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My Company Isn’t Profitable…Do I Have To Pay Taxes? November 28, 2009

Posted by Julie Duriga, CPA in Uncategorized.
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My Company Isn’t Profitable…Do I Have To Pay Taxes?

No!  If your company isn’t profitable you do not have to pay income taxes.  If you have employees or you are an employee, you will have to pay social security/medicare taxes.

I believe the IRS doesn’t really start looking closely at your business until after three unprofitable years.  If you have been unprofitable for three years, the IRS starts to wonder why are you still in this business?  Is this a business or a hobby?  Then you start to get into the whole concept of hobby losses. 

If you are unprofitable for three years, start looking at your numbers…your gross profit, your percentage of payroll to revenue (if your payroll is 60K and your revenue is 100K, that means your payroll is 60% of your revenue…that is too high, your staff needs direction or they don’t have enough to do or something).  Maybe you need a new business or a new way to operate your business?

Your salary is deductible if you are an S Coporation or a C Corporation.  Your guaranteed payments or draws are deductible to the partnership.    Your draws inside your sole proprietorship are NOT deductible.  If you are an LLC, check out my blog on the whole LLC scene.  This means that your profits will be lower…which is good for tax purposes…to report lower profits…the lower the profits the lower your tax bill.  Lower profits is bad for bank loans though.  Do you want a bank loan or do you want to pay less in taxes…you can’t have both.

Visit us at our website to get your free E-Book titled “How Do I Pay Myself? The Entrepreneur’s Guide to Building a Business AND Bringing Home the Dough.”  www.UniversityForBusiness.com

We also offer a really cool twenty minute video about how running your business affects your bottom line. We use islands, cars and bridges to demonstrate the movement of profits and losses between your personal and business bank accounts. This immediate download is avaialble for only $6.99. Twenty minutes with a CPA for only $6.99, what a deal!

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How Do I Pay Myself as A Sole Proprietor? November 7, 2009

Posted by Julie Duriga, CPA in Uncategorized.
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j0438810If you have established yourself as a sole proprietor inside your small business, paying yourself is relatively easy!  The tricky part, of course, is the estimated tax payments.

Of course, you would need to be profitable in order to be able to pay yourself, there needs to be excess cash in your business accounts after you have met all of your small business expenses.  All of the small business experts will tell you that you need to pay yourself first.  I agree with this statement, you must take care of your household expenses first, otherwise what you have is an expensive hobby.  However, sometimes, it is incredibly difficult to let the business expenses slide because we see our small business as the goose that lays the golden egg…if we can just through the next month, things will be great!  I know, I have been there. 

Assuming your small business is enormously profitable (and I hope that it is), you have excess cash to pay yourself…If your business account and your personal accounts are at the same bank then online transfers from the business accounts to your personal accounts are the way to go.  I would always recommend setting up a separate business savings account to set your tax money aside.  If you don’t have online access to your accounts, then is fine to write a check from your small business account to your personal accounts.

For example, you want to pay yourself, $1,000.00 as a small business owner, you would really only bring home about $700.00 after taxes.  The online transfer would be two part-$700.00 to your personal checking account and $300.00 to your tax savings account.  Depending on your tax bracket and if you don’t have a great deal of other personal income (25%-30%) should cover you come tax time. 

Seems high doesn’t it?  Yes!  We do pay a lot of taxes as small business owners…Dave Ramsey says that if we weren’t so busy keeping our doors open of our small businesses we as small business owners would have a revolution.  I agree, when we are working for other people, we don’t notice the tax bill as much because it is being withheld from our paycheck but when we have to write a check to pay our taxes, it might make you sick to your stomach!

Caution!  It is very important to remember that just because you did not bring all of your profits home with you DOES NOT mean you don’t pay taxes on those profits!  If you have $10,000.00 in profits at the end of the taxable year, that is considered taxable income to you and you will have to pay taxes on these profits to the tune of about $3,000.00!  It is remarkable because it may feel as though you did not benefit from these profits, but it is the law to pay taxes on your profits and what you put into your personal bank account.

 Remember, that if you are an LLC, you may also be a sole proprietor…the federal government doesn’t recognize the LLC only the sole proprietor.  You may be registered as an LLC with the state but you still remain a sole proprietor with the federal government.  You would declare yourself, “I am an LLC filing as a sole proprietor”.

Visit us at our website to get your free E-Book titled “How Do I Pay Myself? The Entrepreneur’s Guide to Building a Business AND Bringing Home the Dough.”  www.UniversityForBusiness.com

We also offer a really cool twenty minute video about how running your business affects your bottom line. We use islands, cars and bridges to demonstrate the movement of profits and losses between your personal and business bank accounts. This immediate download is avaialble for only $6.99. Twenty minutes with a CPA for only $6.99, what a deal!

What Is An LLC? August 31, 2009

Posted by Julie Duriga, CPA in Uncategorized.
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j0441315An LLC stands for Limited Liability Company.  What is an LLC?  It is the most flexible but confusing entity to most small business owners.    There is no federal tax form for an LLC.  Although the IRS recognizes the entity, there is no specific tax form for the LLC.   As a small business owner, it is critical to know how your tax return is going to be filed.

 The LLC is filed at the state level with your Secretary of State.  When you file for your EIN number with the IRS, you still get to pick if you are going to be a Sole Proprietor, a Partnership or an S Corporation.  If you are choosing to be a Sole Proprietor or a Partnership you are required to file form 8832 with the IRS.  If you are choosing an S Corporation, you are required to file form 2553 to let the IRS know that you are choosing an S Corporation status. 

To make this a bit clearer, in the CPA business, the conversation almost always goes something like this. 

CPA-“Oh, you are an LLC…what is your filing status?”

Customer-“I am an LLC.”

CPA-“What status did you choose with the IRS to let the IRS know how you will be filing your tax return?”

Customer-“I am an LLC.”

And on and on we go…

When you visit your accountant and you have filed your LLC paperwork you will save a great deal of time, money and confusion when your accountant asks, “What is your filing status?” and you know the answer.   You can proclaim loudly and say, “I am an LLC filing as….”  Remember your three choices are Sole Proprietor, Partnership or S Corporation. 

Some attorneys will help you make the choice of what your filing status you should be, other attorneys will file the LLC paperwork and then tell you that you need to go see your accountant about your filing status.

Visit us at our website to get your free E-Book titled “How Do I Pay Myself? The Entrepreneur’s Guide to Building a Business AND Bringing Home the Dough.”  www.UniversityForBusiness.com

We also offer a really cool twenty minute video about how running your business affects your bottom line. We use islands, cars and bridges to demonstrate the movement of profits and losses between your personal and business bank accounts. This immediate download is avaialble for only $6.99. Twenty minutes with a CPA for only $6.99, what a deal!