Help Business owners

Discussion in 'Homesteading Questions' started by marcath, Mar 18, 2005.

  1. marcath

    marcath Active Member

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    I have just started a painting contracting Business. I am doing all the work right now, hope to hire help at a later date, anyway......

    I have just recieved a $6000.00 contract. I estimate the materials at $1,5000. So........

    $6000.00
    - 1,500.00
    ____________
    $4,500.00 profit

    I must pay 36.3% in taxes, which equals $1,633.50

    $4,500.00
    - 1,633.50
    __________
    $2,866.50 after taxes

    I am told I can deduct milage at 40 cents a mile

    The job is aprx. 50 miles one way from my home or 100 miles round trip.

    I estimate the job to take 15 days or 1500 total miles.

    1500
    x .40
    _________
    $600.00

    Question? Am I right in assuming that my materials are all deductable?

    100% of them?

    If so, then my materials plus my milage...

    $1,500
    600
    _______
    $2100.00 which is more than my taxes, so I will owe nothing for taxes on this particular job.

    Am I figuring this up correctly? Or am I missing something?

    Your help is appriciated!!!!!

    Sorry, this isn't actually about homesteading
     
  2. Ross

    Ross Moderator Staff Member Supporter

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    Wouldn't you deduct all your costs from the $6000 first then calculate tax on the net (before tax) profit?
    So 6000-2100=3900 net before taxes
    3900X.363=1415.7 tax
    3900-1415.7=2484.3 net after taxes and expenses.

    You get 2484.3 the gov. gets 1415.7 and there's 2100 in expenses for a total of $6000
     

  3. Yes, keep track of your material pricing and sales tax paid and deduct from total bid. Then subtract X percent for FICA, X percent for State, 6.2 percent for social security, and 1.45 percent for Medicare. The remainder will be your take home pay.
     
  4. Forgot also deduct your milage before calculating your taxes.
     
  5. rambler

    rambler Well-Known Member Supporter

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    Well, now..... You are doing more than one job a year, so don't you figure things up at the end of the year - or quarter - and get taxes that way?

    You have gross income ($6000)

    You subtract expenses:
    Materials ($1500)
    Milage ($600)

    Other expenses:
    Short term: brushes, cleaners, rags, etc.
    Long term: Depreciate the yearly portion of business vehicle, spray guns, trailer, etc.
    Office expenses: Phone bill electrical, business office, insurance, paper/postage/misc and so on.
    Advertising.
    Perhaps for the 15 days this would come to $150? WAG.

    So, this job is giving you $3750 to your business. You figure your taxes on that amount. How do you know it is 36.3%???? There are many, many variables. SS will hammer you at 13% as self-employeed, but there are bonus depreciation claims that can lower your other rates to 15%......

    Anyhow, at the end of the year, you total everything you made from your painting business (gross revenue).

    Subtract from this all your expenses from my list (costs).

    What is left is your business income.

    From this number, the govt applies many different minimums, maximums, additional deductions.

    And then you are left with your 'income' for the business on a schedule 'C' forum, and you look up your tax rates based on that. You will pay fedral, state, & Social Security taxes on this, and each will have a different 'income' amount & different tax rate depending on many variables.

    This is the simple layman's terms.

    You might want to look up a 'Schedule C' to see what all they are looking at. Depreciation alone has many variables.

    I've never heard of looking at just one job as you are doing for taxes. You do not have it right. Take your income, subtract you expenses, and then base taxes on that amount.

    --->Paul
     
  6. rambler

    rambler Well-Known Member Supporter

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    As self-employed, don't you need to about double those SS & Medicare rates? No one is paying the 'other half'. :) That's how it works for me anyhow. I let a CPA do this for me, well, well worth the money, the things he does woth depreciation rates is worth it alone - he knows the ropes.

    --->Paul
     
  7. fin29

    fin29 Well-Known Member

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    Also, if you buy any business equipment (ladders, scaffolding, etc.) that will become assets of the business even if they're purchased for this particular job, I believe these "durable goods" can be deducted, though they're often amortized over several years.

    Hope you have an LLC or other corp. in place and a nice fat insurance policy, too. You should be able to deduct those costs each year.
     
  8. Karen

    Karen Well-Known Member Supporter

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    Yeppers, when your self employed you have to double your social security and medicare taxes, and you also have to pay state and federal unemployment taxes. There are taxes your employer would pay and since your the employer, you pay them. Works that way for everyone.

    You should have filed for a tax ID number by this time as well because you will need that number when you file your taxes. If your wanting to take all those deductions, your a business (even if your just a sole proprietor) and can't use your SS# to file your taxes or you can't take many of those deductions (like the mileage from home to a job). You also will have to file monthly or quarterly reports, not end of the year as you normally do.

