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  1. #1
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    Default Taxes and stuff - Care to share?

    I'm a one man shop. I also have a side online business. I pay my daughter to manage my online business (just basically packing and shipping stuff) while I handle all the shop business.

    I'm paying between $1500 - $1800 a month in taxes. But at the end of the year I'll have to put out another $15 - 17K for federal.

    I am an S corp.

    I feel like something isn't quite right or there is something that I could be doing better. I did buy another machine this year. My accountant isn't much help either.

    I'm curious how other small shops handle these things if you don't mind sharing.

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    if your accountant isn't much help, you need a new accountant

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    It's best to look at percentages.
    Good accountant who understands that taxation is theft can definitely help.

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    I'm an S corp too. I pay payroll taxes monthly.
    The profit from an S corp is taxed as the owner's income which is lower then the corporate tax rate a C corp pays.

    If you're owing that much at the end of the year I'd say it's because your company is profitable and when you add that profit to your income you need to pay the additional payroll tax on it.

    If you bought equipment this year you should be able to depreciate it against your profit. Sect. 179 allows accelerated depreciation but I don't know what the limit is this year.

    This is my take on it, but I'm not an accountant.

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    Are you in a city? If so how much does that cost you? How much do you pay yourself? How much do you pay your daughter? Payroll taxes add a lot.

    I am in Washington too and know for a fact taxes would be much worse if I were in Oregon. I am on the border outside of any city limit so that helps with taxes. Some cities add a lot to doing business.

    You don't pay payroll taxes on all personal income if you are an S corp. The more you understand how taxes are applied the better you can reduce your tax liabilities. I work at home, own nearly everything personally, and lease it to the business. This helps reduce my tax liability, and if the business gets in trouble I don't lose the important equipment.

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    Yes, I am for sure making a profit. And the yearly taxes don't bother me, I expect that. It's the monthly taxes that are starting to bug me. My bookkeeper sent me an email today telling me $1800 will be coming out on the 15th. My daughter doesn't make that much money. I am hoping I get some relief next year from buying this machine.

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    Quote Originally Posted by Booze Daily View Post
    I'm an S corp too. I pay payroll taxes monthly.
    The profit from an S corp is taxed as the owner's income which is lower then the corporate tax rate a C corp pays.

    If you're owing that much at the end of the year I'd say it's because your company is profitable and when you add that profit to your income you need to pay the additional payroll tax on it.

    If you bought equipment this year you should be able to depreciate it against your profit. Sect. 179 allows accelerated depreciation but I don't know what the limit is this year.

    This is my take on it, but I'm not an accountant.


    The Section 179 Deduction is now $1,000,000 for 2019. This means businesses can deduct the full cost of equipment from their 2019 taxes, up to $1,000,000, with a "total equipment purchased for the year" threshold of $2,500,000. Yes, this is a ROBUST deduction and you should take advantage of it for your 2019 taxes.
    I am cornfused by the 2.5M statement, but that's currently out of my wheelhouse anyhow, so ....


    ---------------------

    Think Snow Eh!
    Ox

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    Quote Originally Posted by DavidScott View Post
    Are you in a city? If so how much does that cost you? How much do you pay yourself? How much do you pay your daughter? Payroll taxes add a lot.

    I am in Washington too and know for a fact taxes would be much worse if I were in Oregon. I am on the border outside of any city limit so that helps with taxes. Some cities add a lot to doing business.

    You don't pay payroll taxes on all personal income if you are an S corp. The more you understand how taxes are applied the better you can reduce your tax liabilities. I work at home, own nearly everything personally, and lease it to the business. This helps reduce my tax liability, and if the business gets in trouble I don't lose the important equipment.
    My daughter might make $800/month, sometimes more, she gets a commission from my online business. I take home for myself $3500/month.

    I just wonder if there is a different way to do this. It just seems excessive sometimes and I feel like I'm working for nothing.

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    Quote Originally Posted by Prototypical View Post
    My daughter might make $800/month, sometimes more, she gets a commission from my online business. I take home for myself $3500/month.

