Author Topic: Small Business Taxes  (Read 3583 times)

Justin234

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Small Business Taxes
« on: February 23, 2013, 12:47:21 AM »
I'm curious how many small business owners around here do their taxes themselves vs. hire accountants. Classical Mustachianism would suggest a DIY approach, which is what I've done in the past. However, I'm sitting down for 2012 taxes (on TurboTax, which costs about $60 or so through my bank discount) and I'm a little surprised how much I'm going to have to pay.

I know this topic has been discussed before (http://www.mrmoneymustache.com/forum/ask-a-mustachian/do-you-do-your-own-taxes/msg41244/#msg41244) but I don't think anyone has addressed the business side of things. If it were just a 1040 I'd do it myself, but the business expenses get complicated.

In case it is relevant, my business is a sole proprietorship, and it's pretty small for now: about $30,000 in gross income and $18,000 net income last year. But if everything goes according to plan, income should increase in 2013 while expenses stay the same or decrease. The goal is for it to cover all our family expenses until early retirement. So I'm looking at paying more and more Self Employment tax as the years go by. Should I shell out for an expert, from a purely cost-benefit standpoint? I don't want to miss out on any really obvious deductions, write offs etc..

tmac

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Re: Small Business Taxes
« Reply #1 on: February 23, 2013, 04:55:45 AM »
When I had a smaller sole proprietorship, I did them myself. The stakes seemed lower and, because I had stayed on top of quarterly estimated taxes, the the end-of-year bill was never so painful that I sought other solutions.

These days, however, we're incorporated, have employees, and the stakes are high. So I do all the mid-year stuff myself (payroll, monthly and quarterly state and federal, etc.) but send the year-end for our business and personal taxes off to the CPA. We live in a small town, so she's reasonably priced and attentive. It's worth the money to me to be sure it's done properly and to make sure I'm not paying more than I should.

In the future, things should simplify on the personal side, then I'll start doing that part myself. I've also considered taking a basic accounting class at our local community college so I can take over the business side as well.
« Last Edit: February 23, 2013, 11:00:32 AM by tamara »

Self-employed-swami

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Re: Small Business Taxes
« Reply #2 on: February 23, 2013, 06:46:07 AM »
I have two employees (My husband and I) and I hire an accountant.  I'm in Canada though, and my accountant is my Dad's Girlfriend, so I don't actually pay.
A small business-owning SWAMI working herself towards FI.

jawisco

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Re: Small Business Taxes
« Reply #3 on: February 23, 2013, 06:53:38 AM »
I own a small business and like others I do all the stuff during the year, but then hand off the tax stuff to a cpa.  Costs me around $300 to do it this way.  I think, depending on the nature of your business (consulting and contract work is much more straightforward than having inventory), you COULD do it yourself, but I would work with a cpa the first year or two.  Then you will have a template if you decide to do it yourself.

Find a good CPA though - interview a bunch and go with the one who seems the best.  If you find a good one, it will be more than worth your money and time.  Finding a good one could help out a ton and is worth giving time and effort towards.

If you don't have any employees, look into a solo 401K - great way to save lots of money on taxes.

Crash87

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Re: Small Business Taxes
« Reply #4 on: February 23, 2013, 08:04:31 AM »
If you are giving it an honest shot when you prepare your taxes, the only thing I can think of that might be messed up is depreciation. I would brush up on how depreciation works by downloading the 1040 instructions from the IRS website. Skim through the whole thing if you're concerned about missing potential tax credits/deductions.
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arebelspy

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Re: Small Business Taxes
« Reply #5 on: February 23, 2013, 09:07:48 AM »
I don't have a small business, but I do have several rental properties, and I hire someone.
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Jamesqf

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Re: Small Business Taxes
« Reply #6 on: February 23, 2013, 10:54:26 AM »
I do all my own, but I'm way over on the simple end, doing software contracting.  I don't find it difficult at all, just time-consuming.  If I had to deal with things like inventory or payroll, it might be a different story.  As it is, my biggest problem is debating whether I could deduct the cost of dog food as "maintenance of security system"?

