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  • Sole Proprietor

    Question.
    I'm starting out as a SP. When tax season roles around I can pretty much claim everything and anything that is business related thats been purchased/used correct?

    Also, after a year or so of being open, would it be a better idea to switch over to an LLC or stay as a SP?

  • #2
    No advise, but I just want to know what the responses are going to be.
    "The most affectionate creature in the world is a wet dog." -Ambrose Bierce

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    • #3
      Let's correct something first. Officially as a sole proprietor your "tax season" is every 3 months. This includes personal income tax estimates, and your double responsiblity for FICA/Medicare taxes on net operating income, and that's just the Federal taxes. Same goes with state taxes.

      You are legally obligated to pay estimates based on net operating income calculated on sales and expenses QUARTERLY, and if owe more than $500 when the annual tax season filings, the 1040's, you will be subject potentially to penalties and interest for not paying estimates. You must make these payments on 4/15, 7/15, 10/15 and 1/15 of each year. So 4/15 is a double whammy. You pay estimated for January 1 to March 31 of the current year and any balance due for the prior tax year through 12/31.

      I mention this because many new sole proprietors don't know the special tax forms they must file including long form 1040, Schedule C and Schedule SE and forget to make estimated tax payments.

      OK that aside I've heard many CPA's say that there is usually no need to form a LLC or corp from the get go. Get the cash flow going. But as you learn how to do your self employment taxes above with professional help you should ask for their opinion too. While LLC and corps give some liability protection, and that's one of their main purposes for being other than having 2 or more people owning the business, you can get some of that protection by being well insured including "Professional Liability - Malpractice."
      Most questions regarding GroomerTALK are answered in the Board Help Talk Forum. Thanks for coming to our community a part of PetGroomer.com https://www.petgroomer.com.

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      • #4
        really? tax season is every 3 months??? *sorry, where i work my boss files taxes like everyone else, i never see her pay every 3 months..its an odd shop...trust me. so this is why im asking and very curious!*

        Seems like a lot to understand. I should probably get up with an accountant and talk about it!

        Stephen: Every sole proprietor is responsible to determine if, and how much, taxes they owe quarterly. Look at a long form 1040. At the end it asks if you made estimated tax payments and how much, and that's why. You have to be pretty sharp in knowing how to figure taxes, credits, exemptions, operating expenses to know just how much you are liable for. It's wise to use a bookkeeper for bookkeeping during the year and then have the CPA do the annual return. There are plenty of materials available at the IRS web site on estimated tax liability.

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        • #5
          wow thanks for all of this. looks like i have more reading to do!

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          • #6
            Today I spent 2 hours with a CPA. I have 2 pages of things she pointed out. I have not opened my business yet, but wanted to do it right. My suggestion is to meet with a CPA and go through every step of your tax process as a business owner.

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            • #7
              really? tax season is every 3 months??? *sorry, where i work my boss files taxes like everyone else, i never see her pay every 3 months..its an odd shop...trust me. so this is why im asking and very curious!*

              Think there was abit of misunderstanding in this statement.

              I doubt very seriously that you have access to your employer's books. I know my employees didn't know that I made Fed tax deposits monthly on the withholdings that i was required by law to take out of their paycheck. My every three month est tases paid by me were for my est earnings. Not the employees.

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              • #8
                It's very important as we go into the 2011 tax season to remember that NOT all purchases can be deducted in full. Did you buy a grooming table, a bathing system, improve floors, walls, buy work furniture, a new dryer? All of these things are possibly subject to depreciation over a period of years...biggest mistake made by groomers doing their own accounting and often caught in audits and you get penalized for deducting early.
                Most questions regarding GroomerTALK are answered in the Board Help Talk Forum. Thanks for coming to our community a part of PetGroomer.com https://www.petgroomer.com.

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                • #9
                  Find a good CPA or CPR firm and talk to them. They can advise you and give you an estimate of the amount you'll owe for any business entity. I am an LLC because this business form made the most sense for me. I sought the advice of a well qualified CPA and a financial advisor to find out what business form would be best for my situation. The CPA cost me $250 and the FA was paid $75 as a fee-for-service exchange. Money well spent IMO

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                  • #10
                    Get a good CPA while everything shop related is deductable, some of the larger items can either be depreciated out OR full amount depending on how much income was brought in. Also, only a certain percent of other things apply not full purchase price.
                    Ain't always easy to stand up for what is right.

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