Taxes - per detail job?

[Dave Medvic]

I seem to get vague answers on this, I'm doing my best to guage how much money I can generate if I have to go full time and officially become a business entity, I know about Liability ins., but my accountant had said expect taxes per job to be around 41%. I think that's crazy, I've heard other folks say 25% but so many others don't seem clear on this and it would affect where I would set pricing.

 

[arack]

I seem to get vague answers on this, I'm doing my best to guage how much money I can generate if I have to go full time and officially become a business entity, I know about Liability ins., but my accountant had said expect taxes per job to be around 41%. I think that's crazy, I've heard other folks say 25% but so many others don't seem clear on this and it would affect where I would set pricing.

This is a tough one. I bet a lot of detailers on here only accept cash or check. (Hint, they are probably not paying their taxes)

You have to follow your accountants advice if you want to do this thing legally. Others will have some more pointed advice, but I would listen to your account if you want to stay off the IRS radar.

 

[mwoolfso]

Use my commentary in your discussion with your accountant. I'm not saying my commentary is accurate but I did review the PA sales tax web site as it relates to services.

https://revenue-pa.custhelp.com/app...sion/L3RpbWUvMTM1NTQwOTk3Mi9zaWQvRWk0ZUhFZGw=

If you do not have a registered business then your detailing revenue is taxed as regular wages and you do not need to charge sales tax for your service. Your "revenue" would be counted wages, and your expenses may or may not be deductible.

If you are a registered business in PA then you need to charge sales tax for all services.

Ask your accountant to give you a full breakdown on all taxes assuming you generate revenues of "X", cost of good sold of "Y", 1099-employee wages (excluding yourself) of "Z". That should give you a good idea where he is coming from, and will permit both of you base future discussions on common ground.

 

[Dr_Pain]

Take this as it may, since it is not a detailing based tax comment, but I believe that your account is right or even conservative @41%. Without going into too much details because your corp may be set up differently and taxes do change from state to state, parish to parish, and city to city, but basically these are the taxes that you should expect to pay

1) City (Business licensing, property,etc... )
2) Parish (Property,etc... )
3) State (Dept of Revenue etc...
4) Federal (941, 940, Unemployement etc..)

I do wonder if your accountant factored in your estimated retail taxes in the mix??

In my case, I do take a write off of my equipment so I do also pay an annual tax on my "devaluating" machine and equipment as well as business furnishings, and also have a business location so pay those dang property taxes.

The advantages of having a cash business is that (if your consciences allows), you can only show enough income to get the all the business and personal write offs and you can get your all your tax money back (compared to everything under the table where you keep all the tax money but get no business or personal perks since you don't have any tax deductions). You also get the benefit of establishing a base for your Social Security etc...

At this time there are a lot more benefits that I can see on the table (for low income small businesses) but if that changes then I would tell you to look at your moral compass and see if you want to go "cash only" under the table.

Ever considered the benefits of writing off:

1) ALL paper goods for house and business (paper towel, toilet paper, copy paper, etc... (including the kids school supplies that you could justify using as part of your business?)
2) Clothing, labelled as uniforms (such as all my boots, slacks, polos etc.. which I do wear for work but also for church etc..)
3) Advertising and marketing - T-shirts, Polos, dress shirts that were monogrammed, business cars, decals, promotional items you may use in the house like coffee mugs, pens baseball caps etc..... This can also extend to include expenses on your truck/car for running around town with decals on them
4) Mileage and wear and tear on your vehicle
5) Meals and entertainment (eating out with a buddy discussing business or otherwise or having a business sponsored Thank you BBQ at the house for friends and family
6) Equipment and equipment repairs

etc...

This is something your CPA can enlighten you with, including the write off of a new truck or even reimbursement expenses for your wife while on the road running some last minute errands "on behalf of the business". I even "hired" my kids which in my state, because they are underage don't pay some of those pesky income tax (being they are under age). They do appear in advert/marketing and also help clean up the office when they come visit after school. That way, the get a piece of the profit which goes to their future college funds without me having to use my post tax money to do the same.

Again, this is only a glimpse of what is available and feasible. As I stated previously I see more advantages of being on the table than off.

 

[explorerlyon]

First, never tell your CPA about cash income and then tell him/her you don't want to report it. Once it hits your CPAs desk, it is going in your tax return.

You pay tax on the NET, not the GROSS. So AG is a good tax write-off!!! As a detailing business, you can deduct all you supplies, auto expenses (if you travel), equipment, etc.

What you pay....

Social Security & Medicare Tax

This is about 12%. When you are an employee, your employer pays 1/2 and takes the other 1/2 out of your pay. When you are self-employed, you pay all of it.

Federal Income Tax

This will range from 10% to 35% depending on how much you make. $9,000 to $35,000 you pay 15% if that gives you an idea.

State Income Tax

For Pennsylvania, figure about 3%

Add these up and you will pay about 30%. As your income exceeds $35,000, your rate will climb up to about 40%. Add to that business license and property taxes. If you hire employees, you have employment taxes in addition.

The key to tax savings for you is DETAILED EXPENSE RECORDS!!!! Set up a seperate bank account just for your business. Keep track of everything you spend related to your business. Remember, everything you buy on AG (or elsewhere), really you are paying 70% of it and the government is paying 30%.

Good luck!