    I just wonder if there is a different way to do this. It just seems excessive sometimes and I feel like I'm working for nothing.

    You need to look at it from the "gross" side, and not the net side.

    So you gross $5150/month
    $60K/yr
    Not sure exactly where the tax brackets are in there, nor your dependant claims and other household income, but as a single person - it sounds about right.



    ------------------------

    Think Snow Eh!
    Ox

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    Quote Originally Posted by Prototypical View Post
    My daughter might make $800/month, sometimes more, she gets a commission from my online business. I take home for myself $3500/month.

    I just wonder if there is a different way to do this. It just seems excessive sometimes and I feel like I'm working for nothing.
    Do you know specifically what taxes you are paying and why? If not that is where you start, IMO. I think you would be better off with your daughter being contract labor, if possible. Could she do some of the work at home? That is just a start, it is rather complicated with lots to balance to decide what to do.

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    First off, I'd love to be taking $3500 home!

    With Regard To your taxes, you need more expenses.

    For my shop
    Cat food is pest prevention expense
    Dog food is security expense
    The shop needs paper towels, shop needs toilet paper, etc.

    These expenses are balanced by a line item on each invoice for "Shop Supplies" that has sales tax applied. I'd rather pay sales tax than income tax.

    I have only paid income tax three times in the past ten years.

    The danger of this practice is that when I got cancer last year, I was ineligible for disability because I hadn't paid enough in to the pot.

    I also have what I consider to be a VERY good accountant.

    as my business has matured, I've shifted from primarily service work to building engines and conducting R&D activities. Both of which have significant perishable/expendable costs, all of which are deductible. I try to buy a new piece of machinery each year to further substantiate my claims of conducting R&D activities.

    In order to avoid scrutiny, my accountant tells me I have to introduce at least one novel item every five years. Last year I had three, this year, two so far.

    In the meantime, find an accountant who agrees Taxation IS Theft!

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    Quote Originally Posted by ptschram View Post
    First off, I'd love to be taking $3500 home!

    With Regard To your taxes, you need more expenses.

    For my shop
    Cat food is pest prevention expense
    Dog food is security expense
    The shop needs paper towels, shop needs toilet paper, etc.

    These expenses are balanced by a line item on each invoice for "Shop Supplies" that has sales tax applied. I'd rather pay sales tax than income tax.

    I have only paid income tax three times in the past ten years.

    The danger of this practice is that when I got cancer last year, I was ineligible for disability because I hadn't paid enough in to the pot.

    I also have what I consider to be a VERY good accountant.

    as my business has matured, I've shifted from primarily service work to building engines and conducting R&D activities. Both of which have significant perishable/expendable costs, all of which are deductible. I try to buy a new piece of machinery each year to further substantiate my claims of conducting R&D activities.

    In order to avoid scrutiny, my accountant tells me I have to introduce at least one novel item every five years. Last year I had three, this year, two so far.

    In the meantime, find an accountant who agrees Taxation IS Theft!
    I do have expenses, cutting tools, shipping supplies and anything I can think of making a shop expense.

    It was my understanding that the R&D credit was done away with with the new tax laws enacted.

    Before I hired a bookkeeper, my business was just money in minus money out, spend money as I needed it, then pay taxes at the end of the year. I don't think I was paying into Social Security and Medicaid. I also didn't have an employee (my daughter). But then between both businesses my old accountant said I needed to switch to an S corp because sole prop would cost me more and suggested I hire a bookkeeper because honestly my books were a mess. I think she has been basically writing me a paycheck so that way I pay into SS, Medicaid and whatever else.

    I need your accountant :-)

    I appreciate everyone's input. This is a little more eye opening.

