Business Woes

Discussion in 'Growing and Managing a Business' started by businessquestion, Jan 23, 2013.

  1. businessquestion

    businessquestion
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    Before I get into the long story, I just want to summarize by stating I am looking for tips on how to best avoid tax issues, make things easier on myself, and not reinvent the wheel.

    I started a web design company as a side business back in 2006 and made good money to help with the costs of having a family, since then I am still the only employee but last year I suddenly went from not having a major profit to suddenly having a net income from my business of $60,000 in addition to my normal day job. Now most people would say "man I wish that was me!" but here's the issue. I know my business and I'm good at it, however handling the finances correctly and understanding the taxes due, not so much. My invoicing is usually done via excel, payments via PayPal or check, and the only record keeping is from the automated recurring billing system, quick mileage notes for client meetings, and PayPal exports at the end of the year. As you can tell I'm not making things easier on myself. Now with the sudden jump in income I find that I owe around $12,000 in taxes (I didn't know that I should have been doing estimated tax payments) and have no money from business.

    I've come to my senses and realized this is not how I should be doing things. So far I've come up with this plan for 2013 to try and make sure this doesn't happen again:

    1. Get a better bookkeeping method.
    2. Do estimated tax payments
    3. Make wage payments to myself and keep business money as business money otherwise. My main problem is constantly using my business income to support my family.
    4. Possibly get some training on managing my business better.
    5. Don't make these mistakes again


    What are your guys recommendations for a bookkeeping system for this type of business? Should I be using QuickBooks and creating invoices from it? Is paying yourself the best way to go about this? Are there any other recommendations you would give me?
     
  2. Ted

    Ted
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    I've been where you are at and it sucks. I am surprised you don't owe more than $12,000.

    In addition to what you are already planning on doing, I would recommend the following:

    * Make sure you are having the maximum deduction taken out of your regular day job paycheck.
    * Hire a CPA
    * Pay the CPA to setup your entire system - yes it will cost you - yes it is worth it
    * Use whatever accounting system the CPA recommends - the brand of software doesn't much matter - if you use it and how you use it does matter
    * Setup a separate bank account and deposit (CPA recommended percentage) of your earnings into it every month. That way you have enough to pay self employment taxes and income taxes at the end of the year.
    * Pay yourself from your business twice per year out of your profits rather than grabbing money out of your accounts whenever you need it.

    A good CPA will also show you how you can take maximum deductions based on what you are doing. There are probably ways that he/she can save you a bunch of money that you never thought about.
     
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  3. businessquestion

    businessquestion
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    Thanks for the advice Ted, do you recommend a local CPA or somebody over the internet? The area I am in probably won't have a CPA that's familiar with my field.

    Also another question, I have clients in multiple states, should I have a Sales and Use License for every location or just where my home office is located?
     
  4. Ted

    Ted
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    I don't think there is anything funky about web design that you would need a specialize CPA for. Just make sure the person is actually a CPA. So, yes I would definitely find a local CPA. Find one that you think you will click well with. As you are already successful in your business, the two of you will probably have a very long and mutually beneficial business relationship together. You are almost always better off staying local whenever possible.

    To my knowledge you only need a sales and use license in the states where your business has an address. So, if you only have one business address (your home state) then I believe you are fine as you are. But, you had better ask that question to your CPA or any other sales tax related questions.

    Call around your area and ask places if they provide the kind of advice you are seeking and how much they charge. A lot of times, your initial consultation is free. Setup that face to face meeting. Make up a long list of questions you have for your initial meeting with a CPA. I work with a very small CPA firm that has only two partners and an office assistant. I work directly with one partner. The guy has told me ways to save money that I never realized.
     
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  5. businessquestion

    businessquestion
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    Thanks for all of your insight, you have just relieved 90% of my stress. I have an appointment with a CPA today and have already begun the process of restructuring my finances.
     
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