AboutRichard Fritzler Expertise I am in the business of tax planning for business owners. Our company helps business owners structure so that they can be reduce the taxes that they owe, making them far more profitable.
Experience Since 1986 I have been helping successful business owners reduce taxes, protect assets, and limit their liability. The company is Owelesstax, incorporated at www.owelesstax.com
Organizations National Small Business Owners Association.
Nevada Association of Listed Resident Agents.
Citizens Legal Association
The Business Owners Institute
Publications Contributing author to "The Corporate Standard Newsletter".
I am also a writer for an email newsletter about business
Googlegroups/Successfulbusiness
I am also an Expert in the areas of Tax Law, Retirement Planning, and Estate tax issues.
Expert: Richard Fritzler Date: 2/9/2008 Subject: Help with tax for small biz
Question Hi There!
Thanks for offering help in this area to small biz owners like me! I am lost on
this particular issue, and need some advice.
For the past five years, I have owned and operated, by myself, a small and
mostly profitable/growing business. I have no employees, and so in the
beginning when I first saw a CPA, he advised me to keep it simple and file as
a sole proprietor, even though I am a registered LLC. I have done this for the
past few years.
So, my main question has to do with last years taxes, in that I owed $8,000 at
the end of the year, even though I only profited about $28,000. The biz
grossed about $120,000, but my overhead is so high that my expenses only
left me with $28,000 as profit. (honestly! I do not cheat on anything and I
save every single receipt!) My over head is huge, and the in
the industry I'm in the materials are very expensive, so it's very hard to save
extra for the end of the year. I have also been agressively aying off debt, but
have had to slow down on that due to lack of capital.
Paying $8,000 of taxes seemed outrageous to me when I feel like I'm living at
the poverty level almost, so I asked my brother, a business man/
restaurateur in Boston, about my situation. He said that because I am
making under industry standard as my salary for the job I do, (most
managers of a shop like mine make about $40,000/year minimum), that I can
take the difference as a loss. Is this true?
I'm not a business minded person, persay, I'm an artist, which makes this
even more complex because I've just been going along like this, making no
money..
In order to claim my loss of salary as a loss on my taxes, do i need to be
writing my self paychecks or doing a payroll system through my bank? or is
this customary that the gov't takes that much? Do I need to file separately
somehow from my business? Individuals who make $28,000 probably don't
owe $8,000 to taxes, do they?
I'm basically still paying off my taxes for 2006, so I'm very very worried about
2007. I haven't saved a penny toward taxes this year, so I'd wind up in the
same boat as last year. I don't feel like I've had the extra money to put away,
and I don't go shopping or by myself a single extra ever. I live on the
minimum amoutn i can.. (no cable tv, no shopping..etc).
Any thoughts, (besides that I'm an idiot?! Or even that I am an idiot and
here's why!)
Thanks again..
Answer I usually like to reserve the word idiot for those that are intentionally incompetent, people who know "They Don't Know" but refuse to get help or change to be right.
The Intentionally Incompetent or "II" is the lowest level of competence and luckily very few people ever get there. Although there seem to be disproportionate number of tax advisors in that category.
I learned this analogy about 8 years ago. There are 5 levels of competence, the lowest we already discussed. Most of us start out at "UI" Unconscientiously Incompetent. "We don't know what we don't know" and we are all in that group on some or many topics. I am certainly a UI when it comes to the Artistic Arts. And many of us remain there for our entire existence. It is only when an experience motivates us to change that we move the third level (which is where you are now) and that is "CI" or Conscientiously Incompetent. This is where we realize that that "we know we don't know".
And from there we are motivated to move to Conscientiously Competent (CC). So really would you consider yourself an idiot for being at level 3 when most tax preparers are level 1? CC's have the facts and can, with effort, do the right thing.
Once we learn, and implement, and practice and internalize, and act becomes habit we get to the highest level and that is "UC" Unconscientously Competent.
So you are on your way.
From what you explained, I don't believe you can deduct money you didn't get.
Here are your personal taxes: As a business Owner you have Self Employment tax, which would be called FICA if you were an employee. that is 15.3% and there are no deductions against Self Employment tax. And you have your income tax, which gets into 15%. So that is your $8000. Welcome the land of the free and the home of the brave.
If the $28000 is just enough to cover your personal overhead (rent, Groceries, Utilities, personal vehicle) then you are stuck with paying those taxes. If ANY of that money is "Extra", not used for personal overhead, then doing that business as a Real Corporation would reduce your taxes, it would give you better deductions, and would simplify accounting. It could also give you a competitive advantage in your industry because corporations get more respect in business than "just some one doing a job".
