Posts Tagged ‘contract employment’

Career Assssment: Starting Your Own Business, Part 6

December 10th, 2009

By Thomas Arrison, Certified Public Accountant

Thomas ArrisonQuick Hitters

Tax Professionals
Owning your own business can be confusing and lonely. Legal and tax difficulties can appear at any time. If you hire a tax professional, they can help with your tax return and estimates.  A good tax professional will also advise you on running your business and work with you to make it more profitable.  They also can advise you on legal ways to reduce your taxes. Don’t depend on your friends and family when you are self-employed.

Checking Accounts
It is best to set up a separate business checking account for the business.  Pay all your business bills from the business account and all your personal bills from your personal account.  Transfer money from the business account to your personal account so your checks won’t bounce

Health Insurance
You can get health insurance from several sources.  Cobra should be available to you from your former employer. Chambers of Commerce offer health insurance options and there are various other organizations that offer this benefit.  Your payments for health insurance are not deductible on Schedule C as a business expense, but could be deductible on the first page of your Form 1040.

Employees
Do your best to avoid hiring employees.  The requirements you must meet when you have employees are significant and time consuming.  Contact your tax professional if you are seriously thinking about hiring employees.

Sales taxes
Very little of this blog talks about a business that sells things.  Be aware that if you sell a product you must collect and pay sales taxes in most states.  Some states, such as Connecticut, have a sales tax on services as well.

» Read more: Career Assssment: Starting Your Own Business, Part 6

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Career Assessment: Starting Your Own Business, Part 5

December 1st, 2009

By Thomas Arrison, Certified Public Accountant

Thomas ArrisonPaying your taxes

Be sure you are sitting down.  The taxes on the income from your business can be as high as 40 to 50% of your net profit.  It all depends on what other income shows up on your tax return.  The fact that your spouse is working can push you into this level of taxation as can investment income, unemployment compensation, or rental income.  Here is how it breaks down:

The Social Security Administration gets about 15% of your wages or net income from self-employment to cover your Social Security benefits and Medicare.  When you are an employee, you pay half and your employer pays half.  When you are self-employed you pay the whole 15%.  Your itemized deductions, such as mortgage interest and real estate taxes, do not effect what you pay for Social Security.

Your federal income taxes depend on your taxable income and marital status.  This blog cannot provide all the alternatives.  A large majority of taxpayers end up in either the 25 or 28% tax brackets.  Your actual percentage will vary with your return.

Most states have an income tax.  Even some states that do not have an income tax have a business tax that applies to self-employed people.  New Hampshire is one of those states.  Massachusetts has a tax rate of approximately 5%.

Using the numbers above you would be paying either 45% or 48% in total taxes.  Now that you are totally depressed, let me back off from that statement a bit.  The taxes you pay depend on how your tax return goes together.  High mortgage interest and real estate taxes will reduce your federal taxes.  A non-working spouse reduces your taxes.  Many of my self-employed clients only pay Social Security taxes because their income is low.

» Read more: Career Assessment: Starting Your Own Business, Part 5

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Career Assessment: Starting Your Own Business, Part 2

November 16th, 2009

By Thomas Arrison, Certified Public Accountant

Thomas ArrisonLet’s get into the specifics

The first question is “How do I actually go into business for myself?”

It really can be very simple.

In essence you can start your business by standing in your living room and saying “I am in the business of writing blogs (or software support, or making furniture).”  Of course, that is not going to put one dollar in your pocket.  Which brings us to the next question “What do I do now?”

The real question should be “What form should my business take?”

Lets eliminate corporations right away.  No matter what your friends or family say, incorporating your business at the beginning is probably not the right way to go.  It requires filing long and formal documents with the Secretary of State and the spending of a lot of money on filing fees, legal fees, accounting fees, insurance, etc. just to set up the corporation. Then you have to pay $3,000 annually to keep the corporation alive.  The major benefit of a corporation is to limit your liability, and there are alternatives to using this structure.

Now let’s talk about a Limited Liability Company (LLC).

Like a corporation, you are required to register your LLC with the Secretary of State and pay a filing fee.  The fees vary by state.  The registration process is easy and generally just a one page form.  Then you have to keep the LLC alive by filing an annual report each year.  There is of course another filing fee for the annual report.

» Read more: Career Assessment: Starting Your Own Business, Part 2

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