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Taxes end of year with a Business

Discussion in 'Stocks, Investments & Finances' started by nowayout, Mar 6, 2022.

  1. Mar 6, 2022 at 3:32 PM
    #1
    nowayout

    nowayout [OP] New Member

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    My wife and I are new to owning a business. 2021 was our first full year. I work road construction and claim single 0 and she runs the business which is a hot yoga studio. 95% of the income for the business is paid through credit cards.

    This year we had to pay $8k which kinda sucked.

    So how do we avoid this? What should we do different this year?

    Really any help would be greatly appreciated.
     
  2. Mar 6, 2022 at 3:34 PM
    #2
    SouthWestGA

    SouthWestGA New Member

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    You hire a licensed accountant and financial consultant

    You don’t come on the web hoping for advice that works out

    I’m not being mean,only factual

    Only someone that can look at your finances can help
     
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  3. Mar 6, 2022 at 3:57 PM
    #3
    omgboost

    omgboost The Accountant

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    Make sure your expenses are greater than your income. Being in a position to pay tax is great, that means you have income!
     
  4. Mar 7, 2022 at 9:18 AM
    #4
    nowayout

    nowayout [OP] New Member

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    OK I will look into hiring someone. Thank you
     
  5. Mar 7, 2022 at 9:27 AM
    #5
    Solv3nt

    Solv3nt New Member

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    Did you pay estimated taxes? If you own your own business, your are responsible for the withholding. Also, since you owed money this year, the IRS will nail you hard next year if you don't pay enough.

    Also, if you make over a certain dollar amount (if I recall $150k AGI, trust but verify) they'll will nail you if you don't withhold/pay at least 110%, don't quote me on the number, but I'm pretty sure it's 110%.

    The underpayment penalty is real and they make it as painful as possible.

    If you aren't tax savvy, which it sounds like you may not be in that category; no offense intended, you should really consider paying a tax consultant.
     
  6. Mar 7, 2022 at 9:37 AM
    #6
    ScenicRoute

    ScenicRoute New Member

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    Don’t look for advice on internet. Hire a local accountant and have the conversation in q3 about how to prepare for year end.
     
  7. Mar 7, 2022 at 9:52 AM
    #7
    Solv3nt

    Solv3nt New Member

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    You need to be talking to the accountant now, q3 is too late if you aren't making payments. The IRS wants the money paid quarterly, monthly I think if you make more money; trust but verify.

    Not only will the IRS nail you with an underlayment penalty, they will also assess interest on the underpayment amount.

    For example, let's say you make the same amount next year, and you have an $8k liability, if you don't divide that payment by 4, or $2k each quarter and instead pay it all in q3, they'll nail you with additional interest on the $6k that you didn't pay earlier.

    Hire an accountant. That said, if you're going to be cheap and lazy, an easy number is withhold 110%; trust but verify, the amount of this year. So if you're total tax liability was $10k, including paycheck withholding, make sure you pay at least $11k with your estimated.
     
    Last edited: Mar 7, 2022
    omgboost likes this.
  8. Mar 7, 2022 at 9:53 AM
    #8
    Willard

    Willard New Member

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    Small business owner here. Definitely get a CPA and bookkeeper.
     
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  9. Mar 7, 2022 at 10:49 AM
    #9
    omgboost

    omgboost The Accountant

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    They want payments quarterly. Also if you pay everything in Q3, they will charge penalty and interest on $4k (Q1 and Q2, Q4 is considered early). Then if you did not do a good enough job estimating and based on prior year's return, they may charge more on underpayment. You'll have to consider state taxes as well if you live in a state that charged income taxes. Seeing the OP's profile say NY, then definitely make estimated state payments if you plan on owing next year.
     
    Solv3nt[QUOTED] likes this.
  10. Mar 7, 2022 at 12:24 PM
    #10
    ScenicRoute

    ScenicRoute New Member

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    Just reinforces what I meant about not asking for advice on internet. What works for me doesn’t work for someone else. I’ve had accountant do it all including quarterly filing for 15 years. So our only face to face is in q3 but that’s only because he’s already up to speed on everything.
     
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  11. Mar 7, 2022 at 12:28 PM
    #11
    VTYOTER

    VTYOTER Rock

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    If you don't want to pay taxes, don't make money.

    agreed, hire an accountant. meet them every quarter your first year or two.
     
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  12. Mar 7, 2022 at 12:54 PM
    #12
    Solv3nt

    Solv3nt New Member

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    True, OP really needs to really to an accountant. That said, estimated taxes aren't rocket science, and you can find out all the information online in the IRS publications.
     
  13. Nov 9, 2022 at 11:45 AM
    #13
    Tacos4cheap

    Tacos4cheap New Member

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    My accountant has me pre-paying taxes every 2-3 months. Its based on what you made the year before so if you sell less you get money back. If you sell more you pay more at the end.
     
  14. Dec 24, 2022 at 8:39 AM
    #14
    dittothat

    dittothat New Member

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    Just reduced my small business tax burden by giving my kids a small payout. They provided modeling services for me. Every kid as young as birth can be a model. As they get older they can do more work for you and give them a higher salary. Bonus for this is I was now able to contribute to their Roth IRA which should grow tax free for at least the next 65+ years.
     
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  15. Dec 24, 2022 at 9:04 AM
    #15
    M3Tundra-JK

    M3Tundra-JK New Member

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    I'm just starting a small business for myself so this is good stuff for me next year. Just prepping but I did get QuickBooks to help. I'll look into a local CPA as well.
     
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  16. Jan 12, 2023 at 9:24 PM
    #16
    jsf343

    jsf343 New Member

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    All good advice from everybody above. I will add one more though that my wife and I have learned… to make money your going to pay tax, simple as that. The trick is to minimize the pain by paying quarterly estimates (CPA will help set this up), also reinvest back into your business, your employee’s if you have them and YOURSELF (maximize business 401k’s, health benefits, build a shop, pay for all the vehicles to have end of year maintenance, etc.) Example… buy equipment, buy a truck, buy things your business needs as they are a write off. A lot more can be said but always good to throw questions at CPA. Hope that helps
     
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