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What Is The Best Way To Pay Myself In My Business? January 17, 2010

Posted by Julie Duriga, CPA in Uncategorized.
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I am grateful to have had lunch with my friend Barbara last Thursday.  I met Barbara about three years ago and I am so grateful she is my friend.   I met Barbara because I was starting my CPA practice and I was looking for a payroll solution for all of my potential clients that I was going to have.  Barbara works for PayChex.

I have since sold my practice and I am astonished everyday at how many people still want to be my friend.  I thought many friends would vanish once I was no longer working in public accounting, this has proven not to be true.  Barbara is someone who has stuck with me through thick and thin and has done an amazing job in Western North Carolina providing businesses with payroll services.

Barbara told me at lunch on Thursday that S Corporation payroll through PayChex is $39.99 per month.  I just about fell out of my chair.  This is a unbelieavable deal for payroll.

I believe running payroll through PayChex will help small businesses stay out of trouble with the IRS.  Using PayChex for your payroll will keep you disciplined inside your S Corporation to make sure you pay yourself.   Not providing compensation to active officers inside an S Corporation is a HUGE red flag for the IRS.  Even if it is a small amount every month, it keeps the zero out of a box where the IRS likes to see an amount.  Remember, to run one paycheck carries with it the same burdens as running fifty checks.  There is really no such thing as “but is just one paycheck”.

I believe PayChex by offering payroll services for $39.99 is offering America its own economic re-investment recovery act.

I am not compensated by PayChex in any way except that Barbara takes me out to lunch about once every quarter.  I am passionate about small businesses and believe that small business owners are the true heroes of our economy.  I see this as a fundamental service that will free small business owners up to do what they love to do!  Worrying about payroll is silly when it is so affordable and so well done byPaychex.

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!

Do I Pay My Income Tax Bill From My Business? December 6, 2009

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Of course, income taxes are different than unemployment taxes and from the employer’s portion of the social security tax.  Those taxes are deductible.

Income taxes are held from your own income and need to be paid from your salary bucket inside your business.  If your paycheck says that you took home 700.00, then 300.00 is really taxes.  In t heory your paycheck should be 1,000.00 to cover taxes which is normally around 300.00 to be safe.  To be safe means you are not stuck with an enormous tax bill at the end of the year.

If you are a sole proprietor or a partnership then your taxes are paid from the guaranteed payments or from your owner’s draw.  This draw can take place through a physical check written from your business or through a bank transfer from your business account to your personal account.  It is then your responsibility to remit quarterly your income taxes and your social security taxes to the IRS and to the state agencies.  Those taxes are paid from the money that was transferred to your business account.  Some business gross up their partner’s draws and guaranteed payments to cove the cost of the taxes.  Instead of bringing home $1,000.00, they might bring home $1,300.00 to cover the taxes.

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!

Do I Pay Taxes In My LLC If I Wasn’t Paid? November 16, 2009

Posted by Julie Duriga, CPA in Uncategorized.
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j0439255A better way to ask this question is “Was I profitable?”  rather than “did I get paid in my small business?”  The short answer to this question is if you were profitable, then yes you will be taxed on those profits!  The government doesn’t really care if you brought those profits home via payroll or owners’ draw or if you left them in your business, it is still considered taxable income to you, if you are profitable. 

Depending on your filing status of your LLC, this determines the degree to which your profits will be taxed.  If you are partnership or sole proprietor, then your 100% of your profits will be taxed for social security and medicare.  If you are an S Corporation underneath your LLC, then your business profits will be taxed at your regular income tax rate.

The answer to your question is: you pay taxes if you were profitable.  Your income statement or profit and loss statement will let you know if you were profitable.

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!

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

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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 Would You Like To Know? June 12, 2009

Posted by Julie Duriga, CPA in Uncategorized.
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I ran into my business coach this morning and he wanted me to ask small business owners what they would like to know about.  I have been writing about what I think  you need to know about in terms of accounting and taxation in your small business.  Tell me about what areas you struggle with in the accounting area.   What do you need to know?  What would you like to learn more about?

I would love to hear from you so I can write about what you would like to know.

Thanks in advance for your time and your contribution!

Put My Taxes In Buckets, Please… June 10, 2009

Posted by Julie Duriga, CPA in Uncategorized.
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Small Business Tax BucketsAs a small business owner, it is important to understand the differences between the different kinds of taxes that the Internal Revenue Service imposes on business owners.     Taxes don’t fall into one bucket.  There are different buckets for different taxes and it is important to understand the different buckets.

  • The first bucket is the income tax bucket.  Income taxes are paid based on income…makes sense doesn’t it?  Income tax is determined based on your income but also many other factors.  Income tax comes from your income but is offset by many other factors in your life.   Some examples of helpful tax deductions that will reduce your income tax are children, student loan interest, moving expenses (under certain circumstances), Health Savings Account contributions and health insurance if self employed.

 

  • The Second Bucket is “Self-Employment Taxes”  This is the biggie!  This catches first time small business filers by surprise.  The self employment tax is calculated on profits of your small business.  Profits are important to understand because your business may have profits but your business bank account may be hovering at slightly above zero dollars. Your self employment tax bill will start ticking when you have $300.00 or so in profits.  Your business will pay taxes on profits whether you bring those profits home or not.   Just because you have no money in the bank, profits are still taxable. 

 

  • Two Buckets Within A Bucket?  Yes!  Within the SE tax there are two buckets.  One bucket inside the SE tax is Social Security and the other bucket is the Medicare tax.

 

  • This SE tax (self employment tax) is 15.3% of the first $106,800 (limit for 2009) and 2.9% on all profits.    This probably doesn’t make much sense, so here is an example.

 

  • GIVE ME AN EXAMPLE!  Becky Bookstore decides to open a bookstore because that is her last name and because she loves books.  Her first year in business, her income statement reveals that she has made $150,000 in profits.  She will be taxed as follows for the self employment tax:

 

  • $106,800 of the $150,000 will receive 15.3% in taxes which equals $16,340.  The $106,800 is a random amount determined and is changed every year by some mysterious government calculation.  For 2010, the limit will be different than the current $106,800.

 

  • The remaining $43,200 ($150,000-$106,800)  is subject to the 2.9% of Medicare taxes which equals $1,252.80

 

  • This gives Becky Bookstore a tax bill of $17,592.80

 

“Yeah, but one half of my self-employment tax is deductible…”  It is true it is deductible for reducing the amount of income tax you might have to pay.   The amount you pay in self employment tax IS deductible but Becky Bookstore still owes the full amount of self employment tax but her income tax will be reduced. 

“I did not pay this much in taxes when I had a job…”     Yes, this is true, because your employer carried one half of the self employment bucket for you.  When  you were employed the SE tax reduced your check by only 7.65% .  When it is taken from your check, it is sneaky and you don’t notice it as much as when you have to write  a check.  Now, that you are self employed, you must carry the full weight of the self employment tax bucket.

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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