted. It's still not an accurate reflection of how much money you have to live on because it hasn't taken account of how much money your business needs to "live" on. Your business gets fed before you do.

Think of it this way - if you were an employee of a company, would you expect the IRS to consider money your employer spent on your office furniture as your income? Of course not! That money was spent on the business, and that furniture belongs to the business. The IRS draws a distinct line between what is income and expense for the business, and what is income and expense for the individual. Since you are self employed, you have to draw that line for them.

It sounds to me like they want to know your total income before personal deductions. This is how much money you personally have to live on.

I hope you manage to work this out with the consulate, but I wouldn't hold my breath. I'm sure you're not the first self employed sponsor they've had to deal with, and it's unlikely they're going to change the rules now. I haven't looked, but I'd bet there's a memorandum somewhere that tells them exactly how they're supposed to interpret a tax return. You could probably save yourself all this grief by lining up a co-sponsor.

Good luck!

[pushbrk 12,822]

Actually, I'm in a discussion now with the US Consulate in Moscow on this very topic, as this is throwing a major wrench in the visa applications for my wife and stepdaughter.

I work mainly as an independent contractor and the majority of my income is reported to me on 1099s. When I do my taxes, I fill out a Schedule C and on line 7, enter my total income. Further down the form, I then enter all my deductions, subtract them from my income, and this figure gets transferred over to my 1040 on line 12.

Now, the issue of contention is this. According to the Foreign Affairs Manual Volume 9 (which is the guidebook for the regulations involving, among other things, immigrant visas), in section 9 FAM 40.41 N5.5-1, income is defined as follows:

"Income", for the purpose of Form I-864, means total unadjusted income as shown on the tax return, before deductions. Total unadjusted income includes not only salary (if any) but also monetary gains from any other source, such as rent, interest, dividends, etc.

It is my argument that the amount that gets transferred over to the 1040 line 12 is not unadjusted income, but adjusted income, since that figure represents my income minus deductions. As you can see, that conflicts with the directive I quoted above.

Instead, when considering income, I am contending that the State Department should use the figure on line 7 of the Schedule C and all other income on lines 7-11 and 13-21 on form 1040.

I will post a new comment when the Consulate issues their ruling. In the meantime, I'll continue to be sick to my stomach from worrying and unable to sleep. Isn't this fun?

Line 7 on schedule C is your gross income after cost of goods, etc., but before your business expenses are deducted. It's still not an accurate reflection of how much money you have to live on because it hasn't taken account of how much money your business needs to "live" on. Your business gets fed before you do.

Think of it this way - if you were an employee of a company, would you expect the IRS to consider money your employer spent on your office furniture as your income? Of course not! That money was spent on the business, and that furniture belongs to the business. The IRS draws a distinct line between what is income and expense for the business, and what is income and expense for the individual. Since you are self employed, you have to draw that line for them.

It sounds to me like they want to know your total income before personal deductions. This is how much money you personally have to live on.

I hope you manage to work this out with the consulate, but I wouldn't hold my breath. I'm sure you're not the first self employed sponsor they've had to deal with, and it's unlikely they're going to change the rules now. I haven't looked, but I'd bet there's a memorandum somewhere that tells them exactly how they're supposed to interpret a tax return. You could probably save yourself all this grief by lining up a co-sponsor.

Good luck!

There are various scenarios where the tax advantages of being self-employed come back to haunt the sponsor. Some things are as simple as revenue minus expenses equals "income" but some are not.

I've done the same work both as a 1099 contractor and W2 employee and had the same expenses in either case. Fortunately, when I sponsored my wife, I was an employee. Now that I'm not, the "employee business expenses" that did not go on a schedule C or reduce the line 22 total income. The result is a lower income on line 22 even though my financial condition is identical. There's a difference between "allowable write-offs" and actual expenses. Most of my expenses were from claiming mileage on a pretty economical older vehicle, where actual expense was significantly lower and where personal and business mileage tends to be co-mingled quite a bit. If I stop to buy something for home on the way back from sales call, that's still business use.

Another issue is depreciation. Depreciation of a capital investment will reduce income without any actual impact on funds available for personal use.

