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I have recently started my own small business as a sole proprietor. I offer live music for various events including weddings and parties. Though I've been doing this for some time, the official business end of it is still very new to me. I have a couple of silly questions:
How do I get paid? Do I write myself a check from the business in the amount I've made after a month, minus expenses? Since I've been running this independently for some time, I've simply deposited the money I have made, into my personal accounts. Also, do I leave X amount of money in the business account each month?
What should the business pay for? As silly as this sounds, I know the obvious expenses, such as office supplies, music, performance attire, etc. But would it benefit me to have the business pay for anything more than that?
This is all very, very new to me. Any help would be greatly appreciated.
How much to pay yourself: You may want to keep some money in the business for cash flow or investment. You can always put money back into the business from your own account but that complicates the accounting a little.
What to expense: Everything that you use in the course of conducting business. Read up on acceptable deductions for sole-proprietorships. You'll have to keep records on the deductions. This fact may help you decide what's worth deducting.
If you are doing this as a sole source of income, (should that be soul? ) you'll want to get a lot more information than you can here. You'll need to make estimated tax payments, pay into social security, and a bunch of other stuff, some of which will be specific to your state. Personally, I think sole proprietor offers you the least bang for the buck, and puts you at greatest risk unless you have no personal possessions. My business is a sub-chapter S corporation and by having a good CPA on my side, I was able to learn about deductions and plays that have way more than paid for the cost of his services. Think of it this way - almost everything in the U.S. is slanted towards giving breaks to big corporations. Those same laws that protect G.E. and Microsoft have to protect small corporations as well.
Good luck in your business, and do whatever you can to limit your liability and insure against what you can't limit.
To get paid: You will want to have a business account set up, a simple dba, and you can pay yourself a percentage of your earnings. In order to grow your business a portion of the earnings need to be reinvested in the business for things mentioned by AusParent.
What should the business pay for? As far as deductions they all sound like legit business deductions. I would consult with a CPA or Attorney or visit IRS site there might be some useful information for you to research and from there set up some sort of accounting to keep track. You always want to have to your personal and business account separate.
You can deduct anything reasonably related to your business, including part of your rent or house payment if you have a room dedicated solely to your music. Don't forget to keep track of your mileage too. I think the mileage deduction is up to $.558 now and that is significant.
My wife is trying to run a small business and it's a LOT of work ! God bless you for pushing ahead with growing your business. It's people like you that do the heavy lifting for our economy. I don't have any answers to you're questions but I just had to spout off about how glad I am that people still have the guts to operate a one man operation and then try to grow the business to the point where they become a significant employer for your area.
If you get to the point ,(and I hope you will), that you just have to hire people to get all the business taken care of, I would highly recommend using a temp service at first. It might cost a couple of bucks more per hour but the headaches of having your own employees with payroll taxes, liability insurance etc. can be a great burden until your business is large enough to bear the complications that go along with having your own employees.
Since your a self-employed sole-proprietor you and the business are the same and your money is the business money and vice versa. For the first year you do not need to make quarterly payments on taxes but make sure you save enough each month or you will get killed come April. After your first full year you need to make quarterly payments equal to what you paid in the previous year, assuming you are earning equal or more money, otherwise you can get hit with interest and penalties if you wait to pay in April. Keep all your receipts related to business in a file and its best to get a separate credit card for business expenses so book keeping is easier. Also you may want to open a separate checking account and deposit your monthly taxes there just to better keep track of what money you have for yourself and whats going to go out to the IRS. Putting away 25% of your net is a good rule of thumb until you know exactly how your taxes will come out.
There are many exemptions and deductions in the tax code. Two very beneficial ones you should look into are the sole 401(k) and health savings accounts (HSAs): not only are significant deductions allowed, they help you save, as they are designed to do.
If you do not have time to learn about these on your own, ask a competent CPA.
Hopefully you will make enough money where saving and saving on taxes will be a significant issue.
All the best!
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) you'll want to get a lot more information than you can here. You'll need to make estimated tax payments, pay into social security, and a bunch of other stuff, some of which will be specific to your state. Personally, I think sole proprietor offers you the least bang for the buck, and puts you at greatest risk unless you have no personal possessions. My business is a sub-chapter S corporation and by having a good CPA on my side, I was able to learn about deductions and plays that have way more than paid for the cost of his services. Think of it this way - almost everything in the U.S. is slanted towards giving breaks to big corporations. Those same laws that protect G.E. and Microsoft have to protect small corporations as well.
IRS publications
