Does the idea of being your own boss and being in business for yourself appeal to you?
Many people who launch small businesses start out as sole proprietors. However, there are tax rules and considerations to consider if you’re a sole proprietor.
Here are nine things to consider if you are your own boss
To the extent your business generates qualified business income, you are eligible to claim the 20% pass-through deduction, subject to limitations.
The deduction is taken “below the line,” meaning it reduces taxable income, rather than being taken “above the line” against your gross income.
However, you can take the deduction even if you don’t itemize deductions and instead claim the standard deduction.
The net income will be taxable to you regardless of whether you withdraw cash from the business.
Your business expenses are deductible against gross income and not as itemized deductions.
If you have losses, they will generally be deductible against your other income, subject to special rules related to hobby losses, passive activity losses, and losses in activities in which you weren’t “at risk.”
For 2020, you pay self-employment tax (Social Security and Medicare) at a 15.3% rate on your net earnings from self-employment of up to $137,700, and Medicare tax only at a 2.9% rate on the excess.
An additional 0.9% Medicare tax (for a total of 3.8%) is imposed on self-employment income in excess of $250,000 for joint returns; $125,000 for married taxpayers filing separate returns; and $200,000 in all other cases.
Self-employment tax is imposed in addition to income tax, but you can deduct half of your self-employment tax as an adjustment to income.
For 2019, these are due April 15, June 15, September 15 and January 15, 2021.
If you work from a home office, perform management or administrative tasks there, or store product samples or inventory at home, you may be entitled to deduct an allocable portion of some costs of maintaining your home.
And if you have a home office, you may be able to deduct expenses of traveling from there to another work location.
This means your deduction for medical care insurance won’t be subject to the rule that limits medical expense deductions.
Specifically, you should carefully record your expenses in order to claim all the tax breaks to which you’re entitled.
Certain expenses, such as automobile, travel, meals, and office-at-home expenses, require special attention because they’re subject to special recordkeeping rules or deductibility limits.
When you hire employees, you need to get a taxpayer identification number and withhold and pay employment taxes.
The advantage is that amounts contributed to the plan are deductible at the time of the contribution and aren’t taken into income until they’re are withdrawn.
Because many qualified plans can be complex, you might consider a SEP plan, which requires less paperwork.
A SIMPLE plan is also available to sole proprietors that offers tax advantages with fewer restrictions and administrative requirements.
If you don’t establish a retirement plan, you may still be able to contribute to an IRA.
At David Mills CPA, LLC, we work with small businesses throughout the Central Illinois.
We can also help business owners understand the various business structures to ensure their business is structured to best meet their needs.
For more information, contact David Mills CPA, LLC today.
You’re the CEO of your business and an expert in your industry, but does that expertise expand to the financial side of your business? If phrases like “projected profitability” and “cash flow” make you cringe, it’s time to call the experts at David Mills, CPA, LLC.
Chances are you didn’t get into business because the idea of managing financial statements appealed to you, yet your company’s success is directly related to the quality of your financial statements and the CFO (chief financial officer)/Controller Services overseeing them.
A head-in-the-sand approach to your business finances is a disaster waiting to happen. Just like ignoring your car’s check engine light can leave you stranded, not paying attention to finances can cripple your business.
More than 28% of bankrupt businesses cite problems with the financial structure of their company as a primary reason for failure.
Businesses fail because they forget about the basics. Have you taken the time to create a budget? If you have, do you regularly analyze the results? Is your business making a profit, yet you never seem to have money in the bank?
Hiring an outsourced controller/CFO is the smart way to keep your finger on the financial pulse of your business.
If financial statements make no sense to you, you won’t use them. You need controller services you can trust to interpret the statements for you.
Just because you may not have the budget for a full-time CFO doesn’t mean you don’t have alternatives.
With our Morton and East Peoria offices, our firm can provide CFO services on an “as-needed” basis to companies in the Tri-County area.
We can take full responsibility for the financial side of your business, work part-time, or train your staff. Our services are available on a monthly, quarterly or a specific-project basis.
You’ll gain greater control over your business when the numbers make sense.
Having the staff at David Mills, CPA, LLC be your financial experts allows you to excel at the business you do best.
Contact us today about our CFO consulting and outsourced controller services.
QuickBooks is a popular tool for businesses to use for payroll, receivables, payables, and inventory. It may be an “easy” tool, but that does not mean that learning that tool is easy. You want to get as much out of your service as possible, and that’s where we come in. We are a QuickBooks Pro Advisor, so we have the skills, knowledge, and experience to teach you how to successfully utilize QuickBooks for your business. We are available to install QuickBooks, train your team, and offer support when necessary.
We offer installation services for QuickBooks. It may sound silly for someone else to install your program, but trust us, there’s more to QuickBooks than meets the eye. For example, we can help you by:
Once QuickBooks is installed, we are also there to walk your team through training. We use your business’ actual data, not generic data, so your team will be familiar with your business’ values. We come to your location for training, so there’s no need to travel. You also don’t need to worry about your team reaching information overload. We train in short sessions; about 2-3 hours. We’re happy to provide any answers we can to your questions and give any information we can on how QuickBooks best suits you and your business. Best of all, we provide support by phone, as well as on-site. For training questions, we can remotely log in to your computer to show you step-by-step the answer to your problem. Contact us today for QuickBooks installation, training, and support.