I don't know the specifics of Pizza Dude's situation but do bear in mind the difference between "allowable deductions" and "actual expenses". The main reason we have so many accountants is to help businesses reduce their taxable income while preserving cash to benefit the owners. You can't have your cake and eat it too. Tax advantages, bite your butt at affidavit of support time. It's not "unfair". It's "different".

[SnME 3]

If you owned your business and on your tax paperwork, you showed loss. Will that count against you? will that give us a RFE or Red Flag?

It depends if you are saying your business showed a total loss or just lost some money for that time period.

I only had my business for half the year last year and I worked right after that. The total income is well over $20K which is above the poverty level?

When you say the "total income" is well over $20K. Do you mean the sales are well over $20K before you take out expenses etc...OR after your losses the leftover money is well over $20K?

Also, lets say, I made $8k working for a business, and I have a $20K car.. How do I calculate the car as an asset?

Unless you have 2 cars it won't count. The $8K will count if you have a 1099 or w-2.

Like Gary said Line 22 on you 1040 federal tax form is the # you need to be concerned with.

Good Luck

BTW I have my own business and dealt with this issue quite extensively last year moving money from one place to other to qualify without giving up ALL my allowable write offs. This process is very unfair to the business owner, you must give up GENUINE allowable expenses sometimes to qualify, and that in my opinion is unfair.

As a small buisiness owner myself, here is MY 2cents worth here...

You do not necessarily HAVE to write off losses in the same year that they occured as a 'loss' or 'expense' to your buisiness. Some losses may also be written off over a period of time instead of all at once in a single year (The 'leasing' of a buisiness vehicle comes to mind here vs. just straight up buying one outright for cash... You STILL got a buisiness vehicle but you spread the loss out over a period of time instead of it occuring all at once... ) 'Depreciation over time' is also something to consider here...

Another Example: I could buy some tools or supplies for my buisiness this year but 'misplace' the receipts and not actually write them off until next year or the year after... It is still a legitimate buisiness expense and you are not forced to write it off in the same year that you incurred it. This would make your buisiness income appear higher for that year.

You can also move the income numbers from one year to the other by planning your purchases in advance and timing them correctly. Ex: If you know that your buisiness income is too high for the year and that they are going to kill you on taxes, Go out and buy the stuff you were planning to purchase for the buisiness in the following year NOW so those legitimate buisiness expenses can help offset the higher income on this years taxes. Same idea also works the other way, If your buisiness income is too low this year, put off spending that is not absolutely required to keep things going. Let the 'inventory' run low for a bit and then stock back up after the new year rolls around...

If you sit down with a 'good' accountant / tax preparer and explain what you are trying to do here they can help you get the number to 'do right' without you having to worry about an audit. It is best to see one sooner than later...

Taxes suck!!!

A good accountant / tax professional can advise you and help you keep those numbers where they need to be to meet your goals.

[SnME 3]

BTW I have my own business and dealt with this issue quite extensively last year moving money from one place to other to qualify without giving up ALL my allowable write offs. This process is very unfair to the business owner, you must give up GENUINE allowable expenses sometimes to qualify, and that in my opinion is unfair.

I'm confused by this. How is this unfair to business owners? What you have left on line 22 is more or less the same as what an employee would have left here - total personal income before adjustments, taxes, etc. Not deducting business expenses would make this number higher, but the fact is that you still spent that money on your business - it wasn't available for you to live on, and it won't be available for you to support your spouse.

An allowable loss reduces your taxable income, TO INCREASE your income on line 22 you have to NOT take these losses to qualify ... where is the confusion?

Yes, money spent on the business COULD not be claimed in order to generate MORE taxable income. Maybe you are thinking backwards.

I don't think I'm thinking backwards. I think I'm understanding you completely. I also have a home based business, in addition to a full time job. My total revenues from the business last year were over $30,000, but I took a net loss of around $6000. This reduced MY taxable income by $6000. I don't see this as being unfair, because in the end I spent $6000 more than I made. I think it's only fair that neither the $30,000 in revenues, nor the $6000 that came out of my own pocket, should be considered as if they were income that was actually available to me to support my fiancee/spouse.

