OK, so "if" I can get this going, how do you do taxes? My husband is a macro economist so he was asking me WAY more complcated things than I could answer! LOL

Sales taxes are easy to know, but he was asking about self-earned social security tax? Huh??? How do you pay all those taxes or do you? Like when IRS comes knocking (well when April 15 rolls around) what taxes do I need to take into account?

Melissa

You have to pay taxes and social security--honestly I let our accountant handle it so I keep out of trouble.

So, whatever my earnings are for the year, then I pay the percentage during tax time, right?

Melissa

You have to pay city, county, state and federal income taxes. Plus, Social Security and Medicaid. When you are employed by someone else, you pay half the SS and Medicaid and your employer pays the rest. When you're self employed, you have to pay it all and it's a big chunk. 17 or 18%. Also, you have to pay everything quarterly instead of yearly.

I'm self-employed (a writer, not a cake decorated) and I take 25% off the top of every check I get and drop it into a special savings account I use just for paying taxes.

Hope that helps.
Melissa in KY

Thank you! 25%is a lot, but it's what I thought. phew... more to think about it and more reason for DH to be negative about it.

Melissa

That 25% also has deductions! Last year I brought in nearly $75K and paid taxes on about $8K. If you do your record keeping right being self employed has great rewards when it comes to the IRS.

Taxes might kill me. My husband is a Macro-economist and if he worked in the private sector, he would be making $$$, but he works for the Congressional Budget Office (CBO) in DC, so his salary is mediocre - great compared to lots of things, but not enough for us to afford for me to stay home in this super expensive area. But, for fed/state taxes, it doesn't matter that our 30 year old townhouse cost a fortune and eats up most of our $$$... Still Salary wise it puts on in a pretty high tax bracket

I'm saying this as about 45% of my profits will be taxed!!!!!! Holy Smokes! So, the number of cakes and cookies I need to sell just went up about 50%....

Ack! Well, getting licensed should help as then I can REALLY advertise and not just do it for friends.


I'll be looking at tax relief for sure!!!! But, I won't have to worry about that until next calendar year since Ihaven't really started yet, just getting all the hens lined up! LOL

Melissa

Sorry to be so nosey!!?? But here I go anyway.....SweetConfectionsChef
Did you make 78 on cakes????

you need to talk to an accountant, because you may or may not have to do what was described above. It depends on a lot of factors. You do have to pay taxes, but how it is figured can vary. There are decuctions that are related as well, but again, I'd suggest you get a professional opinion re: what can/can't be deducted.

Percentages withheld vary so the easiest way is with hold around 30%. The best thing to do is get an accountant and talk it over with him.

You are not being nosey! I do cakes, cookies, catering, and candy from my shop. Honestly, the best market to get into is corporate catering if you don't like the stress of weddings. I do both but would take the corporate end anytime I had the chance to choose!

One of the best things I ever did for myself was to take the H&R Block tax course a couple years back. I already knew a good bit about taxes, but this gave me even more information especially regarding business finances. My DH is self employed and I found a lot of things that we had not been deducting. I even amended a previous return and got more money back. I highly recommend it just for your own knowledge and well being.

I believe that he is talking about Self Employment taxes. This is done on a Schedule SE when you file your 1040 at the end of the year. You will take the amount form you Schedule C (this is the form that you will take your gross earning and itemize all your expenses then subtract them to get your Net earnings). This amount will be transferred to the Schedule SE. The Net amount will be mulitplied by .9235 and then that amount by 15.3%. This will tell you how much Self Employment tax you will have to pay. This is your Fica and Medicare taxes that you normally see taken out of your paycheck on a normal paying job.

If you plan to do a lot of business you can do quarterly payments so that you don't have to pay too much at the end of the year.

I do my husbands busniess taxes each year and have been doing them (home based) since 1989. There are so many changes every year I recommend filing them on www.taxact.com it will walk you through the process and ask you questions. It will let you print and mail your taxes for free.

Hope it helps

Thank you everyone! There's a lot to learn, for sure. Hopefully, if I'm in a business we'll get some tax breaks and not be eaten alive by the IRS!

Melissa

as a small business, I don't make enough money to be taxed like crazy..but I do report all earnings, then report all expenses. since I have a home business I get to count alot of stuff like the electric bill, the gas bill, insurance, stuff like that. I take my list to my H&R Block lady that has done my taxes for years, and tell her my earnings, and itemized detuctions. like when I have an expense, I list it in a colum....lets say shipping cost, for when I order supplies. at the end of the year I add all my shipping expenses and total that. or books that I need to learn gumpaste flowers, or internet to learn all the awsome stuff I need to know on CC.

as far as taking out social and stuff like that, I don't have to yet.
I don't really charge tax either,at this point. I just turn in my earnings to the IRS.

that is a good question about tax though....when I start doing wedding cakes, should I charge tax? then send that money into the gov?

thanks, and good luck
melody

This is a really informative thread, good to know.

melodyscakes, if you are a legal business you MUST charge sales tax on relevant sales. I live in a state that doesn't have a food tax, unless it's prepared food so I have to charge tax on all catering & cakes. Registering with you state's Controller's office is easy...you just go up there and fill out the paperwork, collect sales tax from your customers, send it in quarterly and your done. You are not losing ANY MONEY because the customer is paying this tax...NOT YOU...you are just submitting it to your state. The best part of this is actually getting your TaxID number which opens up another avenue of profit for your business...you get to buy things at true wholesale which is sometimes more than half of what you think is a good deal right now!

Also, not collecting relevant sales tax for your state can cost you severe penalties including tax liens and jail time.

Hope this helps you out and reduces the costs of running your business!