The Small Business Tax Help Blog

Posts Tagged ‘tax’

Question: Small Business Taxes? I am thinking of starting a small business.. Our new president is talking of tax?

breaks for small businesses.. but right now I am forming a small business plan, and need to know about how much taxes are for small businesses. I am sure there is a tax for whatever the community charges, and then county taxes and then federal taxes.. it takes my breath away just thinking about it. Just wondering what a small business that makes say 50 grand a year to (wishful thinking 100,000) a year would overall pay out in taxes… I would really like someone to throw out some “tentative numbers”… if you can. If you know of a “quick” site that launches some numbers that would be nice too. thanks

Answer: There’s really no way to say with any accuracy. I’ve yet to see a good business plan that addressed income taxes. Income taxes are what they are and there’s not a lot that you can do about them. The only taxes that your business plan would address are those taxes that the business will have to pay regardless of what the profits are. Those would include property taxes, sales taxes on items used in course of the business, payroll taxes (as part of your employee costs), etc.

Assuming that you’re operating as a Sole Proprietor, the business income is reported on your personal income tax return and is taxed there. Only the net profit is subject to taxation. You’ll pay self-employment taxes at roughly 14.1% on the first $106,800 of net profit for 2009 and 2.7% beyond that. The income tax will depend upon the usual variables such as other taxable income, marital status, number of dependents, itemized deductions, credits, etc.

As far as what impact future legislation might have, ignore that until it becomes law and then adjust your business plan accordingly. A business plan is not a static document; it must be regularly updated as laws change and your business goals change.

As your business operates you need to stay on top of the finances on a regular basis. You’ll need to make quarterly estimated income tax payments but may well need to adjust those up or down as your profit picture changes.

I’d strongly urge a consultation with a CPA or EA who specializes in small business issues and taxation before you start. They will help you develop your business plan, set up a bookkeeping system that will pass the IRS muster, and project your required tax payments.

If you need a VERY rough “cocktail napkin” estimate, start with 30% of the net profit for Federal income and self-employment taxes, plus whatever your state’s income tax rate is. If you get lucky and your business really takes off that may rise significantly (up to a point; once you hit the Social Security earnings cap it will drop for a while) but you’ll have the profits to pay the taxes from as well as a lot more money for YOU at the end of the day.

There are 3 primary reasons why new small businesses fail. In order of importance:

1. Failure to plan. The cocktail napkin is a starting point only. The primary goal is to generate taxable income. NEVER lose sight of that!

2. Inadequate capitalization. You can replace a lot of liquid capital with “sweat equity” but be prepared to work upwards of 80 hours per week to get it off the ground.

3. Failure to manage the entire business. Fretting about taxes and forgetting to generate taxable income in the first place will kill you in a matter of months.

Rep. Fred Upton Fighting for Small Business, Calls for Repeal of Harmful 1099 Tax Provision

buffy sainte-marie – working for the government

Question: Where can I apply for a tax ID business credit card?

I just converted my DBA in to a LLC and need to build credit where can I apply for tax Identification credit cards ??

Answer: I know that this site has business cards. Of course they will require both your social security # and your tax ID # when you fill out the application. Once you get onto the site on the left hand side there are categories. Just go to “business” and you can browse multiple cards from different issuers. Compare the offers and see if any suit you. Good Luck!

http://morecreditoptions.NewCreditApplications.com

Community Economic Development Business Program

Question: Will I be taxed on this stipend? Is it considered income/tax deductible?

I got this description from a stipend letter, of which the stipend I will be receiving at the end of the summer. I was wondering if I will have to include this as part of my tax payments, because I don’t understand the description (below) completely. Keep in mind that the stipend is for more than $600.

“Fellowship payments (via the SU-21 form) to U.S. citizens, permanent residents, and residents for tax purposes are taxable to the recipient, but are not reported by [school name] on a tax document. [school name] does not withhold tax from these payments. We recommend that recipients make quarterly tax payments to the IRS and the State of California. Please see Form 1040ES at www.irs.gov and Form 540ES at www.ftb.ca.gov. A courtesy letter summarizing payments greater than $600 is mailed to recipients in January and should be used in year-end tax reporting. Your pay statement also contains year-to-date payment totals.”

Answer: They are advising you that your stipend is taxable and must be reported to the taxing authorities as income. There is no withholding so you may have to file a Schedule C or simply report it as other income not subject to self employment tax. Whatever way they report it to you such as a 1099misc you will need to put that as income on your 2010 tax forms. Consult someone at H & R Block at that time. In the meantime if you have legitimate expenses such as supplies, car expenses or books then that can be charged against your earnings.

Wikirebels

Question: Can a business partner use my EIN to apply for credit ?

I use my own social when applying for a EIN for our joint business with my business partners. I just want to know whether my business partners can simply apply for credit without my approval ?
On paper the business belongs to all of us.

Answer: Yes, without a previously signed agreement to the contrary, your business partner is technically “allowed” to apply for credit without your approval – however, they probably cannot actually do it without turning in a “fradulent” credit application. This is because almost all credit applications require the signature of ALL partners who own 20% or more of the company. If a partner were to fill in such a credit application but only list themselves and leave off of the application any other partner that owns 20% or more, then would have in fact turned in a fraudulent application.

The fact that you gave your social when you obtained the EIN doesn’t have anything to do with the use of the EIN – the EIN “belongs” to the company.

If you want to stop partners of yours from applying for credit on their own wtihout your permission, you should have an attorney draw up a partnership agreement that everyone signs that lays out the basic rules of what the partners have and don’t have the authority to do. This is a simple document that should cost you no more than $100-$150 to get drawn up.

Business credit, corporate credit | Build Unlimited Business