The IRS considers what was left after my loss to be my total income, and it seems proper to me that the consulate and USCIS should do the same.

Hey Bro,

Just FYI (for your information),

When your 'buisiness' COSTS you money like that, It is not a buisiness anymore. THAT is a 'hobby'. A 'buisiness' actually MAKES money and should not cost money...

I do understand the laws with respect filing buisiness income as a total loss for the year AND I can understand why some people may need to do this to get the 'numbers' right at the end of the year when filing a joint return together with a spouse that had a REAL job with lots of income but still... If you are losing money like that with your 'buisiness', It is a 'hobby' that you are NOT making money with.

I got hobbies that cost me as well. I just don't refer to them as a buisiness if they are not actually making me money...

[JimVaPhuong 4,863]

Hey Bro,

Just FYI (for your information),

When your 'buisiness' COSTS you money like that, It is not a buisiness anymore. THAT is a 'hobby'. A 'buisiness' actually MAKES money and should not cost money...

I do understand the laws with respect filing buisiness income as a total loss for the year AND I can understand why some people may need to do this to get the 'numbers' right at the end of the year when filing a joint return together with a spouse that had a REAL job with lots of income but still... If you are losing money like that with your 'buisiness', It is a 'hobby' that you are NOT making money with.

I got hobbies that cost me as well. I just don't refer to them as a buisiness if they are not actually making me money...

And an FYI for you...

Most businesses lose money the first year. This is when you usually have the greatest expenses. The IRS has a series of tests they apply to determine if something is a legitimate business, including whether you INTENDED to make money. If the only test was whether you made or lost money in a given year, then there are whole lot of businesses that ceased to be businesses in the past year, because they lost money. If you can manage to make a profit in 3 out of 5 years then the IRS will generally not question whether you have a legitimate business.

I fully expected to lose money last year. I knew I would have to pay certification testing fees on my new products - fees that will never again have to be paid on those products. I knew I would have to lay out several thousand dollars in capital equipment - equipment I will not have to replace for many years. I expect to make a small profit this year, on top of investing thousands more "out of pocket" dollars into my business. Within 5 years I expect to have moved my home-based business into a small manufacturing facility, have replaced my contract assemblers with employees, and have quit my day job and be working my business full time.

[SnME 3]

Hey Bro,

Just FYI (for your information),

When your 'buisiness' COSTS you money like that, It is not a buisiness anymore. THAT is a 'hobby'. A 'buisiness' actually MAKES money and should not cost money...

I do understand the laws with respect filing buisiness income as a total loss for the year AND I can understand why some people may need to do this to get the 'numbers' right at the end of the year when filing a joint return together with a spouse that had a REAL job with lots of income but still... If you are losing money like that with your 'buisiness', It is a 'hobby' that you are NOT making money with.

I got hobbies that cost me as well. I just don't refer to them as a buisiness if they are not actually making me money...

And an FYI for you...

Most businesses lose money the first year. This is when you usually have the greatest expenses. The IRS has a series of tests they apply to determine if something is a legitimate business, including whether you INTENDED to make money. If the only test was whether you made or lost money in a given year, then there are whole lot of businesses that ceased to be businesses in the past year, because they lost money. If you can manage to make a profit in 3 out of 5 years then the IRS will generally not question whether you have a legitimate business.

I fully expected to lose money last year. I knew I would have to pay certification testing fees on my new products - fees that will never again have to be paid on those products. I knew I would have to lay out several thousand dollars in capital equipment - equipment I will not have to replace for many years. I expect to make a small profit this year, on top of investing thousands more "out of pocket" dollars into my business. Within 5 years I expect to have moved my home-based business into a small manufacturing facility, have replaced my contract assemblers with employees, and have quit my day job and be working my business full time.

MY buisiness has never posted a loss. Well over 15 years of profits now and still counting...

My 'hobbies' have cost me piles. I can understand a guy with hobbies. Please do not misunderstand me here...

Post up about your 'buisiness' after you have made a few dollars with it bro...

Until you actually make some money, It is still a 'hobby'... Some guys just don't like to admit it...

