In two weeks, I am going to bite the bullet and do it. I am going to write out, for the first time ever in my tax-paying years, checks (and not receive one) to the IRS and the state of California. And they are not small ones!
You know when you begin a business that you need to put away money for taxes in April. You know that there are bookkeeping methods that you need to employ to keep careful accounting of your expenditures, investments, revenue. You know all this, but then tax time hits, and that system you put into place seems all too inadequate. At least it does when you are a start-up consultant.
I am making an appointment with the Small Business Development Center to figure all this out. I need a bookkeeper (in addition to my accountant and tax lawyer). I thought I was too small to need one, but alas, the IRS and your state don’t actually care how small you are. I am paying them about 40% of my total earnings. That on top of the 33% I am paying for health care insurance. And, then there are the yearly state fees. I almost broke into poverty level after all this!
It seems so much of my new venture has required the SBA guiding me in what to do, how to do it and when. This article was particularly helpful. At least the part that says, “Know when to hire an expert.” I need to hire an expert.
SCORE, a nonprofit helping small businesses is also an amazing resource. I am on the list for a mentor from them. Volunteers help you for no charge. It’s fantabulous!
How to Prepare for Small Business Tax in Wikihow is one of my favorites. It has pictures – for those of us in the creative field who need visuals, this one is pretty easy to understand.
I underestimated my ability to deduct. That mileage to and from the airport that a client rejected is a plus at tax time. My non-reimbursed plane fees also deducted. My computer, which is 100% for this new job- deductible. I did not know this, but I could hire one of my kids and pay them and deduct! “Deduction” became my new favorite word. Unfortunately, I did not know all that I could use and did not plan correctly. It’s always good to have a good guide to deductions at your desk as a reminder.
When I began the business last fall, I knew I had to reserve funds for taxes. But it took going through the tax season to really understand how much. I also started to do things differently – I pay myself a regular salary and rent now from my business account and keep all things more cleanly separated. I am discovering new ways to protect my money and to ensure that I am in full compliance with all rules. There is so much to learn and I really think it’s nearly time to bring in a pro to help. Too many rules for one small business owner to know.
On the plus side, I learned that I don’t have to sacrifice as much as I was. For example, I decided to forego some training that I needed because I was worried about cost. Just learned that this year I can attend those conferences and deduct them. I think I will be attending one on how to “bookkeep” your small business!
Putting aside 40% of your revenue as a general rule of thumb is a good idea. Of course, everything varies by state and business, and as my revenues increase, I know that will actually move up to 50%. This was all invisible to me when I received a paycheck from someone else. Now I see where every dollars needs to go. It’s both refreshing and discouraging.
As they say, no one really says, “I love tax season,” except the accountants after the season ends, and the bills are getting paid. This year, I am very much not in love, but at least I know better how to protect myself in this crazy new affair I have entered into!
This is Luanne Lawrence on tax. It is a particularly hard time of year for her.
121 Middleton Way Sacramento CA 95864 US +1.916.698.2809 Luanne@LMLMarCom.com
Copyright © Luanne Lawrence | All Rights Reserved