New Business Owner with several tax questions

[neonreefs]

So Ive got a few questions about taxes. I am starting up a small coral propogation (coral farm basically) that is run from my home. I know basically what to do to collect sales tax, but in regards to the actual taxes on the profit of the business I am confused. This is not my sole source of income by any stretch of the imagination. The first year in operation Id expect to turn somewhere between $5000-$7500 in profit. My main source of income is from my day job as a teacher.

With that being said; heres a few specific questions/topics I could use some help with.

1. When it comes time to file my income taxes next year would I do two separate returns? One for the business and one for my personal income from my job?

2. I know that only the profit from the business is taxable, but how do I account for the other 7.5% of ss tax? I know if you are "self employed" and file using a 1099 instead of a W2 then you have to pay the entire 15% of the ss tax and something called a "Self employment tax" How does this work with the business?

3. I know that if you do odd jobs and such under a certain amount you just add that to your personal income tax as miscellaneous income or something like that. Im guess that doesnt apply here.


4. I suppose my basic question is what is the simplest/lowest tax way to file the taxes next year for a very small business that has hopefully made a small profit by then? thanks in advance everyone!

[MyITGuy]

1 - Something that you will need to speak with your accountant about as how you file would be dependent on how your registered. I see your an LLC, but does the IRS view you as a corporation (C or S), Partnership or Disregarded Entity.
Just to share, I'm registered as a corporation with S-Corp status and I just add the profits to my personal tax return via a 1120S form.

2 - Again, something to speak to your account about as I wouldn't think you could pay yourself via a 1099 form?
From my perspective, I utilize Intuit Payroll to care for any taxes I pay for employment where the appropriate percentage is with-held from my pay and when I pay my taxes on a quarterly basis the company matches the Social Security and Medicare taxes.

3 - I would think this wouldn't apply here as it is funds made payable to a business. This section is mainly for other forms of occasional income like gambling where your deductions (For this category) cannot exceed your income. Since your business is just starting out, you will likely have a year or two of losses which would be helpful tax wise.

4 - Keep accurate records and deduct everything possible. For the last few years my Corporate taxable income has ranged from a few hundred to a few thousand....but I also invest everything back into the business by buying equipment, licenses and etc.

All in all, find a good accountant! You will spend a couple hundred dollars for their services but their advice can save you significantly more.

[neonreefs]

looks like I need an accountant lol


About the LLC thing.

How do I know how the IRS is categorizing me?

[Ted]

looks like I need an accountant lol

About the LLC thing.

How do I know how the IRS is categorizing me?

Yes an accountant is your best bet as Jeff said.

You probably have a single member LLC which is disregarded for tax purposes, but the person who created your LLC would know the answer to that.

If you are a single member LLC then basically, the IRS ignores the separate business entity for income tax purposes. That means that all your income from the business is reported on your standard tax form "schedule C" I believe. You will pay self employment tax at 15% if that is the case instead of the regular social security and medicare withholding. So, set money aside as it can be a whopper if your business is profitable. Then all your profits from the business are taxed as ordinary income as if you earned it by working for someone else. So, next year, depending on how profitable your company is projected to be, you might want to make quarterly advanced estimated income tax payments. You basically estimate what your tax burden will be at the end of the year. Then pay 1/4 of that amount to the IRS every quarter. That money acts as if it was withheld by an employer for tax purposes. So at the end of the year you can get a tax refund if you overpaid or you will just write them a check for any underpayment of your estimation. The purpose of the advanced estimated tax payment is to ease your burden come April 15th. If you have to pay an entire year's worth of income tax every April 15th, it can be a real whopper.

Once you do it a few times it becomes a rude awakening on how much money the government really takes from you. And believe me, it is a lot.

Be ridiculously anal when maintaining your records and saving your receipts. I can't stress that enough. If you aren't the type to be extremely well organized, then hire a bookkeeper part time.

[HeidiS]

Great responses. I was wondering this myself, as I am the same position. Thank you.

[Atlantic]

Did you ever find out how to pay the social security tax? Do you just write a check to social security and mail it? Do you have any way of knowing if they got it and applied it to your account?

[Evan]

1. When it comes time to file my income taxes next year would I do two separate returns? One for the business and one for my personal income from my job?
No. If you haven't done any legal paperwork, you're a sole proprietor. You'll be filing Form 1040 Schedule C in addition to your regular return.


2. I know that only the profit from the business is taxable, but how do I account for the other 7.5% of ss tax? I know if you are "self employed" and file using a 1099 instead of a W2 then you have to pay the entire 15% of the ss tax and something called a "Self employment tax" How does this work with the business?
It'll be calculated when you file Schedule C. It's another form, Schedule SE. It's added to the income tax due at year-end. If that income tax balance DUE is greater than $1K, you may have an underpayment penalty and have to make estimated tax payments. Amounts vary for state purposes.


3. I know that if you do odd jobs and such under a certain amount you just add that to your personal income tax as miscellaneous income or something like that. Im guess that doesnt apply here.
Correct. Because the "odd and ends jobs" that you report as income you're not netting against expenses. Not applicable.


4. I suppose my basic question is what is the simplest/lowest tax way to file the taxes next year for a very small business that has hopefully made a small profit by then? thanks in advance everyone!
Look for ways to spend your profits. People can complain about high taxes, but that's on profits. You have every opportunity to invest those funds in the current year on a project -- and if you don't, then you'll get a "haircut" if you plan to invest in future years.

[Evan]

Did you ever find out how to pay the social security tax? Do you just write a check to social security and mail it? Do you have any way of knowing if they got it and applied it to your account?

With a Schedule C, see my other post.

If it's a corporation and you're an employee, it's paid with employment tax filings, which are reconciled with copies of the W-2 you are sent, which goes on file with the social security administration. So if you had 50,000 employees, and you cumulatively paid $1M in social security taxes, they're sending all those W-2's to the IRS, and they can see that you, as an employee, had your portion in that $1M.