Some guys feel 'bad' about their hobby costing them so much money and time so they call it a 'buisiness' instead to keep from looking foolish. They start calling it a 'buisiness' to justify their expenses...

If you have not made money......... It is a 'hobby'............

[pushbrk 12,822]

Hey Bro,

Just FYI (for your information),

When your 'buisiness' COSTS you money like that, It is not a buisiness anymore. THAT is a 'hobby'. A 'buisiness' actually MAKES money and should not cost money...

I do understand the laws with respect filing buisiness income as a total loss for the year AND I can understand why some people may need to do this to get the 'numbers' right at the end of the year when filing a joint return together with a spouse that had a REAL job with lots of income but still... If you are losing money like that with your 'buisiness', It is a 'hobby' that you are NOT making money with.

I got hobbies that cost me as well. I just don't refer to them as a buisiness if they are not actually making me money...

And an FYI for you...

Most businesses lose money the first year. This is when you usually have the greatest expenses. The IRS has a series of tests they apply to determine if something is a legitimate business, including whether you INTENDED to make money. If the only test was whether you made or lost money in a given year, then there are whole lot of businesses that ceased to be businesses in the past year, because they lost money. If you can manage to make a profit in 3 out of 5 years then the IRS will generally not question whether you have a legitimate business.

I fully expected to lose money last year. I knew I would have to pay certification testing fees on my new products - fees that will never again have to be paid on those products. I knew I would have to lay out several thousand dollars in capital equipment - equipment I will not have to replace for many years. I expect to make a small profit this year, on top of investing thousands more "out of pocket" dollars into my business. Within 5 years I expect to have moved my home-based business into a small manufacturing facility, have replaced my contract assemblers with employees, and have quit my day job and be working my business full time.

Spoken like a business owner to a non-owner. If business life were only as simple as most "employees" think it is, well I guess we would all be in business. On the other hand, there are people who make their hobby a business, in order to take advantage of tax laws. You need not have a "loss" to have a huge tax advantage. A hobby business that makes or loses only a few bucks a year but saves you hundreds or thousands in taxes, is both a business AND a hobby. I've got one of those too. :-)

All this takes a back seat to USCIS requirements when it comes to affidavits of support. That's where the tax benefits can come back and bite you. Can't have it both ways. What the system doesn't account for is the kind of legitimate business expenses that when "spent" don't actually impact our personal life styles. For instance, my businessess can't operate without phones, computers, a car, internet connections and other such legitimate needs, I would be paying for with after tax income, if I weren't already paying for them with before tax income.

Back in the 80's when people in my industry all had company provided automobiles they could use for personal travel, banks would consider that worth an extra ten grand a year when qualifying for a home loan. It would be a lot more than that now, but it doesn't work that way with USCIS.

[JimVaPhuong 4,863]

Hey Bro,

Just FYI (for your information),

When your 'buisiness' COSTS you money like that, It is not a buisiness anymore. THAT is a 'hobby'. A 'buisiness' actually MAKES money and should not cost money...

I do understand the laws with respect filing buisiness income as a total loss for the year AND I can understand why some people may need to do this to get the 'numbers' right at the end of the year when filing a joint return together with a spouse that had a REAL job with lots of income but still... If you are losing money like that with your 'buisiness', It is a 'hobby' that you are NOT making money with.

I got hobbies that cost me as well. I just don't refer to them as a buisiness if they are not actually making me money...

And an FYI for you...

Most businesses lose money the first year. This is when you usually have the greatest expenses. The IRS has a series of tests they apply to determine if something is a legitimate business, including whether you INTENDED to make money. If the only test was whether you made or lost money in a given year, then there are whole lot of businesses that ceased to be businesses in the past year, because they lost money. If you can manage to make a profit in 3 out of 5 years then the IRS will generally not question whether you have a legitimate business.

I fully expected to lose money last year. I knew I would have to pay certification testing fees on my new products - fees that will never again have to be paid on those products. I knew I would have to lay out several thousand dollars in capital equipment - equipment I will not have to replace for many years. I expect to make a small profit this year, on top of investing thousands more "out of pocket" dollars into my business. Within 5 years I expect to have moved my home-based business into a small manufacturing facility, have replaced my contract assemblers with employees, and have quit my day job and be working my business full time.

