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Put Your Money to Work: Take Control of Your Business’ Finances

Lesson 4 of 6

Taxes and Deductibles

 

Put Your Money to Work: Take Control of Your Business’ Finances

Lesson 4 of 6

Taxes and Deductibles

 

Lesson Info

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 has happened. So don't forget about your taxes. I think a lot of entrepreneurs air 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. But there is this big tax scandal here or so and so those a $1,000, in taxes is because they been running their business a lot of times, is 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 them, $400 you have to pay self employment t...

ax, which means you need to be paying tax. In general, if you have a business and it makes less than $ 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 your LoC versus sole proprietor believe it or not, people think it's it's super different and, you know, always speak the 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 your taxes, you want to make sure that you are paying them quarterly. And, like I said before anything over $400 that you make, you need to be paying taxes on. So essentially you have your quarterly dates and we'll show you what those are. But you need to be paying your taxes. Corley and this is estimated tax and the upside of pan. Your taxes quarterly is that you're not hit with a 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 fight 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 Elektronik federal tax payment system, which is through the ire s, and you could 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, is a W two employees. 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 entrepreneur, they're usually a little disgruntled around this. Be specific months throughout the year, and those air when those payment dates are so you can estimate your overall payment. As you can see, this is what the Elektronik federal tax payment System website looks like. You go in there and make a payment. It's super super easy. Now when it comes to how to calculate taxes, this is a tax reschedule. No one's going to sit down and actually use it. It's what Do you see? What it looks like, but essentially what we want to 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 it 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 bite in 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 title tax account or just put it in a separate account and start making those payments quarterly. Now, what is a deductible? And how can you make tax time so much easier? So the word deductible is just thrown around or deduction is thrown around so much, right? So people like, Oh, I can deduct this or I can deduct that And then I ask people 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 $5000 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 a deduction or deductible is. Now these air some, but 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 actions, 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. The gas is You're putting your car, your car insurance, the interest that you're paying on the car for your business. All these things can be deducted or written off on your taxes. Other things. Air business, travel. As you know, you know, business travels that could even be things such as uber's lifts. As long as they're business related, they could be written off flights, yachts, whatever right it is business related. Those expenses can be written off other expenses that could be written off our your cell phone. So the cell phone bill that you're paying office supply so notebooks, pens, papers, staplers, no pads. Most don't use paper anymore. Whatever. Anything does your using mouse pads, mouse's whatever laptops they can all be written off in addition to that meal. So meals from business also equipment. So if your photographer, all of your camera equipment, all those accessories can be written off videographers, video cameras, 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. 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 could be letterhead business cards, 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 coworking space, the expenses from that as well can be written off and then membership dues. I know I was formerly a member of like, 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 actually keep all of my business expenses specifically on my business credit card, and then they get paid up 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're 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 live 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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What’s holding you back from financial planning? Some people are completely focused on creating in the now and not looking towards the future. Others feel guilty when charging more for their services. By understanding your relationship with money and finances, you can unlock your worth and make your business successful. Award-winning personal finance coach Dominique Broadway demystifies how finances work so you can:

  • Understand how to sell your services

  • Understand how to structure your business to meet your financial goals

  • Run your business with a cash-flow-positive perspective

  • Have the knowledge and confidence to set your retirement strategy in motion today

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Reviews

KimberlyAnnMurphy
 

Wow! What helpful information!

Carlos Figueiredo
 

Thank you for the insight!

Bea Chan
 

This was well detailed and explained in an easy-to understand manner.