By the way, I am a CPA and prepare taxes for a living. Detailing my own cars is just a hobby.

 

[A-train]

Very informative info Dr Pain.!


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[SON1C]

Subbed

 

[rustytruck]

I seem to get vague answers on this, I'm doing my best to guage how much money I can generate if I have to go full time and officially become a business entity, I know about Liability ins., but my accountant had said expect taxes per job to be around 41%. I think that's crazy, I've heard other folks say 25% but so many others don't seem clear on this and it would affect where I would set pricing.

You can become a business and keep the business as a part time gig. I am a licensed and insured. I am a sole proprietor so I report my detailing money after deductions as other income. If you have a good account you will be able to take a write off for a lot of different things.

I just add my detailing money to to my income from my full time job and pay the same tax rate as if I didn't have any detailing income. If you earn $60k or $72k your rate would still be the same. I think it is more like 25% I think the key is to remain a sole proprietor. You are always paying taxes as personal income. If your income is low you pay less, if you earn more you pay more.

I think once you form an LLC then you pay business taxes which are a higher rate, that may be where the 41% comes in.

I may be completely wrong this is not my area of expertise. That is why I have a good account to help me with questions like this. Good luck.

 

[explorerlyon]

I think once you form an LLC then you pay business taxes which are a higher rate, that may be where the 41% comes in.

I may be completely wrong this is not my area of expertise. That is why I have a good account to help me with questions like this. Good luck.

An LLC is a flow-through entity. You still report the income and pay the tax on your own personal tax return. I detailed out earlier how you arrive at the 41%, depending on your income level. The only reason to form an LLC for a detailing business is legal liability protection if you have significant other assets.

Currently, business entities pay the same tax rate as individuals (but that will change soon?)

 

[Paul Mitchell]

A part-time business making over $400.00 per year should file Schedule C or C-EZ. For most self-employed people with business expenses less than $5,000.00 and working by themselves the C-EZ form is sufficient. Most weekend detailers would most likely file Schedule C-EZ.

 

[rustytruck]

Social Security & Medicare Tax

This is about 12%. When you are an employee, your employer pays 1/2 and takes the other 1/2 out of your pay. When you are self-employed, you pay all of it.

Will I have to pay this? I don't remember talking about this when I met with the accountant.

 

[arack]

First, never tell your CPA about cash income and then tell him/her you don't want to report it. Once it hits your CPAs desk, it is going in your tax return.

You pay tax on the NET, not the GROSS. So AG is a good tax write-off!!! As a detailing business, you can deduct all you supplies, auto expenses (if you travel), equipment, etc.

What you pay....

Social Security & Medicare Tax

This is about 12%. When you are an employee, your employer pays 1/2 and takes the other 1/2 out of your pay. When you are self-employed, you pay all of it.

Federal Income Tax

This will range from 10% to 35% depending on how much you make. $9,000 to $35,000 you pay 15% if that gives you an idea.

State Income Tax

For Pennsylvania, figure about 3%

Add these up and you will pay about 30%. As your income exceeds $35,000, your rate will climb up to about 40%. Add to that business license and property taxes. If you hire employees, you have employment taxes in addition.

The key to tax savings for you is DETAILED EXPENSE RECORDS!!!! Set up a seperate bank account just for your business. Keep track of everything you spend related to your business. Remember, everything you buy on AG (or elsewhere), really you are paying 70% of it and the government is paying 30%.

Good luck!

By the way, I am a CPA and prepare taxes for a living. Detailing my own cars is just a hobby.

Dude, if you are a CPA, you would know that FICA/SS taxes are 6.2%. The employer also pays 6.2%. FICA for employees is currently 4.2% due to Obama's short sited plan to underfund SS. They are due to go up to 6.2% in January.

Medicare is 1.45%. If you are self employed, you have to pay the full 12.4% (once it goes back up in January), along with the 1.45% Medicare. This is 13.85% FICA/Medicare plus your state tax rate of 3.07%.

Add in your federal rate and you can easily get to 40%.

 

[explorerlyon]

Dude, if you are a CPA, you would know that FICA/SS taxes are 6.2%. The employer also pays 6.2%. FICA for employees is currently 4.2% due to Obama's short sited plan to underfund SS. They are due to go up to 6.2% in January.

Medicare is 1.45%. If you are self employed, you have to pay the full 12.4% (once it goes back up in January), along with the 1.45% Medicare. This is 13.85% FICA/Medicare plus your state tax rate of 3.07%.

Add in your federal rate and you can easily get to 40%.

First, you are overlooking the words "about". I saw no reason to get too technical. Second, you are forgetting that the "employer" 1/2 of the taxes is a deduction. A self-employed person also gets this deduction. Look at line 27 on your 1040. The effect of the deduction brings the effective rate for self-employment tax down to ABOUT 12%.

Same thing happens with your income tax rates. State taxes are a deduction on your federal return, so you have factor that in.

 

[explorerlyon]

Social Security & Medicare Tax

This is about 12%. When you are an employee, your employer pays 1/2 and takes the other 1/2 out of your pay. When you are self-employed, you pay all of it.

Will I have to pay this? I don't remember talking about this when I met with the accountant.

Unfortunately yes. That was part of the 41% your accountant told you to expect. Now you start to understand why some politicians say "small businesses are being crushed."