MY buisiness has never posted a loss. Well over 15 years of profits now and still counting...

My 'hobbies' have cost me piles. I can understand a guy with hobbies. Please do not misunderstand me here...

Post up about your 'buisiness' after you have made a few dollars with it bro...

Until you actually make some money, It is still a 'hobby'... Some guys just don't like to admit it...

Some guys feel 'bad' about their hobby costing them so much money and time so they call it a 'buisiness' instead to keep from looking foolish. They start calling it a 'buisiness' to justify their expenses...

If you have not made money......... It is a 'hobby'............

...and some business owners can spell "business".

... bro!

[payxibka 10,045]

If you have not made money......... It is a 'hobby'............

Hmmmmm.... tell that to GM or anyone of the airlines

[thepizzadude 26]

Actually, I'm in a discussion now with the US Consulate in Moscow on this very topic, as this is throwing a major wrench in the visa applications for my wife and stepdaughter.

I work mainly as an independent contractor and the majority of my income is reported to me on 1099s. When I do my taxes, I fill out a Schedule C and on line 7, enter my total income. Further down the form, I then enter all my deductions, subtract them from my income, and this figure gets transferred over to my 1040 on line 12.

Now, the issue of contention is this. According to the Foreign Affairs Manual Volume 9 (which is the guidebook for the regulations involving, among other things, immigrant visas), in section 9 FAM 40.41 N5.5-1, income is defined as follows:

"Income", for the purpose of Form I-864, means total unadjusted income as shown on the tax return, before deductions. Total unadjusted income includes not only salary (if any) but also monetary gains from any other source, such as rent, interest, dividends, etc.

It is my argument that the amount that gets transferred over to the 1040 line 12 is not unadjusted income, but adjusted income, since that figure represents my income minus deductions. As you can see, that conflicts with the directive I quoted above.

Instead, when considering income, I am contending that the State Department should use the figure on line 7 of the Schedule C and all other income on lines 7-11 and 13-21 on form 1040.

I will post a new comment when the Consulate issues their ruling. In the meantime, I'll continue to be sick to my stomach from worrying and unable to sleep. Isn't this fun?

Line 7 on schedule C is your gross income after cost of goods, etc., but before your business expenses are deducted. It's still not an accurate reflection of how much money you have to live on because it hasn't taken account of how much money your business needs to "live" on. Your business gets fed before you do.

Think of it this way - if you were an employee of a company, would you expect the IRS to consider money your employer spent on your office furniture as your income? Of course not! That money was spent on the business, and that furniture belongs to the business. The IRS draws a distinct line between what is income and expense for the business, and what is income and expense for the individual. Since you are self employed, you have to draw that line for them.

It sounds to me like they want to know your total income before personal deductions. This is how much money you personally have to live on.

I hope you manage to work this out with the consulate, but I wouldn't hold my breath. I'm sure you're not the first self employed sponsor they've had to deal with, and it's unlikely they're going to change the rules now. I haven't looked, but I'd bet there's a memorandum somewhere that tells them exactly how they're supposed to interpret a tax return. You could probably save yourself all this grief by lining up a co-sponsor.

Good luck!

There are various scenarios where the tax advantages of being self-employed come back to haunt the sponsor. Some things are as simple as revenue minus expenses equals "income" but some are not.

I've done the same work both as a 1099 contractor and W2 employee and had the same expenses in either case. Fortunately, when I sponsored my wife, I was an employee. Now that I'm not, the "employee business expenses" that did not go on a schedule C or reduce the line 22 total income. The result is a lower income on line 22 even though my financial condition is identical. There's a difference between "allowable write-offs" and actual expenses. Most of my expenses were from claiming mileage on a pretty economical older vehicle, where actual expense was significantly lower and where personal and business mileage tends to be co-mingled quite a bit. If I stop to buy something for home on the way back from sales call, that's still business use.

Another issue is depreciation. Depreciation of a capital investment will reduce income without any actual impact on funds available for personal use.

