Author Topic: Help Me "Math"  (Read 955 times)

nexus

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Help Me "Math"
« on: March 31, 2023, 10:47:58 PM »
Hi MMM Community,
I recently FU Money'd my way out of a steady "career" with benefits and whatnot. I still HAVE to earn money (more coast Fi than full blown FI at this point) and pay for health insurance. I just do not currently want to do it for a billion dollar company via a set 9-5 job.

I have some other high value niche skills -- think golf or tennis lesson tier of skill/clients/money.

My local club basically gave me the keys to the kingdom in terms of creating programming and setting rates. While I don't necessarily agree with their approach (beggars can't be choosers at this point for me), I need some help figuring out numbers. It gets further complicated when there's variation between member & non-member rates. Basically I just want to establish a minimum take home amount based on the following (and I know it won't be perfect, but i'd just like a rough estimation.)

Assumptions
  • I want to earn $100+ per hour
  • Of the income the club pays me, I must pay a helper $20 hour for classes above 6 participants (assume currently that's all classes)
  • I must also pay 25% in quarterly income taxes
  • The club receives all proceeds and I receive 75% and the club 25% (sometimes 22% + 3% Stripe fees) - regardless I get 75% net proceeds
  • Of 75% proceeds, I pay 25% in state income tax and still have to make sure my helper gets $20/hour

For example, let's say I get 6 people to sign up for a 10 (hour) class (maybe 2x/wk for 5 weeks) -- what do I need to charge them to give the club 25%, pay my assistant $20 per hour, and have $100 left after paying 25% in taxes?

Setting aside anything glaringly wrong/unethical about this -- what does my price per "session" or hour need to be for a 10 hour package of classes when I have anywhere from 6 (the minimum) to 10 (the theoretical maximum) people signed up in order for me to net a minimum of $100/hour per class after paying my helper* $20/hour and paying taxes on the full amount?

Or am I full of shit and if I venmo someone $20/hour for their work, it is up to them to claim?

I'm not sure it is doable. Would $150 hour afford the club their 25% ($37.50, leaving me $112.50) -- nope -- I pay 25% on that so there's $84.38 left, minus $20 for my helper and I'm making $64/hour.. should I try and reneg the club a flat rate per session so I have more income potential?

Let's say best case non members pay $25/hr and members pay $20/hr .... 6 members sign up at $20/hr * 10 hours = $200. 25% to club = $50 per person. 25% to taxes = $112.50. I pay my helper $20 cash per hour, so I walk away with $92.50/hour ... I think that's as good as I could hope.

Legalese/rules/laws/HALP
I have no idea how to do this. I dislike the idea of being hired as a sole proprietor for a business to provide a service AND have to pay someone sorta under the table to act as a helper. If I get $100/hour, and have to pay a helper $20/hour for their time -- why should I pay 25% tax on the full $100/hour --shouldn't I pay 25% on $80 and my helper pay $25 self employment tax on the $20/hr?

Please help. I need to know my options and I don't want to pay taxes above the amount I actually earned. If I can "expense" their labor, great! Just let me know how so I can put the monkey on someone else's back. I definitely don't want to pay 25% on $100 income if I'm having to pay someone else $20 to help create the revenue.
I also do not want to be an employer or have employees, even if just 1099 stuff. That's a clusterfuck I do not want to deal with.

Please let me know my best path of minimum liability * best revenue -- I'm just kind of running with what the business owner said BUT don't want to bear the burden of what they should be covering due to my own ignorance. I do not want to be anything more than a self employed person. I probably sound dumb, but this is the first time I've tried to not have a traditional employer in my adult life.

*why is my helper making 1/5+ my income? They don't create the lesson plan. They have 1/20th the skill/experience, do not show up early or stay late to set up or break down, and are more or less a glorified babysitter. To level set, no one would take private lessons from them - they're just there to help herd the cats while I run the show.

MDM

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Re: Help Me "Math"
« Reply #1 on: April 01, 2023, 12:44:53 AM »
For example, let's say I get 6 people to sign up for a 10 (hour) class (maybe 2x/wk for 5 weeks) -- what do I need to charge them to give the club 25%, pay my assistant $20 per hour, and have $100 left after paying 25% in taxes?
Let
n = number of people in the class
P = hourly amount paid by each person to the club

Gross income per hour = n * P
After the club takes 1/4: 3/4 * n * P
After paying $20 to an assistant: 3/4 * n * P - 20
After paying 25% in taxes: 3/4 * (3/4 * n * P - 20)

You want 3/4 * (3/4 * n * P - 20) = 100
9/16 * n * P = 115
P = 1840/(9*n)

Rounding up to the nearest $0.10, for n = 6, P = $34.10
Rounding up to the nearest $0.10, for n = 10, P = $20.50
Etc.

AMandM

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Re: Help Me "Math"
« Reply #2 on: April 12, 2023, 06:43:18 AM »
I'm a little confused about the helper. Is this person a club employee, and you're reimbursing the club for the helper's time? Or does the club require you to hire an pay an employee of your own? Or is it just that you want a helper, and $20/hr is the going rate?

In either of the two latter scenarios, I think you have to pay the employer's share of payroll taxes as well as the $20 the employee receives, so the 20 figure in MDM's formula should be 21.53.

sonofsven

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Re: Help Me "Math"
« Reply #3 on: April 12, 2023, 08:35:33 AM »
You want the helper to be an independent contractor, not your employee. You'll need to file a 1099 form with the IRS with their taxpayer ID if you pay them more than $600/yr as an independent contractor.
Whether or not they are really an independent contractor is another question.
You pay self employment tax on net income, not gross. Look up IRS schedule C for an idea of how this works. There's lots of deductions for small business also to whittle down that gross number.
Self employed tax rate is 15.3%, is your state tax rate 10%?
Using your 25% number, $133 is your magic number after expenses (25%of $133 is $33.25, leaving you at $99.75/hr)
$204/hr would be your starting point:
 204*.25=51(to club)
204-51=153
153-20(to helper) =133

AMandM

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Re: Help Me "Math"
« Reply #4 on: April 14, 2023, 07:48:32 PM »
I don't see how the helper could be considered an independent contractor. The helper's duties, hours and location of work, and pay are all decided by OP.
https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee

 

Wow, a phone plan for fifteen bucks!