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    ask you accountant if you can rent the shop space, personally, to the business. That way, the rent is taxed at a lower rate, without SS and Medicare being with held, than if you pay it to yourself as wages. Also- are you an employee of yourself? If not, you might want to be. That way, your SS and Income tax and Medicare are deducted as you are paid each month, and sent in, meaning no big payment at the end of the year. A balance of being an employee, and getting rent, help bring down your personal taxes. as an employee, you should also be able to pay your health care, or some part of it, as a pre-tax business expense, too. Check with your accountant on all of this, of course.


    another thing to consider is contribute the max, if you possibly can, to an IRA. Its tax deductible now, and, you are gonna need it when you get old, trust me.

    that lowers your yearly tax bill now. of course, if you are an S corp, and use a Simple IRA, when you take it out, in your 60s, you will pay taxes on it as ordinary income.

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    Quote Originally Posted by Ries View Post
    ask you accountant if you can rent the shop space, personally, to the business. That way, the rent is taxed at a lower rate, without SS and Medicare being with held, than if you pay it to yourself as wages. Also- are you an employee of yourself? If not, you might want to be. That way, your SS and Income tax and Medicare are deducted as you are paid each month, and sent in, meaning no big payment at the end of the year. A balance of being an employee, and getting rent, help bring down your personal taxes. as an employee, you should also be able to pay your health care, or some part of it, as a pre-tax business expense, too. Check with your accountant on all of this, of course.


    another thing to consider is contribute the max, if you possibly can, to an IRA. Its tax deductible now, and, you are gonna need it when you get old, trust me.

    that lowers your yearly tax bill now. of course, if you are an S corp, and use a Simple IRA, when you take it out, in your 60s, you will pay taxes on it as ordinary income.

    I just sent him an e-mail :-)

    Thanks!

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    I try not to show more than 10% profit.
    If I’m being taxed on profit as if it’s my income I’m going to make it my income.
    Typically, quarterly bonuses. Hurts less paying taxes 4 times during the year rather than all at once at the end.
    Once I’ve gotten my profit down to 10% whatever is left in the bank stays there.
    It’s surprising how fast you can build a cushion.
    I don’t need another order til next summer and I’m still good

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    Quote Originally Posted by Booze Daily View Post
    I try not to show more than 10% profit.
    If Iím being taxed on profit as if itís my income Iím going to make it my income.
    Typically, quarterly bonuses. Hurts less paying taxes 4 times during the year rather than all at once at the end.
    Once Iíve gotten my profit down to 10% whatever is left in the bank stays there.
    Itís surprising how fast you can build a cushion.
    I donít need another order til next summer and Iím still good
    Interesting. I'm meeting with my accountant on Thursday next week. He said he has some ideas. I've heard of small businesses giving themselves bonuses like you mention. I wonder if that might be part of what he's thinking. We'll see.

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    Quote Originally Posted by Ox View Post
    I am cornfused by the 2.5M statement, but that's currently out of my wheelhouse anyhow, so ....
    The $2.5M is a spending cap that phases out the section 179 deduction for larger businesses. Section 179 is meant to be an incentive for small business capital spending, so anything you spend over $2.5M reduces your max deduction of $1M dollar for dollar until it drops to $0 at $3.5M.

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    If you are an S corp, I dont think leaving money in the bank saves on taxes- you get a K-1 each year, and the profit for that year is yours, whether its in the company bank account or your personal one.

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    Are you taking S Corp. Distributions?

    The S Corp. Distributions are taxed differently than income. Your accountant should have a good grasp on the advantages of the S Corp and how to apply these advantages to your situation.

    It may be better for you to take the S Corp. Distribution rather than a large salary or as a bonus.

    Dave

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    Quote Originally Posted by Booze Daily View Post
    I try not to show more than 10% profit.
    If I’m being taxed on profit as if it’s my income I’m going to make it my income.
    Typically, quarterly bonuses. Hurts less paying taxes 4 times during the year rather than all at once at the end.
    Once I’ve gotten my profit down to 10% whatever is left in the bank stays there.
    It’s surprising how fast you can build a cushion.
    I don’t need another order til next summer and I’m still good
    Do you have an S Corp ?
    OP Said he has an S Corp, wages and bonus you pay Social Security Tax(personal and business side), with an S Corp you don't pay that on profits, so thats a 12.4% savings. Your Federal tax is the same no matter which way you do it.


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