me and my husband just started a business and got a business license. i am a little confused is to how the taxes work. what documents i need to keep track of and im afraid im not doing this right. i dont want to have to owe alot of money at the end of the year because i wasnt prpoerly educated. if anyone has some advice then that woud be helpful im sure. we r just a small business and we dont charge our customers tax nor do we give our employess paychecks...we pay them cash. will this affect our taxes??
Simple rule of thumb, if you make an entry for an expense or other purchase/payment you should have a receipt/bill and keep it. Basically a paper trail showing what you paid for when. A bank or credit card statement is not sufficient, the actual bill/reciept is.
Small bussiness accounting is not that hard as long as you are not being taxed as a c- or s-corporation. You all ready know small business accounting what you do not know is the terminology and correlating that with your knowledge. I would suggest you call some other small business owners in your field and see if they will connect you with an accountant who will help to teach you as well as keep the books. Once you get a handle on the usual entries then you can use the accountant less and less. The web is also full of basic accounting tutorials for free.
And of course you can always ask specifric questions in the intuit community.
Think of having 2 playing fields. One playing field is how you file for your business. This is done with in the state you live in. This will be your legal entity. Questions to ask yourself about this will be what happens in the death of the owner/partner and proctections from law suits in your state would fall under this first playing field. The second playing field is how you file and pay your taxes with your federal government and local State government. This will impact how you work with your accountant.
Field A = Legal entitity (Seek Attorney...Connect with one at your local free SCORE event)
Field B = File tax returns (Seek Accountant...You have different sets of rules based on how you file your returns)
Your tax impact and what needs to be done for taxes will all depend on the legal entity you have set up and the type of business you are operating. The easiest entity to set up is a sole proprietorship, which would declare either you, or your husband, as the primary owner of the business, and you would file a Schedule C with your individual 1040 tax return to claim self-employed income. Your net income (total earned minue total spent) will become your income which will display on your 1040 return. You'll have to pay income taxes on the net income, and self-employed taxes (Medicare and Social Security taxes). If you owe more than $1,000 in taxes for the year, you could be subject to estimated payment penalties when you file your taxes. You'll need to make estimated payments throughout the year, based on the amount you expect to owe in taxes, to avoid penalties.
If you are set up as a partnership or corporation, you'll need to file a separate business tax return. Partnerships and S corps are known as "flow-through entities" because they don't pay tax directly on their net income. Instead, the net income flows over to the personal tax return of the owners. You and your husband would have to pick up the net income from the business as personal income on your returns and pay taxes on that income (or deduct the losses against other income if the business has a loss).
Partnerships and corporations also have different requirements for how the owners are paid for their time running the company. Partnerships do not pay wages to partners, instead they pay guaranteed payments which are taxed as self-employed income. S and C corps pay wages to the owners who are active in the business. You must pay yourself a reasonable wage for your work and pay payroll taxes on those wages. The net income from an S corp still carries over to the personal return, but there are no self-employed taxes that apply, just income taxes. Your wages paid through payroll would already be taxed and you would get a W-2.
For your employees, you will need to review the 20 factors test on whether you have employment tax issues by paying them cash. If they qualify as independent contractors, you are better off writing a check to them rather than paying them cash since you'll need a paper-trail to help support the deduction of paying them for their services. You'll also need to issue 1099's to them if you end up paying them $600 or more during the year. If you don't follow the rules for paying independent contractors, you could be subject to backup withholding taxes, which could be equivalent to 33% of the amount paid to each individual. If they should be employees, you'll need to switch to paying them on payroll and you can record the cash payments as advanced payroll to get caught up on payroll taxes. You'll first need an EIN if you don't already have one, so that you can set up payroll accounts. You'll also need to register for employment taxes in your state and any localities if they assess income taxes.
For specific tax questions related to your business, I suggest contacting a tax professional as soon as possible. This should have been done prior to setting up the business and beginning operations, but you can do this now to resolve issues that have already occurred. Good luck!
Determine if your goods or services are exempt from sale stax. You don't have to charge the customers tax, as long as you do the calculations for tax included and pay the authorities what's due. If a cup of coffee is taxable where you are but you only want to collect an even dollar you sell at a discount price that when tax is added equals a dollar. We have to do this with vending machines all the time.
You can pay your employees in cash but you also have to issue them a paper paystub detailing gross and deductions. And having hem sign a receipt to prove you gave them the correct cash is a must.
Lots to learn here despite the bad rumor that anyone can start their own business. You can but need help.
How much help you need, on what and from whom is the part that differs most between small businesses.
Since you mentioned taxes, start there. There are several different types of taxes and you mentioned three
of those in your post, as if they impact each other, which leads me to think you definitely need tax advice.
1) Sales Taxes - Related to customers and vendors
2) Payroll Taxes - Related to employees and paychecks
3) Income Taxes - Related to businesses and individuals
You are wise to ask, since taxes are definitely a risky area that can cost alot more if you don't get them right. I have done accounting for almost 40 years and I don't even do my own taxes, better to trust a pro to assist. I see that my tax lady actually posted a response here too. Her name is Jaime and I highly recommend her. She also does income tax returns for several of my clients, who are almost all small businesses like you are. Perhaps the biggest mistake I see clients make is to not consult with a tax professional before the start up a business or asap after they do. In fact, one of my clients, who also happens to be husband and wife had to learn this the hard way, even after I warned them to ask CPA about a particular item but they did not until afterwards. Fortunately, Jaime was able to sort things out for them. She is also a QB expert so can help alot.