Nate R

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Re: Small Business Taxes
« Reply #7 on: February 23, 2013, 11:00:21 AM »
I had a side business for 9 years. At its' peak, I was doing about 60K in sales, maybe 12-15 in net income. I always did it myself, and things turned out fine. Tracked my business miles, etc through the year.  The expenses generally don't get too crazy. You can always add your own categories on the Sched C as needed if you can't get some things to fit.

MooreBonds

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Re: Small Business Taxes
« Reply #8 on: February 23, 2013, 01:50:38 PM »
I do some consulting on the side as a self-employed person. It's not really as daunting as it might sound, especially if you already do your own 1040 taxes to begin with. The IRS publications and form instructions are actually somewhat 'good' at walking you through each line. If you feel that unsure, you can always hire a CPA or someone to do it for the first year or two, and then just see how they did it and do it yourself in later years.

If you have a fairly simple business (i.e. not too much crazy depreciation or complex first-in/last-out, etc. costs), it's pretty straight forward. It can take a few hours for everything, but you then get to pay yourself $50 or so an hour for your troubles vs paying someone else.

Justin234

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Re: Small Business Taxes
« Reply #9 on: February 24, 2013, 01:06:01 AM »
Thanks for the thoughts, everyone.

Jawisco, thanks for the tip on the solo 401K... haven't even thought of that!

Crash87, yes, depreciation seems to be the trickiest part.

Jamesqf, I think your dog totally falls under home office security!

I think I will continue to do my own taxes this year, and interview a few CPAs this year to see if it's something that would be of value. I have no staff and no goods - I provide consulting and services, so it's really just home office and misc. expenses.

MooreBonds

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Re: Small Business Taxes
« Reply #10 on: February 24, 2013, 10:20:52 AM »
One last thing - the IRS has now enacted a simpler provision for home office expense deductions. Before, you had to total up your utilities, real estate taxes, insurance, etc., and then pro-rate it for whatever % of your house your home office is (i.e. your home office is 11% of your total living space, then you deduct 11% of your total home expenses).

Now, (for tax year 2013, filed in 2014), you will be able to simply apply a $/sq ft allowance to make it much simpler if you want. And for mustachians, that would be a huge benefit, since our utilities, insurance, and other expenses would likely be small anyway, so with the flat $/sq ft, you should end up being able to deduct more compared to totaling up your actual expenses.

One other item - don't forget that you can count your home office as your 'headquarters', and ANY trips by car to a client's or work or other business location or any other location qualifies for the generous $.555 mileage deduction. Again, for mustachians, the flat $/mile car deduction is great because our car expenses should be far less than $.555/mile.


julez916

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Re: Small Business Taxes
« Reply #11 on: October 23, 2014, 08:29:32 AM »
I know this topic is really old, but it is so in line with what I wanted to ask that I thought I'd try here first. I have a very small business teaching yoga. It is a sole proprietorship, and I have no employees. The majority of the work I do is as an independent contractor. All of the other yoga teachers I know shy away from doing their own taxes, but I have always done mine myself, and it didn't get that much more complicated when I started the business. It's nice to see that the consensus here is that for such a straightforward, small business, doing it yourself is fine. I have only netted $2400 or so this year anyway, so paying an accountant seems like a huge expense.

All that said, every once in a while I get struck with anxiety about the possibility of an audit, and whether or not I might be hit with back taxes. So, I have three questions for you fine folks that will hopefully help preserve my state of mind and confidence. First,it was mentioned above that if you claim your home office as your headquarters, you can claim mileage deductions on any trips out for business. I have done this in the past, but no longer have a home office. I don't rent one either, though; is it legit to claim my home as my headquarters (my home address is listed as my business address) if I don't claim a deduction for the office space?