I don't know the specifics of Pizza Dude's situation but do bear in mind the difference between "allowable deductions" and "actual expenses". The main reason we have so many accountants is to help businesses reduce their taxable income while preserving cash to benefit the owners. You can't have your cake and eat it too. Tax advantages, bite your butt at affidavit of support time. It's not "unfair". It's "different".

Exactly it is different but I still think there should be some way to allow the self employed to NOT have to give up allowable expenses just to qualify.

[pushbrk 12,822]

Actually, I'm in a discussion now with the US Consulate in Moscow on this very topic, as this is throwing a major wrench in the visa applications for my wife and stepdaughter.

I work mainly as an independent contractor and the majority of my income is reported to me on 1099s. When I do my taxes, I fill out a Schedule C and on line 7, enter my total income. Further down the form, I then enter all my deductions, subtract them from my income, and this figure gets transferred over to my 1040 on line 12.

Now, the issue of contention is this. According to the Foreign Affairs Manual Volume 9 (which is the guidebook for the regulations involving, among other things, immigrant visas), in section 9 FAM 40.41 N5.5-1, income is defined as follows:

"Income", for the purpose of Form I-864, means total unadjusted income as shown on the tax return, before deductions. Total unadjusted income includes not only salary (if any) but also monetary gains from any other source, such as rent, interest, dividends, etc.

It is my argument that the amount that gets transferred over to the 1040 line 12 is not unadjusted income, but adjusted income, since that figure represents my income minus deductions. As you can see, that conflicts with the directive I quoted above.

Instead, when considering income, I am contending that the State Department should use the figure on line 7 of the Schedule C and all other income on lines 7-11 and 13-21 on form 1040.

I will post a new comment when the Consulate issues their ruling. In the meantime, I'll continue to be sick to my stomach from worrying and unable to sleep. Isn't this fun?

Line 7 on schedule C is your gross income after cost of goods, etc., but before your business expenses are deducted. It's still not an accurate reflection of how much money you have to live on because it hasn't taken account of how much money your business needs to "live" on. Your business gets fed before you do.

Think of it this way - if you were an employee of a company, would you expect the IRS to consider money your employer spent on your office furniture as your income? Of course not! That money was spent on the business, and that furniture belongs to the business. The IRS draws a distinct line between what is income and expense for the business, and what is income and expense for the individual. Since you are self employed, you have to draw that line for them.

It sounds to me like they want to know your total income before personal deductions. This is how much money you personally have to live on.

I hope you manage to work this out with the consulate, but I wouldn't hold my breath. I'm sure you're not the first self employed sponsor they've had to deal with, and it's unlikely they're going to change the rules now. I haven't looked, but I'd bet there's a memorandum somewhere that tells them exactly how they're supposed to interpret a tax return. You could probably save yourself all this grief by lining up a co-sponsor.

Good luck!

There are various scenarios where the tax advantages of being self-employed come back to haunt the sponsor. Some things are as simple as revenue minus expenses equals "income" but some are not.

I've done the same work both as a 1099 contractor and W2 employee and had the same expenses in either case. Fortunately, when I sponsored my wife, I was an employee. Now that I'm not, the "employee business expenses" that did not go on a schedule C or reduce the line 22 total income. The result is a lower income on line 22 even though my financial condition is identical. There's a difference between "allowable write-offs" and actual expenses. Most of my expenses were from claiming mileage on a pretty economical older vehicle, where actual expense was significantly lower and where personal and business mileage tends to be co-mingled quite a bit. If I stop to buy something for home on the way back from sales call, that's still business use.

Another issue is depreciation. Depreciation of a capital investment will reduce income without any actual impact on funds available for personal use.

I don't know the specifics of Pizza Dude's situation but do bear in mind the difference between "allowable deductions" and "actual expenses". The main reason we have so many accountants is to help businesses reduce their taxable income while preserving cash to benefit the owners. You can't have your cake and eat it too. Tax advantages, bite your butt at affidavit of support time. It's not "unfair". It's "different".

Exactly it is different but I still think there should be some way to allow the self employed to NOT have to give up allowable expenses just to qualify.

