Every business owner knows or eventually comes to know that if you don’t get your money and taxes right, you’re setting yourself up for some bad news. But don’t worry, taxes don’t have to complicated!
In this episode of The Bearded Tog podcast, I chat with Amy Northard, the CPA for Creatives, about all things taxes, money, write-offs and how creatives and photographers should organize their money!
Amy’s Money and Tax Tips!
- CPA stands for Certified Public Accountant. This means they have done the necessary paperwork and tests, and have the experience to qualify for certification.
- Hiring an accountant for monthly bookkeeping can free up so much of your time because the bookkeeper can worry about the tedious technical aspects of categorizing all of your expenses and double tracking bank transactions while you can do more of your creative work.
- A tax return is how you report your income each year to the IRS.
- When you work a regular job as an employee, the taxes you owe the government are taken out of every paycheck. At the end of the year, you submit the W2 form your evicted from your employer with your tax return, and you calculate if you paid the correct amount in taxes, if you paid too much, or if you paid too little.
- When you are self-employed, you pay yourself and don’t have money automatically taken out of your bank account to pay taxes. Because the IRS wants you to pay your share throughout the year, you will have to submit a portion of your taxes you owe on a quarterly basis.
- Sales tax and income tax are two separate things.
- Sales tax laws and requirements vary greatly state by state. Be sure to consult with the tax office of your state and a CPA about how you should charge, collect and remit sales tax.
- Facebook groups are notorious for bad information regarding sales tax because it’s different for each state and profession and type of product.
- When you are a sole proprietor or single-owner LLC, you will report all your business sales and expenses on a form called Schedule C (IRS Form 1040).
- Your business profit is the amount of money left after you subtract your business expenses from your sales. This profit is treated as your personal income and is taxed as income.
- Some states also tax your business profit as well.
- A standard deduction is an amount of money you make that the government will not tax. As of 2018, If you are single, that amount is $12,000. If you are married, that amount is $24,000.
- FOR EXAMPLE: If you make $100,000 dollars in income this year, the government will only charge you taxes on the remaining money after you subtract your deduction, ($88,000 if single, $76,000 if you are married.)
- Different amounts of money in your income after your deduction may be charged different tax rates.
- Instead of taking the standard deduction of either $12,000 or $24,000, you may be eligible for more of your money being exempt from being taxes. You can keep track of your itemized deductions (Mortgage interest, real estate taxes charitable donations, ect.). Consult with a CPA to see if you have enough of these itemized deductions.
- A lot of photographers and small business owners will purchase large amounts of gear at the end of the year because they think they are “saving money on taxes” and using the money for things for themselves or their business instead of having it go to the government. Amy warns against that mentality because if you spend all of your profit on business items, it means you didn’t bring money home to take care of yourself or your family.
- Instead of buying items for your business, Amy has a great suggestion that both gives you a tax deduction and will help you later on in life By investing a portion of your income in a Roth ira or solo 401k plan, you are reducing your tax bill, (because retirement contributions count towards a tax deduction) and saving for your future.
- Equipment depreciation is the process of spreading out an expensive business item’s purchase expenses over a set period of years if it benefits your unique tax situation.
- The IRS considers items to be eligible for depreciation if it has a long enough lifespan, and it’s a large expense (Over $2,500 dollars.)
- You can also choose to report the entire purchase of a large item in a single year. Again, consult a CPA to see what’s best for your tax situation.
- A business expense is an item that is providing a benefit to run and grow your business.
- A Starbucks drink, while you are there working on your laptop, does not count as a business expense.
- Write a note on your receipts or in your accounting software what the receipt was for, that way you can prove to the IRS if you need to that the expense was business related.
- Mileage IQ is a great app for keeping track of your business miles. Like with receipts, be sure to note what the trip for.
- Profit means that there’s money left over when you subtract the expenses from the amount of money received in sales. A loss is when your expenses exceed your sales.
- A sole proprietor and sole LLC are very similar in most states with some additional protections offered by becoming an LLC. (Certain states, such as California also charge an additional tax for LLCs.)
- Amy recommends not to consider becoming an S-Corp until it looks like your profit will be over $50,000. Even then, check with a CPA to see if it’s the right path for your business.
- Becoming an S-Corp means that your business becomes a business entity separate from you, and you will pay yourself from that business as an employee, with a regular paycheck. You will also have to do payroll taxes throughout the year. If you become an S-Corp, Amy recommends using Gusto for your payroll.
- You need to keep a digital copy of your receipts for seven years. (Most accounting apps have a photo scanner so you can take pictures of your paper receipts.) Don’t worry about methodically organizing them, as long as there’s a copy either in Gmail or google drive or dropbox that you can access in case of an audit.
Connect with Amy Online
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