Second question... I have never had any qualms about claiming my mileage deductions. A fellow yoga teacher who does work with an accountant told me earlier this year that any meals you purchase while in between classes can be deducted as such (50%deduction). Given that I have had days where I drive 45. Minutes to teach a class, then stick around in town for a couple hours, that makes sense to me. But it's one of those things that I worry could come back to bite me. Thoughts? This same person also said that you don't need to keep receipts for such expenses as long as they are under $100. I'm using expensify now to track receipts, so I'm not too worried about that going forward, but there are definitely meal expenses from earlier this year that I do not have receipts for.

Finally, and in my mind least importantly, what about job related trainings? Is there a specific category those should fall under, or do you just create one that seems to fit?

Thanks for any help you can give!

eyePod

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Re: Small Business Taxes
« Reply #12 on: October 23, 2014, 08:55:00 AM »
All that said, every once in a while I get struck with anxiety about the possibility of an audit, and whether or not I might be hit with back taxes.

I have nothing to add except why worry? What's the back taxes going to be on 2400 going to be? Even if you were wrong for 5 years, that's still only 12k. Worst-case you'd owe a few grand, and that's assuming you didn't pay any taxes on it (which doesn't seem to be true).
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julez916

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Re: Small Business Taxes
« Reply #13 on: October 23, 2014, 09:25:30 AM »
Yes! Thanks for that, eyePod. I think that is exactly what I needed to hear. Usually I can set the worrying aside, but sometimes it is helpful to have someone else put it in perspective.

sparklebunny

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Re: Small Business Taxes
« Reply #14 on: October 23, 2014, 12:14:41 PM »
I have a law firm with 2 employees, plus myself, and a couple rental properties and it is well worth the couple hundred that my CPA charges to do my taxes.  When I used turbo tax before, the rentals weren't depreciated properly and my CPA refiled my taxes and I got $7500 back from the IRS.  So yes, I hands down think it's worth paying an appropriately priced CPA for the work.  Plus, my time is very valuable and I don't have the time or inclination to continue to mess with it and worry about it.

YeahNo

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Re: Small Business Taxes
« Reply #15 on: October 24, 2014, 09:00:15 PM »
Yes! Thanks for that, eyePod. I think that is exactly what I needed to hear. Usually I can set the worrying aside, but sometimes it is helpful to have someone else put it in perspective.

I 2nd eyePod. If you are only netting 2400 I would not be worrying about a CPA at all at that point. If you don't have employees, property, inventory, etc then taxes are a piece of cake.

Spondulix

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Re: Small Business Taxes
« Reply #16 on: November 11, 2014, 07:50:22 PM »
All that said, every once in a while I get struck with anxiety about the possibility of an audit, and whether or not I might be hit with back taxes. So, I have three questions for you fin
e folks that will hopefully help preserve my state of mind and confidence. First,it was mentioned above that if you claim your home office as your headquarters, you can claim mileage deductions on any trips out for business. I have done this in the past, but no longer have a home office. I don't rent one either, though; is it legit to claim my home as my headquarters (my home address is listed as my business address) if I don't claim a deduction for the office space?

Second question... I have never had any qualms about claiming my mileage deductions. A fellow yoga teacher who does work with an accountant told me earlier this year that any meals you purchase while in between classes can be deducted as such (50%deduction). Given that I have had days where I drive 45. Minutes to teach a class, then stick around in town for a couple hours, that makes sense to me. But it's one of those things that I worry could come back to bite me. Thoughts? This same person also said that you don't need to keep receipts for such expenses as long as they are under $100. I'm using expensify now to track receipts, so I'm not too worried about that going forward, but there are definitely meal expenses from earlier this year that I do not have receipts for.

Finally, and in my mind least importantly, what about job related trainings? Is there a specific category those should fall under, or do you just create one that seems to fit?

Thanks for any help you can give!
You can count mileage regardless if you have a home office or not. There's two ways of deducting car - one is by actual mileage, and one is by a percentage of use. When I was self-employed, I used my car for business 75% of the time so I could write-off 75% of my car expenses (maintenance, gas, etc).