I'm sorry, but there are many ways for the self-employed to qualify without giving up allowable expenses. It may be that certain individuals find themselves with no remaining options at a given time but that falls under the category of their lack of planning their fiscal lives does not constitute a justification for changing policies or laws for their convenience. You're describing a set of circumstances that apply only to those who do not have enough income showing on line 22 of a 1040 form. That's hardly a category called, "The Self-employed" even though I would have fallen in that category if I needed to sponsor an immigrant today.

Before I entered into a serious relationship that was sure to result in sponsoring an immigrant, I made sure I qualified as the sponsor. It just seemed like common sense to me at the time.

[Steve_and_Lina 0]

Actually, I'm in a discussion now with the US Consulate in Moscow on this very topic, as this is throwing a major wrench in the visa applications for my wife and stepdaughter.

I work mainly as an independent contractor and the majority of my income is reported to me on 1099s. When I do my taxes, I fill out a Schedule C and on line 7, enter my total income. Further down the form, I then enter all my deductions, subtract them from my income, and this figure gets transferred over to my 1040 on line 12.

Now, the issue of contention is this. According to the Foreign Affairs Manual Volume 9 (which is the guidebook for the regulations involving, among other things, immigrant visas), in section 9 FAM 40.41 N5.5-1, income is defined as follows:

"Income", for the purpose of Form I-864, means total unadjusted income as shown on the tax return, before deductions. Total unadjusted income includes not only salary (if any) but also monetary gains from any other source, such as rent, interest, dividends, etc.

It is my argument that the amount that gets transferred over to the 1040 line 12 is not unadjusted income, but adjusted income, since that figure represents my income minus deductions. As you can see, that conflicts with the directive I quoted above.

Instead, when considering income, I am contending that the State Department should use the figure on line 7 of the Schedule C and all other income on lines 7-11 and 13-21 on form 1040.

I will post a new comment when the Consulate issues their ruling. In the meantime, I'll continue to be sick to my stomach from worrying and unable to sleep. Isn't this fun?

Line 7 on schedule C is your gross income after cost of goods, etc., but before your business expenses are deducted. It's still not an accurate reflection of how much money you have to live on because it hasn't taken account of how much money your business needs to "live" on. Your business gets fed before you do.

Think of it this way - if you were an employee of a company, would you expect the IRS to consider money your employer spent on your office furniture as your income? Of course not! That money was spent on the business, and that furniture belongs to the business. The IRS draws a distinct line between what is income and expense for the business, and what is income and expense for the individual. Since you are self employed, you have to draw that line for them.

It sounds to me like they want to know your total income before personal deductions. This is how much money you personally have to live on.

I hope you manage to work this out with the consulate, but I wouldn't hold my breath. I'm sure you're not the first self employed sponsor they've had to deal with, and it's unlikely they're going to change the rules now. I haven't looked, but I'd bet there's a memorandum somewhere that tells them exactly how they're supposed to interpret a tax return. You could probably save yourself all this grief by lining up a co-sponsor.

Good luck!

There are various scenarios where the tax advantages of being self-employed come back to haunt the sponsor. Some things are as simple as revenue minus expenses equals "income" but some are not.

I've done the same work both as a 1099 contractor and W2 employee and had the same expenses in either case. Fortunately, when I sponsored my wife, I was an employee. Now that I'm not, the "employee business expenses" that did not go on a schedule C or reduce the line 22 total income. The result is a lower income on line 22 even though my financial condition is identical. There's a difference between "allowable write-offs" and actual expenses. Most of my expenses were from claiming mileage on a pretty economical older vehicle, where actual expense was significantly lower and where personal and business mileage tends to be co-mingled quite a bit. If I stop to buy something for home on the way back from sales call, that's still business use.

Another issue is depreciation. Depreciation of a capital investment will reduce income without any actual impact on funds available for personal use.

I don't know the specifics of Pizza Dude's situation but do bear in mind the difference between "allowable deductions" and "actual expenses". The main reason we have so many accountants is to help businesses reduce their taxable income while preserving cash to benefit the owners. You can't have your cake and eat it too. Tax advantages, bite your butt at affidavit of support time. It's not "unfair". It's "different".

Exactly it is different but I still think there should be some way to allow the self employed to NOT have to give up allowable expenses just to qualify.

