We are in the full swing of tax season. As of today there is about 8 weeks in which to get your income tax returns filed (on time).One thing that I do not like to see as a tax preparer, are surprised taxpayers. As a general rule, the surprised taxpayers are new small business owners who did not realize just how much tax ends up getting paid on that profit.
When you go from being an employee and having your taxes taken out of your paycheck to becoming self-employed, you have to remember to set aside some of your earnings for income taxes.
A lot of times a new business owner that makes a modest income of say 30,000 from a new small business may have a perception that the tax bill will not be that much. In reality, the taxes on that can easily be 4,000.
If you are contemplating going off on your own and want to quickly see about how much in tax you will owe take a close look at a paystub. The social security tax and the Medicare tax is multiplied by the gross income and doubled. So on that 30,000 in income, your tax will be about 4,500. Depending on your situation, you will pay your marginal income tax rate on the rest and you then can have an idea of what you may end up owing.
New small businesses are started quite often. Some of the best, and profitable ones are small and are an extension of a hobby or consulting. Most of these startups need to save money wherever it is possible, so taxes are often overlooked until this time of year.
If you are contemplating starting a small business, keep in mind that at the end of the year, that you may end up with a tax bill. Seek professional assistance ahead of time, and set aside enough so that you are not surprised when you do your income taxes.
Doug Zandstra
Doug is a tax preparer downtown Grand Rapids, more information can be found at www.dougzandstra.com