You are running a carpool at 2pm in the afternoon…you have a meeting at the wedding venue with your daughter, 10am on Wednesday…your son is expecting his first child so you do not want your business to get too big right now.
So that was short lived….I recently posted about the thrill of making my first quarterly income tax payment. And now I just made my second (due June 15th). Honestly, this time around it was once again a thrill…but reality crashed a bit harder and the fun was very short lived. While it is awesome to be building a business that is already turning a profit, it quickly hit me I do not like paying taxes on it.
Welcome to the party sister.
Over the years I have always heard jokes about how to hide money – Swiss bank accounts – closets in the Caymen Island (remember The Firm?). So, during April, I set my sights on finding legal ways to stash cash. TG and I marched around getting advice from financial advisers, an accountant, tax accountant, and a large financial institution. Our goal is to find someone who resonates with us, we understand, appreciates where we are in our own financial relationship and my growing business. It isn’t easy, especially since we, both as individuals and a couple, need a whole lot of explaining.
Anyone who works with us also has to have ALL the answers and know every nook and cranny of any financial vehicle we may read about on the web. We like to know all options, analyze all angles, and we do not like making mistakes. Hence the research and the meetings.
Here are a few realizations:
- You have to pay taxes. At first I was under the grand delusion that I could sock away up to $50k (ish) per year into a SEP or Individual 401k regardless of how much money I was making. That sum would then significantly reduce my tax exposure. But this leads to point #2:
- You have to pay yourself a reasonable wage. You can only stash 20% of your income up to $50k (ish). So, if you are making $100,000 you can only save about $20k per year. Not chump change, but significantly less than what I originally thought.
- To be clearer, you can not sock all your money into a retirement account. If you have limited living expenses (and live well below your means – imagine that), you might have extra money sitting around. You can not just put it into a retirement account and then not pay taxes.
- Why… and this brings us full circle…because you have to pay some tax. A point that sucks and keeps smacking me in the face.
- And then on a recent Google searching expedition, I found another article stating I could sock away 20% + and additional $17k. Back to the experts I go I guess.
All of this is…well, very exciting. To be at a stage in my business where I am able to think about saving a bit and to have a partner who wants to sit next to me and hold my hand as I figure it out is all very exciting.
If you are sitting in my shoes and want to know what to do with your own money, I highly recommend starting to read and then start talking to experts…many of them. You will want to have a very clear picture of your financials right now and your projected tax exposure for this year. As they say, any small business owner needs to know their numbers inside and out.
Oh, and yes, as a joke during one of the meetings I did ask about the Cayman’s, after all in the movie The Firm it didn’t look all that difficult to stash money in a closet in a condo. Given the birth of the internet it has become a bit more difficult…turns out they can track you a little better. And honestly, that would make me a bit nervous and all.
Building a business is quite an adventure. You go from idea…to open…to where are the clients going to come from and when? It is all very exciting. My business grew quite quickly and I am now at the point where I need a bit of help with certain parts.
Lots of amazing change and upheaval in my life during these last few months…a child making decisions about college, clients walking into my business, my man and I deciding it was time to create our own Brady Bunch…I am moving.
One constant during this time has been the unending support of a rather eclectic group of women. A mastermind group I was honored to be invited into….a holistic therapist, a published author, and a virtual assistant…oh, and me. When I first was approached with membership I thought to myself “why would they want me?” The Virtual assistant was off and running with her business, and the published author was just that – with radio, speaking, and books. I invited the therapist because she was just starting to build her practice and I love spending time with her.
For months now we have been meeting virtually via Google Hangouts. We started as a group of women who wanted a bit of support each week as we each built our businesses. We ranged from “new to off the ground” to “not sure what I am doing,” and each have now realized significant success before we even hit our one year anniversary. In our group space and private interactions each of these women have been my professional and personal sounding board. They have taken on the role of mentor, friend, client, and sister. At various times I have called upon each to solve a problem, recommend a service…and even just listen.
And now, I am thrilled to say, we have each outgrown our weekly meeting. With crazy work schedules, clients, and life events we no longer need (or have time for) the weekly hourly session. And we no longer have those “what do I do with this” type of questions. We each now are faced with building the next step of our respective businesses…hiring staff…publishing the next book…managing tax exposure…
So, it appears that as I take my next big steps, my mastermind will step as well…to a monthly meeting, quarterly meeting…we will have to find a way to get together and support one another, talk about new issues and opportunities facing our business endeavors, and of course…being the personal support systems we have become.
If you are a small business owner just starting out, I highly recommend finding a supportive group of people to check in with on a regular basis. And then, as you get bigger, know the group will change. Be ready for it…it is all very exciting.
April 15th has just passed us and I had quite a thrill.
I made my first estimated quarterly income tax payment.
I am known for being a bit quirky, off beat, and a friend who “requires explanation.” So I would not be surprised if you thought it weird that I found paying taxes thrilling this year.
You see, making a quarterly income tax payment indicates you are making money. Specific to my case, I am making money. My consultancy, for months “the little engine that could,” has taken off in a rather significant way. Most recently clients have walked in my door, and I have found myself enjoying this success. With that success has come income, and taxes must be paid.
As it turns out, when you work for yourself, the government wants to you to estimate your potential earnings for the year and also estimate the amount of tax you should pay on said earnings. You have to look into your magic crystal ball (for me my ball is a highly complex excel spreadsheet) and estimate what you are going to make this year, your anticipated deductions, and then the amount of tax you are going to owe. Estimate too high and you send the government too much money (which you will see when you file next year). Underestimate and you will not only owe the government but also have to pay a fine for underestimating.
Even me, with my PhD in statistics was a bit nervous originally thinking I would need a book keeper, accountant, CPA and tax attorney to help me through this. But I downloaded the form, went through the calculations, compared it to my spreadsheet, did some more research, and sent in my first check. Eureka!
Now, I can assure you this thrilled is short lived. While I skipped to the mailbox this first time