Taxes and Deductibles
Lesson 4 from: FAST CLASS: Put Your Money to Work: Take Control of Your Business’ FinancesDominique Broadway
Taxes and Deductibles
Lesson 4 from: FAST CLASS: Put Your Money to Work: Take Control of Your Business’ FinancesDominique Broadway
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Taxes and Deductibles
Okay, so we have our business structure up and running, we're making money now, we have to actually pay taxes so boo, but it has happened. Okay, so don't forget about your taxes, I think a lot of entrepreneurs are so excited that they have a business and they're making money and then tax time comes around, it's like, oh no, totally forgot about the fact, But I have to pay taxes on this money that I'm earning, so please make sure that you are not forgetting about the fact that you have to pay taxes, it's really common and I'm sure we hear on the news all the time where there is this big tax scandal here or so, and so over $ million dollars in taxes is because they've been running their business a lot of times, it's completely ignoring the fact that they need to pay taxes year after year after year and eventually it will catch up with you. So when do you start paying taxes? Pretty much as soon as you start making money? So essentially, if you earn anything over than $400, you have to pay...
self employment tax, which means you need to be paying tax in general if you have a business and it makes less than $400 in that year, you actually don't have to pay taxes on it. But once you hit that $400 mark, and of course, we know you're gonna hit way way above that, you need to be paying taxes. Now if you're LLC versus sole proprietor, believe it or not, people think it's, it's super different and you know, I always speak with a lawyer, but essentially if you have, if you're a sole proprietor or if you're a single member LLC when it comes to taxes, it's actually the same. So essentially when it comes to your taxes, you want to make sure that you are paying him quarterly and like I said before anything over $400 that you make, you need to be paying taxes on. So essentially you have your your quarterly dates and we'll show you what those are, but you need to be paying your taxes quarterly. And this is an estimated tax. And the upside of paying your taxes quarterly is that you're not hit with the huge tax bill at the end of the year. And it's very common, well entrepreneurs will father tax and say, oh no, I owe 10, 12, 15, or more dollars. But if you split that up and make small payments every quarter, which is four times a year, it will make your tax burden much less. But in the year or if you over pay, you'll end up getting a refund and it's super easy to set this up. You can go to the electronic federal tax payment system which is through the I. R. S. And you can start making your payments online. And if you're looking for a rough estimate, you know, the self employment tax alone is 15.3% which is essentially Social Security Medicare because you're not paying them as an employee anymore or as a w two employee. So these are just rough estimates of the payment date. So basically it's april june september in january the 15th of those months. Sometimes it may fall in different date based on the, based on the weekend, but essentially if you know an entrepreneur, they're usually a little disgruntled around this time, the specific uh months throughout the year. And those are when those payment dates are, so you can estimate your overall payment as you can see this is what the electronic Federal Tax payment system website looks like you go in there, make a payment. It's super, super easy. Now when it comes to how to calculate taxes, this is a tax rate schedule, no one's gonna sit down and actually use it. It's what do you see what it looks like? But essentially what we wanna do, we talked about the self employment tax, you want to estimate that alone is about 15%. So I always tell people you need to set aside like at least 30% of every of every dollar that comes in and put it in a separate account for taxes. And this alone makes the process super simple. So that by the end of the year you don't have this huge huge tax bill. So try to set aside at least 30% of every dollar that comes in, put it in a separate account titled tax account or just put it in a separate account and start making those payments quarterly. Now what is the deductible and how can you make tax time so much easier? So the word deductible is, is just thrown around or deduction is thrown around so much, right? So people are like, oh I can deduct this or I can deduct that and then I ask people all the time, well what is the deduction like? Oh I don't really know. Right, okay, so this is what it is, a deduction is basically how much you're able to reduce your taxable income by. So let's say for example, if your business made $20,000 And you had $5,000 in deductions, that basically means that instead of paying taxes on the total $20,000, now you're only paying taxes on 15,000, that's what the deduction or deductible is. Now, these are some, what I like to say, deductibles or deductions that a lot of times people totally forget about. So depending on your line of work and you always want to speak with your tax professional about this before you file. But depending on your line of work, you can write off clothing, if you're doing speaking engagements actor actually things that nature, sometimes you can write off clothing transportation, if you have to get around to, you know to get to certain places, you can write those are off even your car, um, the gas that you're putting your car, your car insurance, the interests that you're paying on the car for your business, all these things can be deducted or written off on your taxes. Other things are business travel as you know, you know business travels that can even be things such as Uber's lifts, as long as your business related, they can be written off flights, yachts, whatever right it was business related. Those expenses can be written off other expenses that can be written off our, your cell phone. So the cell phone bill that you're paying office supply, so notebooks, pens, papers, staplers, um note pads. Most people use paper anymore, whatever anything that you're using a mouse pads, mouses, whatever laptops they can all be written off in addition to that. Um meals, so meals from business, um also equipment. So if your photographer, all of your camera equipment, all those accessories can be written off. Videographers, video cameras. Um in addition to like we mentioned laptops, calculators, any specific equipment or tool that you need to support and allow your business make money can potentially be a deductible business expense. Um Other things that I think people often forget about is web hosting. Right? So we have the hosting expenses that go into running your business marketing materials that can be letterhead business cards, um other various marketing materials such as postcards, things that nature in addition to your office rental. So if you're even if you're using a co working space, the expenses from that is welcoming written off and then membership dues. I know I was formerly a member of the Financial Planning Association or if you're a lawyer, if you're, there's a bar association, um, Photography association, all those different associations can also be deductible business expenses as well. Now to make tax time much easier. I always recommend putting all of your business expenses on one credit card or one debit card. So what I do, I actually keep all of my business expenses specifically on my business credit card and then they get paid off that gets paid off at the end of the month. So essentially when it comes tax time, I have all of my expenses pretty much on one statement. They are categorized and makes it super simple for me to see exactly where they are. They're also being tracked in my accounting system. But I have all of in one place instead of me having to pull all these different accounts to see exactly where all of my expenses have gone
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