We hear you. The last thing you want to think about while doing holiday shopping is paying taxes... especially since it might feel like taxes aren't something to think about until AFTER this year ends.
However, as a business owner, the rules have changed. Actually, the rules have become more important! As you begin to make more of a profit in your business, the self-employment taxes REALLY start to add up. However, there are LOTS of ways to legally and ethically reduce the amount of taxes you owe. However, you only have until December 31st of this year to do it!
Disclaimer: I am NOT a bookkeeper, accountant, lawyer, or CPA. I am just a business owner like you who has learned a few things that allows me to encourage you to run the numbers and call your own accountant! Here are some things our fabulous accountant Mark J. Kohler has shared in his awesome trainings and free podcasts.
Time to Run The Numbers (Seriously)
1. Now is the time to run the numbers of your gross profits, calculate your expenses, and get a clear picture of how much you might owe in taxes. I know it is tempting to wait until February or March... but there are things you can do NOW with an accountant that could save you on taxes that you cannot do after December 31st. My personal favorite way to run my numbers is with www.outright.com I have tried several different programs and options, but this has truly been the most seamless way for me to manage the finances in my practice! After you get this set-up it should take less than 20 minutes to "do your books" each month or each quarter! Do you already have an option that works for you? Awesome- go use it! Ok- now that you have your numbers...
Are You Paying Too Much in Taxes?
2. If you netted over $30,000 in your business last year and you are still a sole proprietorship or an LLC with nothing else - you need to talk to a lawyer or an accountant. You may be able to (Mark Kohler's says definitely will be able to) save money by moving from a sole-proprietorship tax structure to a corporation tax structure (like an s-corp). (Yes- even after you pay a lawyer to file the paperwork and pay minimum corporate taxes). If you already know you are moving to an s-corp for 2016 the more expenses you can apply in 2015- the better! Why? Because you are paying a higher rate of taxes on your income this year if you are making over $30k net (net is the money you make after subtracting expenses but before you pay your taxes) and you aren't a corporation yet.
We highly recommend you consult an attorney to make the switch. Legalzoom may seem cheap on the surface, but you end up paying about the same amount once you check all the boxes you need to check to make it a legal, enforceable corporation and there are LOTs of ways things can go sideways. Each state also differs in what type of corporations therapists can file- so there are a lot of therapists who have filed for the wrong types of corporations- doh! Mark J. Kohler has worked with several of our bootcampers and they have raved about him- he is available to file corporations in all 50 states.
Could Spending Money Save You Money?
3. Look at your total tax situation for you AND anyone you file jointly with. See if you can get a clear picture of what tax bracket you might be in. For example, If you are $10,000 over the next tax bracket you could be paying 28% (or more) taxes on that income- or $2800- taking home just $7,200. While if you were to make a $3k expense at the end of the year, you would be paying just 28% tax on only 7k (instead of 10k). You would take home $5040 instead of $7200. Meaning you paid out an extra $3000 to get an amazing training, but took home just $1960 less! Some might say in this case- the $3,000 training only cost you $1960!
Are your eyes glazing over when it comes to numbers? Keep it simple for now. Get Outright set-up, talk to an accountant, and get clear about your tax situation and how to reduce how much you pay to the government!