Tax Accounting – Keeping It Simple
Doing things the right way, it’s possible to find out that taking in as much as $100k can lead to a $10 – $15 k for someone else to clean up and for you to pay?
Lets face it accounting is BORING. Heck I am falling asleep writing about it. Being uneducated in accounting practices can lead to a very false sense of security with quickbooks or intuit or any small business accounting software. As far out as this may sound, it doesn’t take a tremendous amount of success to find you may need to get an outside source to do your accounting and you may even begin to miss payments due to you.
But whether the owner of a new business is an avid amateur photographer setting out to work weddings on his weekends in retirement, or a prime-of-life entrepreneur considering a fast-food franchise, experts say that taxes should be a fundamental concern from the outset.
Tax considerations largely determine your corporate structure, whether you start as a sole proprietorship, as a partnership or as a Sub S, llc or even full C corporation.
If you talk to a tax man he is going to want to see those tax returns so he can see where he can begin to save you money.
Investments, financing, spousal income, and many other things differentiate each situation.
A Subchapter S corporation, for example, may save on self-employment taxes — 15.3 percent for Social Security and Medicare this year — but limit the amount you can put aside in tax-deferred retirement accounts.
Many people, of course, earn money from sidelines, like child care or freelance writing, without doing anything more than reporting the income on Schedule C of the Form 1040 (not to be confused with C corporations filing Form 1120).
Some don’t bother with even that, becoming tax chiselers who may operate for years without being caught. Those who thrive, however, usually reach a point where they are forced into legitimacy.
A lot of entrepreneurs wait until they have to come in just like the Dentist. When they are looking to make a big purchase and are seeking financing then off they go to report legitimate income in order to qualify.
If a start-up expects annual revenue to exceed $50,000, some accountants favor incorporation because the resulting business is typically taxed less heavily than a sole proprietorship, though extra record-keeping might offset the savings.
But the Internal Revenue Service, from which you must obtain an employer identification number and which you must satisfy as to employment, unemployment and possibly excise taxes on products or businesses, is only part of the entrepreneur’s introduction to tax issues.
States and sometimes county and local governments will also have their hands in your pockets. Maryland, for instance, requires most companies to pay a $300 annual fee to register a business and then assesses furniture, machinery, inventory and other assets for what is called a personal property tax. This levy, ranging from about 1½ percent to 4 percent, is imposed and collected by local jurisdictions.
As elsewhere, retail businesses also have the chore of serving as collectors of the state’s 5 percent sales tax on most goods. Businesses remit this at intervals, based on size.
Faced with the press of daily operations, fledgling managers can make numerous mistakes; perhaps the most costly one is failing to promptly engage professional help — especially accountants but also lawyers and, often, insurance agents.
Two issues are of particular interest to the I.R.S. One is efforts by managers of some companies to minimize Social Security and Medicare taxes by taking unreasonably low salaries and using the money instead for dividends or to repay loans.
Another offense that is likely to get you into serious trouble is failure to remit taxes withheld from employees. That money carries fiduciary responsibilities that can leave an entrepreneur personally liable even if the business fails.
Experts say that you should open bank accounts to be used strictly by the business, so that its funds are not mixed with personal ones.
Although the law is complex, riddled with gray areas and subject to frequent judicial as well as legislative change, there is a wealth of tax and other information available to those who are starting businesses.
The I.R.S. has a Web site, www.irs.gov, which includes its 27-page Publication 583, Starting a Business and Keeping Records. The wide-ranging Small Business Administration site, www.sba.gov, can steer you to the Service Corps of Retired Executives, an S.B.A.-funded organization with 400 offices where nearly 12,000 volunteers mentor small businesses at no cost.
Once you get someone on the job you may feel relieved to have gotten the tax challenge taken care of because like any problem left unattended it only gets worse.
You may find that it works out to lease vehicles instead of buying them and not having to keep mileage logs.
So don’t be afraid or reluctant to take a course at a community college or seek out the help of a professional. I am a firm believer that we should pay others for the things they do best so we may have more time, energy, and focus on what we do best.
Artist, “Dreamer Extraordinaire”, Radical Optimist, “The Peoples Entrepreneur”
Twelve Pitch – n’ another name for elite.