For the home expenses, you really have to have a home office. It's the same as the car where you calculate the percentage of the square footage of your office to the house. So if your house is 1000 sq ft and your home office is 250 sq ft, you could write off 25% of your utilities, etc. A friend of mine was using a home office as a bedroom also, and my accountant said technically that's not ok. So I wouldn't get into itemizing your home expenses unless you have a dedicated space.

The meals you talk about are called "meals provided for convenience of employer," and they are deducted at 50%.

Job related training absolutely counts, too. I call that kind of thing research. Books, magazines, etc related to your business would count, too. If you play music during your class, you probably could write off any music purchases as supplies.

I've had an accountant do my taxes for years only because they save me more money than I spend. My husband and I do the same kind of work (same equipment, office, etc) but itemize separately. So we can sometimes shuffle expenses around depending on who needs the write-off. An accountant can help figure out how much you can reasonable write off without setting off any red flags. What you're doing looks pretty simple, so reasonable to save the cash and DIY.

Wile E. Coyote

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Re: Small Business Taxes
« Reply #17 on: November 11, 2014, 09:39:38 PM »
I know this topic is really old, but it is so in line with what I wanted to ask that I thought I'd try here first. I have a very small business teaching yoga. It is a sole proprietorship, and I have no employees. The majority of the work I do is as an independent contractor. All of the other yoga teachers I know shy away from doing their own taxes, but I have always done mine myself, and it didn't get that much more complicated when I started the business. It's nice to see that the consensus here is that for such a straightforward, small business, doing it yourself is fine. I have only netted $2400 or so this year anyway, so paying an accountant seems like a huge expense.

All that said, every once in a while I get struck with anxiety about the possibility of an audit, and whether or not I might be hit with back taxes. So, I have three questions for you fine folks that will hopefully help preserve my state of mind and confidence. First,it was mentioned above that if you claim your home office as your headquarters, you can claim mileage deductions on any trips out for business. I have done this in the past, but no longer have a home office. I don't rent one either, though; is it legit to claim my home as my headquarters (my home address is listed as my business address) if I don't claim a deduction for the office space?

Second question... I have never had any qualms about claiming my mileage deductions. A fellow yoga teacher who does work with an accountant told me earlier this year that any meals you purchase while in between classes can be deducted as such (50%deduction). Given that I have had days where I drive 45. Minutes to teach a class, then stick around in town for a couple hours, that makes sense to me. But it's one of those things that I worry could come back to bite me. Thoughts? This same person also said that you don't need to keep receipts for such expenses as long as they are under $100. I'm using expensify now to track receipts, so I'm not too worried about that going forward, but there are definitely meal expenses from earlier this year that I do not have receipts for.

Finally, and in my mind least importantly, what about job related trainings? Is there a specific category those should fall under, or do you just create one that seems to fit?

Thanks for any help you can give!

The IRS has some pretty good guidance that covers many of these questions. 

http://www.irs.gov/publications/p463/ch04.html

http://www.irs.gov/publications/p463/ch02.html#en_US_2013_publink100033862

Short version is that you should be concerned as the rules are quite specific.


julez916

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Re: Small Business Taxes
« Reply #18 on: November 14, 2014, 09:26:18 AM »
You can count mileage regardless if you have a home office or not. There's two ways of deducting car - one is by actual mileage, and one is by a percentage of use. When I was self-employed, I used my car for business 75% of the time so I could write-off 75% of my car expenses (maintenance, gas, etc).

For the home expenses, you really have to have a home office. It's the same as the car where you calculate the percentage of the square footage of your office to the house. So if your house is 1000 sq ft and your home office is 250 sq ft, you could write off 25% of your utilities, etc. A friend of mine was using a home office as a bedroom also, and my accountant said technically that's not ok. So I wouldn't get into itemizing your home expenses unless you have a dedicated space.

The meals you talk about are called "meals provided for convenience of employer," and they are deducted at 50%.

Job related training absolutely counts, too. I call that kind of thing research. Books, magazines, etc related to your business would count, too. If you play music during your class, you probably could write off any music purchases as supplies.