I'm sorry, but there are many ways for the self-employed to qualify without giving up allowable expenses. It may be that certain individuals find themselves with no remaining options at a given time but that falls under the category of their lack of planning their fiscal lives does not constitute a justification for changing policies or laws for their convenience. You're describing a set of circumstances that apply only to those who do not have enough income showing on line 22 of a 1040 form. That's hardly a category called, "The Self-employed" even though I would have fallen in that category if I needed to sponsor an immigrant today.

Before I entered into a serious relationship that was sure to result in sponsoring an immigrant, I made sure I qualified as the sponsor. It just seemed like common sense to me at the time.

With all due respect, I do qualify as a sponsor according to a strict reading of the law.

The law says PREDEDUCTION I must make more than 125% of the Federal Poverty Guideline. And I do.

It is ridiculous and extremely counter-intuitive that I should be punished because the State Department is incapable of grasping this definition. It is straight-forward. We must provide W2s and 1099s to show our income. Taken in sum, again, we qualify.

My business has no inventory. I provide a service. There's no real overhead for me.

But because I am paid by 1099, I have to file a Schedule C. And it's not my fault that the government then says that I am entitled to a whole slew of very generous tax write-offs, or what in plain English are called DEDUCTIONS.

In fact, we are better positioned financially than if we only had W2 income and only filed a 1040. For instance, if you work a W2 job, you can't deduct the mileage you drive to work, the tolls you pay, and parking. I get to deduct ALL of it. Not only that, I come out ahead because I get to take a deduction of $.50 or so per mile. My car averages 27 mpg. Let's say I drive 108 miles to work- 4 gallons of gas at $2.50/gallon costs me $10. However, I get a tax deduction of $54 even though it only cost me 1/5th that amount in actual dollars.

I can write off my home office, so there's a tax deduction for a percentage of my rent and utilities and internet. I buy a new laptop or software or office supplies that I use for my work, all write-offs, which ultimate lower the amount transferred over to my 1040. If you're a W2 employee, sorry, no deductions for you.

This shouldn't be rocket science, but apparently it is. So now the process enters its 17th month from when we first started gathering information, documents, and translations. Unreal.

[diadromous mermaid 36]

I think you're confounding "business income", or in your case "the income derived from the services you provide" from "personal income". In determining income for USCIS, a self-proprietor takes the inome of the business that is attributed to himself or left over to pay himself for the service he has offered to his entity ( that would be after business deductions, cost of goods sold, expenses etc) and uses that figure (from Schedule C) in lieu of providing a w-2, which is what an employee would have. The citation you quote from the FAM is written as it pertains to an individual, an indididual's income (not an entities' income), so "deductions" in this context refer to personal deductions, itemized and the federal standard deductions.

Actually, I'm in a discussion now with the US Consulate in Moscow on this very topic, as this is throwing a major wrench in the visa applications for my wife and stepdaughter.

I work mainly as an independent contractor and the majority of my income is reported to me on 1099s. When I do my taxes, I fill out a Schedule C and on line 7, enter my total income. Further down the form, I then enter all my deductions, subtract them from my income, and this figure gets transferred over to my 1040 on line 12.

Now, the issue of contention is this. According to the Foreign Affairs Manual Volume 9 (which is the guidebook for the regulations involving, among other things, immigrant visas), in section 9 FAM 40.41 N5.5-1, income is defined as follows:

"Income", for the purpose of Form I-864, means total unadjusted income as shown on the tax return, before deductions. Total unadjusted income includes not only salary (if any) but also monetary gains from any other source, such as rent, interest, dividends, etc.

It is my argument that the amount that gets transferred over to the 1040 line 12 is not unadjusted income, but adjusted income, since that figure represents my income minus deductions. As you can see, that conflicts with the directive I quoted above.

Instead, when considering income, I am contending that the State Department should use the figure on line 7 of the Schedule C and all other income on lines 7-11 and 13-21 on form 1040.

I will post a new comment when the Consulate issues their ruling. In the meantime, I'll continue to be sick to my stomach from worrying and unable to sleep. Isn't this fun?

Edited July 17, 2009 by diadromous mermaid