Poorly explained. See next post.
Poorly explained. See next post.
Donate 50% to Nick and Me
You still get an income and help 2 fat, bald pizza guys get some much needed cash in their pockets.
Nice feeling having a bit to pay yourself. Best idea to talk to your account on how to best invest your earnings in tax minimal ways.
Good luck to you for all your hard work.
In the good old days I used to have this problem…
I assume you are incorporated as an S-Corp? If not, talk to your accountant about that and save some $$ on FICA through taking dividends rather than wages or self-employment income.
Consider pre-paying things before the end of the year to shift expenses onto this year from next. Anything that gives you a discount is a good candidate. Most advertising media will give you a nice discount for prepayment. Pre-paying your insurance companies will save you the installment fees. Prepaying a few months utilities and phones might not pass an audit, but will not incur any penalties and is unlikely to get noticed. Pay your January rent at the end of December (February too if the LL will let you). Cut off your employee pay period just before the end of the year and pay through that date on the 31st. Pay every food and beverage invoice you have on the 31st whether they are due yet or not. Pay the upcoming year dues to your chamber of commerce or any other organization you support.
None of this reduces your total tax bill in the end but it does put them off for a year.
Do you have an IRA? 401K? They are a great way to save and avoid taxes.
SEP is an alternative for the self-employed. It is the tax-sheltered/deferred savings plan when 401K is not available, like for self-employed guys.
I don’t think I explained myself very well. Need to quit posting after 14 hour shifts.
If I start paying myself the profits, it will bump us into the bottom of a new tax bracket. So, I really wouldn’t be making that much more. Just giving most of it to Uncle Sam. We’re buying our building and equipment. So, my goal is to have this place require minimal time from me and just be a working asset. I don’t really plan on it being a source of income.
I’m not confident enough that sales will be maintaining/growing enough to commit to long term things (increase wages, equipment upgrades, etc.). I’m thinking debt reduction, but I’m told I need to be careful with that. Will be talking to accountant soon.
The Section 179 deduction for 2010 has a $250,000 ceiling, so you could expense a huge amount of any qualified equipment you are purchasing this year to reduce profits. Is that the kind of thing you are looking for?
What kind of legal entity is your business? Sole proprietorship or S-corp or… C-corp?
Remember you don’t pay the higher tax bracket rate on your entire income, only on the amount above the bracket threshold - it’s graduated.
Assuming you are filing jointly:
You will pay 10% on your first $16,750.
You will pay 15% on income between $16,751 and $68,000.
You will pay 25% on income between $68,001 and $137,300.
You will pay 28% on income between $137,301 and $209,250.
You will pay 33% on income between $209,251 and $373,650.
If you’re making more than that, nobody here is worried about your tax problems But there’s no scenario where you would be giving most of any new income to Uncle Sam.
Also, how is your business set up? If you have profits they have to be being taxed somewhere. If you’re an “S” Corp they are flowing through to your personal income tax anyway. If you’re a “C” Corp you have to pay corporate taxes. If you’re a sole proprietorship you have to file the profits on Schedule C.
If you’re a “C” corp than there is a reason to not pay yourself dividends because of double taxation (dividends are not tax deductable for a corporation) but I’m guessing you are not set up as a “C” corp.
Like Steve pointed out, if you’re an “S” corp you want to pay yourself out in dividends (after paying yourself a fair market rate for your labor) to avoid unnecessary FICA.
If you’re not looking to buy equipment, the best bet to shield income from tax is a SEP or Traditional IRA like mentioned. But even with a Traditional IRA, the tax you save this year will not outweigh the future benefits of funding a Roth IRA - especially at your age.
BINGO! There was some myth that tv shows created in the 70s and 80s where the father would come home after getting a raise only to find out that he makes less because of the higher taxes. To my knowledge, that was never actually how it worked.
Ah, you learn something new every day. The way it had been explained to me was that as soon as you cross to another bracket, your entire income is taxed at that new number. I got married a few months before we bought the place (brilliant, right? :? ) so it’s the first time I’ve had to look into this stuff very closely.
This certainly changes my game plan a little. I walked around the store this afternoon with “fresh eyes” to find all the things I’d like to do but have just become comfortable with how it looked over time. Faded signage, broken floor tiles in the kitchen, scratched paint, etc.