I've had an accountant do my taxes for years only because they save me more money than I spend. My husband and I do the same kind of work (same equipment, office, etc) but itemize separately. So we can sometimes shuffle expenses around depending on who needs the write-off. An accountant can help figure out how much you can reasonable write off without setting off any red flags. What you're doing looks pretty simple, so reasonable to save the cash and DIY.

Thank you! Everything you said here just reinforces the way I had interpreted and followed the rules, so I think I'm good! I only claimed the home office deduction one year, at which time, we did have a dedicated space in our home. We eventually repurposed it, though, and now I do not claim it as a deduction. It's so helpful to have someone else break it down like this so that I can remind myself that yes, I am on the right track.

And thank you to Wile E. Coyote, too. The links you provided were also helpful in reinforcing the rules in my mind and reassuring me that I'm acting within them.

TheOfficeLady

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Re: Small Business Taxes
« Reply #19 on: January 14, 2015, 07:37:30 AM »
Do as much of the paperwork as you can and if you have questions, definitely meet with an accountant. Accountants always appreciate people who are as prepared as possible but just need their input on the stuff that is legitimately difficult. My boyfriend didn't meet with an accountant one year and ended up owing a lot in taxes.

Miss Prim

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Re: Small Business Taxes
« Reply #20 on: January 23, 2015, 07:17:57 AM »
I do my husbands schedule C myself.  I took the H &R Block tax course years ago and learned a lot from it.  I have saved a lot of money over the years and feel confidant about doing my own taxes.  We have a rental property also, and to have an accountant do my taxes would be expensive.  The course at the time was $200.00, but it was money well spent.  I also worked as a tax preparer that season, but with another company because I made more money than working for Block. 

I would see if you can find some type of course either through a large Tax Prepare company or local community college.  It will help you even if you do decide to use an accountant because you really need to make sure they are doing your taxes properly.  Even accountants make mistakes and you would know your situation the best.

 As an example, my sister-in-law has her taxes done every year by her brother who is a banker, but also a CPA.  He screws them up just about every year.  The IRS sends her a letter about every other year about some mistake!  He won't use tax prepare software, he does them by hand!  I have to help her figure out the problem.  She won't tell her brother about it and still lets him do it every year!

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Cpa Cat

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Re: Small Business Taxes
« Reply #21 on: January 23, 2015, 07:54:25 AM »
I think at the point that someone is filing as an S-Corp is probably the point they should be looking for a CPA. There are some S-Corp compliance issues that are important to be on top of and do correctly that most non-accountant business people often have trouble understanding.

I also think businesses with multiple shareholders/partners benefit from an independent accountant. A conflict of interest rises when one partner does the taxes and just sends a K-1 to the other.

For Schedule C, I think most businesses can do their own. Although, I will note that people do often make errors with their deductions - deducting things that ought not be deducted or not deducting enough of what should be. Mathematically, though, these errors generally don't amount to enough to really make it worth paying an accountant - unless it's an area of stress for you. Often it's helpful to just have your taxes done one year to make sure you're on track - and not at H&R Block - with an EA or a CPA.

If depreciation is a concern and you don't feel like regular tax software is meeting your needs, you do have the option of hiring a CPA to only do your depreciation schedules. Most of them have stand-alone depreciation software and can print reports.

mikey1965

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Re: Small Business Taxes
« Reply #22 on: January 24, 2015, 05:16:41 AM »
I use to use account software and then hire a part-time accountant who would use the software to input tax data, that way I could take care of some things when I had the time but also out-source when convenient.

MustardTiger

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Re: Small Business Taxes
« Reply #23 on: January 30, 2015, 04:48:48 PM »
I'll go ahead and ask this question hear as it seems relevant.  My wife files as a sole proprietor (she is a Massage Therapist and an independent contractor).  She works exclusively for a spa that she commutes to daily.  It seems under the rules that she would not be able to deduct mileage in this case, which seems ridiculous as an independent contractor.  Anyone out there to confirm this?

Also if it were true, if we added a home office, as in she did 50% of her business out of our home and the rest at the spa, could we then deduct mileage?