    Additionally, since your in a high risk business to be sued, you might consider incorporating as a Sub-Chapter S Corporation. If your sued, they can only sue the corporation and not you personally; which would protect your personal assets and your family. It sometimes has some tax disadvantages if you get bigger, so you need to discuss it with an attorney; but usually is well worth it for higher risk businesses.
     
  9. Jena

    Jena Well-Known Member

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    If you wait until the end of the year to figure taxes, you could owe a penalty. I don't like to owe the IRS anything, so I'd rather figure them as I go along.

    SE tax is 15.3%. Your income tax will vary by what your total income is from everything. There is no need to figure FICA, etc individually, that's what the SE tax is. You do not pay unemployment taxes for yourself because you are not eligible for unemployment.

    I'd subtract your known expenses from the gross, then set aside the percent you are comfortable with from the net. Send in the total every quarter. At the end of the year, you can always get some back if you over-estimated.

    I have one business that I have very little deductions for. I've not usually made much money at it, but I'm starting to make more. I plan to "withhold" 20% of it and pay it quarterly. I know I'll have to pay SE tax, though I typically don't pay much, if any, income tax, due to the nature of my entire return.

    It is also a good idea to take a look at the big picture every quarter to make sure that the income tax situation is not changing. If I start creeping up there with the income, then I'm going to start taking more in anticipation of paying income tax too.

    Jena
     
  10. Beeman

    Beeman Well-Known Member

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    If you want to be a legit business and apply for a business license also be aware of sales tax laws in your area. You may be required to collect and submit sales tax every month.
    Isn't this small business stuff a breeze?
     
  11. Wow, all that info mentioned is almost enough to just work for someone else isn't it? Yep, I forgot about haveing to double your SS cause you are your own employer. Also, every town you work in you have to pay in a sales tax to that town for any material sold to your customer. That is only on the material and not your labor. Or at least that is the way it is here in Oklahoma.
     
  12. Maura

    Maura Well-Known Member Supporter

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    Business that is successful vs Business that is not successful
    An accountant.

    Have an accountant set up your books for you. Someone who handles small and microbusinesses is going to know the ropes. He will set things up so you can keep track of all your expenses and have your records easily accesssible for tax purposes, or should you decide to borrow money.

    If you claim your equipment on your taxes, you will need to also claim it as personal property. If your accountant doesn't know about personal property taxes, find another one. You may not be liable for personal property taxes depending on your municipality, the style of business ownership, or breaks because your business is in your local town. If you are not selling inventory, I don't think you need to worry about sales taxes until your yearly filing. An accountant would know this.

    I am also diving into a new business venture, and I hate all that paperwork ! :yeeha:

    Also, if you ever decide to give someone a break on the price, be sure and tell them your normal price, then quote the lower price. People often do not understand how expensive things are and think you are gauging them even when you are giving them a deal.
     
  13. Siryet

    Siryet In Remembrance

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    When we had our business we paid sales tax once a month. This was our choice and found out that this was much easier than paying quarterly.

    I strongly suggest that anyone in a small business do the same. Also pay the IRS their pound of flesh quarterly also, once again much easier to have the money to pay.
     
  14. Maura

    Maura Well-Known Member Supporter

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    If you already paid sales tax when you bought the stuff, then the store will send the sales tax to the state. You only need to worry about sales tax if you are collecting it. If you pay the store sales tax, you would not pay the tax a second time.
     
  15. Alice In TX/MO

    Alice In TX/MO More dharma, less drama. Supporter

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    I scanned through the responses quickly, so I'm not sure if anyone pointed out that you may have to pay quarterly taxes rather than at the end of the year.

    Hubby has a sub-chapter S corporation, and the corporation pays "941" tax on each salary check. That included the income taxes, medicare, etc. Then, you get into franchise taxes, etc., also.

    You absolutely need an accountant.

    Bottom line? Win the lottery or work for someone else.

    :haha:
     
  16. Beeman

    Beeman Well-Known Member

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    This is true, but many states have a sales tax on labor also, so even if the tax has been paid on materials you would have to collect the tax on the labor. Also even if the tax was paid on the materials "at cost" if you mark them up you would have to collect and owe the tax on the difference.
    Also with sales tax which you would collect and then pay to the state every month there is sometimes a small discount for the paperwork. Many states had this and did away with it but I'm sure others have kept it. It's very hard to answer business questions and cover it all when state laws vary so much. As others suggested a competent accountant who is familiar with your are and your type of business is your best bet.