The paperwork?

[Ebg18t]

Hi wdmaccord

I'm trying to keep things simple at the start. I figure a Business License+DBA+Liability insurance is the simplest path to get started with the lowest cost to me. I did do research on the differences and originally wanted to file as an LLC but after seeing all the extra paperwork and cost I was deterred from that course of action. I see a lot of people here and on other forums just starting out as DBA with insurance and it sounded good to me. I never started my own business and want to take it slow and careful. I have experience as far as detailing goes but my business sense is lacking. Needless to say I'm doing as much research as I can before I dive in. The scariest part all all this to me is the Taxes .

Thanks for the input appreciate it

As wbmaccord mentioned do your research. The tax difference can be quite powerful. Just make sure you pay your taxes on time.

[cardaddy]

I agree with William (to a degree). Yes, in the long run, and with substantial positive cash flow the tax liability for a LLC may indeed save you money. BUT... You'll have to file for that LLC, (most popular seems to be Maryland corporation but that's another thread altogether).

The biggest thing is the corporation has it's own set of rules, by laws, corporate laws that apply an the like, and it always has to pay taxes, ALWAYS. Then you just write yourself or anyone else that works for the company a paycheck. You'll have to figure your own state, local, and social security liability (rates) that apply for that amount and the corporation takes those out AND pays those in quarterly to the associated entity (be that Federal, State, Local).

The dba accounting is easier in one sense, in that you only figure taxes based on what your personal tax liability is, rather than the corporation paying taxes, THEN it writes you a paycheck and you also have taxes taken out on that. Yes the net net may be less, but the bookkeeping is harder for sure and will take a bit more of your time. One thing about a dba account is all your money goes into the account, and from there you can write yourself out a "cash draw". Whether or not you pay taxes (of any kind) on that draw are up to you. You WILL owe taxes at some point, that is a given, (unless you end up losing money at the end of the year) and at the end of the year if you've not paid (into the system) your quarterly estimated taxes (which might be too little or too much annually, but were right on a "per quarter basis") you *may* be penalized. It's possible to pay too much, because during the year you don't know what all of your spending deductions will be. You may have profits for 3 quarters then in the 4th quarter you have a big surplus and decide to drop several grand at Autogeek and spend a bunch on supplies, buy more buffers, steamer, machines, supplies, etc. and end up taking a huge loss in that quarter. That'll effect your total liability for the year, whereas the quarterly estimated taxes would have you paying in earlier based on profit for that quarter. OTOH, you can go all year and not pay any quarterly estimated taxes and pay them all when you file your 1099. It's perhaps a way to get audited by not sending anything in, but it's not illegal.

The trick about doing it that way is at the end of the year, when you total out your income, from all sources, your total tax liability is based on that bottom line figure (after all expenses). With a 1099 you file a "joint return" with you and your wife just like you've always done. Where with a LLC you file a separate form that has nothing to do with your personal taxes.

Lets say you and your wife both have jobs, and at those jobs you're paying all your taxes, (state, federal, social security, etc.). When you go to file you'll take your income from detailing then and add that to the rest of your income. Then say your wife has a side job where she sells Mary Kay, or kitchen supplies like Pampered Chef. She'll have a 1099 for those as well. This is where you'll add all of your various income sources and do your "joint return". Whether that is a profit (or loss) from your detailing business, or her Mary Kay business, it'll go into your joint return. If you've been taking out more at your other jobs, so that you end up usually getting a refund..... you might just end up breaking even. OTOH you might end up adding $10,000 profit to that bottom line and you've not withheld enough to cover it. Worst case scenario is you'll end up owing taxes. Best case, (if you've been creative enough, and have the itemizations to show it) you'll come out just fine.

You want to break down ALL OF YOUR expenses each month and keep accurate reports. Then when filing you add both the income as well as detailed itemized expenses, and you may very well end up not making a profit. Doesn't mean you didn't make money, just means after you take all of your allowed itemized expenses that you might just show a loss. Business use of the home is one that a lot don't take, but it's one you really need to check into. You can take a percentage of the total square footage of your home, a percentage of your utilities, water, electric, phone, etc. including your cell phone (just as long as you use your phone(s) for business, (and what percentage that comes up to). Tax itemizations are the one thing that can make or break you. They are there FOR you to use, and getting creative with them isn't a bad thing, just need to figure out what you can use and what you can't. Like I said, you can end up after all the deductions are taken getting a HUGE break, even a end of the year business loss. (deductions is a word that is used most often although they are actually itemizations)

I had one year where we bought a new truck, had a big Section 179 on that new vehicle, took a beating on depreciation on all of the trucks, had some big repair costs, travel expenses, etc. etc. etc and actually ended up getting back over $7K more than we'd paid in. That only happened once though, but it was one heck of a surprise to see that big monster refund (even though we actually made money that year when you broke it down quarterly). The next year OTOH wasn't quite so fruitful, and the IRS was a bit happier.

This is just spit balling here, throwing ideas out that, some work for some situations, some for others, but they are ideas that DO WORK however. (I started doing business taxes for tax year 1985 and did them for 20 years for 3 different business over that time period.) (And of course a few years ago started doing it all over again for detailing, just not on as large of a scale, thank the good Lord.)

And (and this is VERY important) on the thing of losing money at the end of the year, the IRS will - not allow you to lose money year after year after year without declaring your business as a "hobby". You can lose one year, profit for two, lose, profit, etc. (I think however that the losing till it's a hobby thing is still 3 years straight, William should be able to confirm that.) They won't penalize you for it either, just chalk that one up to trying a business that didn't make a profit and learned a lesson. But starting out, you might want to try the dba thing first, along with checking out the myriad of deductions/itemizations that are available to you.

Everything from entertainment , mileage expense for your vehicle (or flat rate if that works for your situation), deprecation deductions (on vehicles and tools), Section 179 allowance (for bigger equipment expenses), and make sure you really look into the business use of the home, that one can be a nice one.

The LLC does insulate you personally though from liability that can reach your personal finances with a dba much easier. Nothing will insulate you totally if the other side is litigious enough, and really wants a piece of you. I would say though that if you're serious about a dba that first you have a VERY GOOD insurance policy, and you not have anything of real value in your name should someone come wanting to take it from you. That'd mean your cars and home to start. In the early years when I only had one flatbed tow truck I did the dba and signed everything, other than the truck over to my wife. Figured it I had a bad wreck and totaled the truck, that if they wanted to file suit for it they could have it. We've been down both roads, neither was really bumpy, and both did just fine for what we needed them for.

Caveat Emptor; I would NOT do ANY creative bookkeeping without consulting a CPA first.

[Plasmah77]

Wow Cardaddy! Ty very much sir for taking the time to write this. Greatly appreciate it. I just found out my cousin is dating an accountant. I will be speaking with her soon. Thank you all for the input.

[BillE]

Great write-up Tony!

Bill

[cardaddy]

Wow Cardaddy! Ty very much sir for taking the time to write this. Greatly appreciate it. I just found out my cousin is dating an accountant. I will be speaking with her soon. Thank you all for the input.

Great write-up Tony!

Bill

Thank you very much guys.

Realized I didn't call the business return a Schedule C, but that's what it is, and you can have as many of them as you want added to your joint return(s). Add that to your 1040, file a joint return, and it's all straight forward from there.

QuickBooks makes it a bit easier when applying tax forms, categories, etc. but if you know how to manipulate it, you can do it (for the most part) with Quicken. You just have to decide what tax form you want to link to, and quite often setup/name the categories for each income/expense line. Where most of them are already there in the QuickBooks software. In fact you can generally pick out what type of business you have and it'll automatically generate the most used categories.