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I have friends in Pennsylvania who started a small recreation business (kayaking, canoeing, etc.) last year. Of course, they didn't realize that since they weren't paying taxes, they would be stuck with a big tax bill this year. They were shocked that they now owe $1400.00 and are scrambling to pay this before April 15th.
From what I understand, when you have a small business, you should pay taxes quarterly, because if you don't, you not only get a big tax bill but also may have to pay penalties? Also, you may have some deductions that you can apply to your taxes? They didn't know any of this.
This business is seasonal, but last year they worked for months getting the business started because they didn't have other jobs. This year, both the husband and wife have paying jobs for most of the year, and will run the recreation business only from May-September.
Should they be paying taxes quarterly if it is a seasonal business and have regular jobs the rest of the year? They eventually want to turn the business into a year-round business (by including winter sports).
Also, my friends are a young married couple, but the mother of the husband is the one who actually started the business and she has a business partner. I don't know what she declared on her taxes, but the mother and her business partner are the ones who actually put the money into the business. The young married couple just ran the company, because the mother has a full-time job. The mother paid her son (because he quit a good job to run the business), but the daughter-in-law did paperwork for the business without compensation while she was looking for a full-time job.
From what I understand, when you have a small business, you should pay taxes quarterly...
Should they be paying taxes quarterly if it is a seasonal business...
I'll make two comments:
1) Whoever files what later... they need a CPA to set them up for that (and answer this).
2) The quarterly requirement is about regularly filing information. That could be a series of ZERO's.
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The IRS will probably not assess penalties this first year that they made money, but next year they had better file quarterly or will end up with fines. You can only get away with not filing quarterly if you will end up not owing anything in April.
I'll make two comments:
1) Whoever files what later... they need a CPA to set them up for that (and answer this).
2) The quarterly requirement is about regularly filing information. That could be a series of ZERO's.
I told them that they should see a CPA. Thanks for responding!
Quote:
Originally Posted by Hemlock140
The IRS will probably not assess penalties this first year that they made money, but next year they had better file quarterly or will end up with fines. You can only get away with not filing quarterly if you will end up not owing anything in April.
I was wondering about the penalties. I don't think they thought that they would owe taxes! I'm sure they weren't thinking of the tax consequences at the time. I don't know if they were penalized. I'll have to ask.
I'm confused. The mother paid the son? So was she doing it as payroll? Is the mother owns the business and paid the son, I would think as the business owner, she pays the taxes on the business.
Is she paying your son as a contractor? Then she needs to 1099 him and he needs to be paying self employment tax.
How is the business set up?
My husband works full time but we also have an LLC that I run my business through. We are both partners, so when our CPA does our taxes for the LLC, we split the profit or loss. That then goes into our 1040. We file taxes jointly.
Since my husband has a full time job, I just have extra taxes taken out of his paycheck to avoid having to pay quarterly taxes. Before, when we were running the business as our only jobs, I had to pay quarterly. The tax system is pay as you go - which is why they need to be paying quarterly.
I'm not sure how someone cannot know if they were they were making a profit or not. If someone is using a program such as Quickbooks and keeping records, they should have some sense along the way. If they were so shocked then I suggest they really look at how they are keeping track of the business books.
Keep in mind that if there is a loss, someone can also show that on their taxes and get the benefit from that. If this is the mothers business they that would be her and her partner.
I'm confused. The mother paid the son? So was she doing it as payroll? Is the mother owns the business and paid the son, I would think as the business owner, she pays the taxes on the business.
Is she paying your son as a contractor? Then she needs to 1099 him and he needs to be paying self employment tax.
How is the business set up?
My husband works full time but we also have an LLC that I run my business through. We are both partners, so when our CPA does our taxes for the LLC, we split the profit or loss. That then goes into our 1040. We file taxes jointly.
Since my husband has a full time job, I just have extra taxes taken out of his paycheck to avoid having to pay quarterly taxes. Before, when we were running the business as our only jobs, I had to pay quarterly. The tax system is pay as you go - which is why they need to be paying quarterly.
I'm not sure how someone cannot know if they were they were making a profit or not. If someone is using a program such as Quickbooks and keeping records, they should have some sense along the way. If they were so shocked then I suggest they really look at how they are keeping track of the business books.
Keep in mind that if there is a loss, someone can also show that on their taxes and get the benefit from that. If this is the mothers business they that would be her and her partner.
I'm not exactly sure how it is set up. The mother had the dream of having a recreation-type business in the Pennsylvania countryside. She got a business partner and they invested money in the business (buying kayaks, etc).
She asked her son if he wanted to run the business (he has a strong recreation background). So he gave up his job and he moved back to his hometown (with his wife) to run the business. I'm pretty sure Mom was paying him something to run the business because he did give up a good job! The son and his wife also moved back into his parents home because obviously without regular jobs they couldn't rent an apartment).
The son and his wife got jobs in the school system which leaves their summers free to run the business. They just bought their own house (it's astonishing how inexpensive homes are in the country!)
They plan to run much of the business out of their new home office (last year they had to run the business out of the park next to the YMCA.)
The business is run with the collaboration of the local YMCA (that is where they keep the kayaks, canoes, and bikes).
I'm not sure how the business is set up. I don't know if is even incorporated! The website doesn't explain it. I'll have to ask!
NewJersey,
The son is an employee.
His mom and business partner own the business.
All I have to say is this, if her son IS an employee, and she didn't
withhold payroll taxes, she will really be sorry. She really has to see
an accountant to straighten things out.
The son probably did his taxes and his SE taxes were high. That is what it
sounds like.
Good for mom.
Bad for son.
Oh well, live and learn
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