DavidAnnArbor

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Re: Small Business Taxes
« Reply #24 on: February 04, 2015, 06:03:18 PM »
Hello MustardTiger,

If you're wife is not on the payroll with the spa and she only receives a 1099 from them, no W-2 income statement around this time of the year, then she can deduct the mileage that she takes to drive to her massage clients.
You should claim a home office if you want because her base of operations is her home, not because she necessarily does any massage therapy there, but because she does the business clerical work involved in being a sole proprietor at her home office. For example, maybe she uses a computer at home to keep track of the massages she has performed, and to maintain records of her work and her clients.
If you do claim a home office, I believe it is an office that is solely for business use only, not personal use.

Sibley

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Re: Small Business Taxes
« Reply #25 on: February 12, 2015, 07:22:08 AM »
I'm an accountant, and I have done taxes for a living in the past. My general advice (since I'm not risking my license!)

1. If you're uncomfortable or unsure, get qualified help. Your sister doesn't count (unless she's qualified, see #3)
2. It doesn't hurt to have a good accountant check things out.
3. If you do get help, make sure they have either CPA or EA (enrolled agent) certifications.

Taxes can be very complex, and most people (yes, even intelligent, educated people) don't have the training to really get it. If you do your own taxes and mess it up, it can cause a lot of headaches.

I'm a big fan of the tax prep softwares out there in general. But the software can mess up, and if you don't know enough to catch it, then it can cause problems.

tmac

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Re: Small Business Taxes
« Reply #26 on: March 13, 2015, 01:58:31 PM »
I'll go ahead and ask this question hear as it seems relevant.  My wife files as a sole proprietor (she is a Massage Therapist and an independent contractor).  She works exclusively for a spa that she commutes to daily.  It seems under the rules that she would not be able to deduct mileage in this case, which seems ridiculous as an independent contractor.  Anyone out there to confirm this?

Also if it were true, if we added a home office, as in she did 50% of her business out of our home and the rest at the spa, could we then deduct mileage?

My understanding is that it's based on the location of her primary place of business. If she does her primary work at the spa, I don't think deducting mileage is allowed. Now, if you deduct for the home office and can make the case that it is her primary place of work, then I'd say yes.

The rules are based on the definition of independent contractor: true independents who have multiple clients (concurrently or sequentially). If her role could be mistaken for that of employee (a single long-term client, works onsite, follows their procedures and schedule, etc.), the IRS might get fussy about it. Might want to be sure.

* Disclaimer: I'm just a business owner (small firm, 6 employees) -- not a tax person. I have a CPA to save me from my ignorance of tax law.

Gimesalot

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Re: Small Business Taxes
« Reply #27 on: March 16, 2015, 03:43:25 PM »
If you are worried about doing your won taxes, just remember the IRS is nice!  Meaning, they understand that taxes are complicated and it is easy to mess things up.  Normally, if you just messed something up but intended to do the right thing, they charge you the difference and a little interest.  On the other hand, if they believe that you intended to defraud the government,  god save you. 

hodedofome

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Re: Small Business Taxes
« Reply #28 on: April 02, 2015, 02:26:56 PM »
I thought about hiring a CPA to do our taxes since my wife started a business (now LLC) last year that did $65k gross, $50k net). However after figuring out the solo 401k I realized I could save all I wanted on taxes without hiring a CPA. If she was making over $100k I'd probably hire a CPA.

hodedofome

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Re: Small Business Taxes
« Reply #29 on: April 02, 2015, 02:27:15 PM »
I thought about hiring a CPA to do our taxes since my wife started a business (now LLC) last year that did $65k gross, $50k net). However after figuring out the solo 401k I realized I could save all I wanted on taxes without hiring a CPA. If she was making over $100k I'd probably hire a CPA.

DavidAnnArbor

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Re: Small Business Taxes
« Reply #30 on: April 02, 2015, 09:54:50 PM »
Yes the Solo 401(k) seems like an incredibly powerful tool for saving a ton of money and deferring income taxes.