startup-costs, taxes, llc, tax-structure, taxI have a two new startup businesses that are both turning some profits now but I’m worried about taxes. One is run as an DBA, and all the clients have paid via check or cash currently. The other is an LLC where the clients have paid via credit card or Paypal exclusively.
I’m having difficulty knowing what criteria to judge a tax professional on. One friend suggested HR block, but then another friend said they were a franchise and would not give me the personal attention I need to detail for saving me money.
I’m not sure how to logically pick a tax professional for either of my businesses.
I’m also not entirely sure how the write off system works?
For example, I know I can write off my new computer that cost me $4000 for business since I use it for that. Does that mean that I owe $4000 less in taxes? Or do I owe a percentage of the $4000 less in taxes? (For example 30% of $4000), which would be $1200.
I’ve even heard bizarre stories that income tax is voluntary… I have no idea what truth there is to that but sounds fishy to me.
Questions like these will help me in future projections for business as well to accurately predict profits.
I wouldn’t spend too much time thinking about it. For your situation, any competent tax accountant can do a good job for you. There are not any magic tricks that will save you a lot of money. Get a recommendation from a friend or try Yelp. Best to start soon before they get too busy!
There are lots of online resources to explain business tax deductions so I won’t repeat that here, but you can deduct just about any legitimate business expense. You can deduct your laptop, and I think you can do it all in one year for the full price of the laptop (sometimes you have to deduct larger expenses over several years).
There is nothing voluntary about income taxes!!!
Some questions and answers in a previous question I answered might help you… some points at very least should be considered: https://startups.stackexchange.com/questions/8576/how-to-build-a-startup-freelance-software-qa-in-the-us/8585#8585
You are a little over your head already so you need tax advice - HR Block is a good start - if they cannot help, they will tell you. 30minutes chat with them is not a waste of your time or money. If they cannot help, they should be able to direct you elsewhere.
Below, when I say “entity” I am refering to your LLC - or specifically, I am not refering to you as a person but the commercial entity that your customers pay their money to.
When you say “write off” its important you realise nobody gives you something for nothing. So if your entity does not trade, then no tax is due (except paperwork to make clear you did not trade). However, if your entity earns 100k, and your entity had 30k in expenses (light/heat/rent/stationary/gas/etc), and 70k profit, the tax is due on the 70k, not the 100k. In addition, in some countries, any sales tax your entity might have paid in the 30k of expenses could come back to you in a rebate (there are reasons where this might not be true - it depends on how your entity was registered).
Some things to keep in mind:
Here is the thing: Depending on your country/region/tax laws, any sales you have done could well have tax oweing even if you did not charge it.
What is true is you need a tax professional. The longer you wait, the greater your risk.
I’ve had a UK Limited Company for 20+ years and one thing I can say is the tax man is human - they are not out to trick you, however your ignorance of the law will not give you a get out of jail free card so to speak. At worst, any tax owed will still have to be paid - A fine will will likely only apply if they believe you acted with ill intent (which appears not in this case). The important thing is you act now, not later.
Important for your future accountant/tax advisor 1) Keep all receipts of anything related to your business. Gas/laptop/adverts/stationery/business lunch (note purpose of the business lunch in case taxman raises a query). Any office rent or if you have a home-office 2) Keep all invoices or something to show an audit trail of where the money came from (so its not considered income from fraud)
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