Minding Your Business
Published on Nov 18, 2015
Best practices for independent creatives when it comes to the world of business and taxes. How to avoid mischaracterization as a "hobby," making the choice of the right legal structure for your business, common deduction myths, and more!
MORE DECKS TO EXPLORE
PRESENTATION OUTLINE
MEETING YOU WHERE YOU ARE
- Who am I? (including pronouns)
- Who is in the room?
- How many...?
- What we'll talk about: What it means to be a business, How to keep track of income and expenses & when to report it, Tax planning, Sales tax considerations, New tax law changes, Getting a team together, The basics of deductions
- Start with content and then Q&A and workshop
- Who is in the room?
- How many...?
- What we'll talk about: What it means to be a business, How to keep track of income and expenses & when to report it, Tax planning, Sales tax considerations, New tax law changes, Getting a team together, The basics of deductions
- Start with content and then Q&A and workshop
Photo by joelogon
TAKING CONTROL
BUSINESS OR HOBBY
- Why start here? The business mentality.
- Difference between business and hobby
- 5 year loss test (3/5)
- Difference between business and hobby
- 5 year loss test (3/5)
Photo by bolandrotor
TAKING CONTROL
TAX ID NUMBERS (EINS)
- Benefits of obtaining EIN
- Online process or form submitted
- SN about communicating with IRS: always by phone/mail/fax
- Keep in communication with them, no matter what the circumstance
- Online process or form submitted
- SN about communicating with IRS: always by phone/mail/fax
- Keep in communication with them, no matter what the circumstance
Photo by afagen
TAKING CONTROL
BANK ACCOUNTS
- 4 REASONS FOR THIS
- Why separate accounts aid the business vs hobby argument
- Better records mean easier bookkeeping
- More deductions because there's less confusion
- it's free!
- Why separate accounts aid the business vs hobby argument
- Better records mean easier bookkeeping
- More deductions because there's less confusion
- it's free!
Photo by Cola21
TAKING CONTROL
INCORPORATING
- Choosing the right form of business that meets your needs
- Legal and financial (tax) implications
- Legal and financial (tax) implications
Photo by BinaryApe
SOLE PROPRIETORSHIP
- No paperwork, no filings with state, just an EIN
- Files income and expenses on Sch C of individual tax return
- Responsible for self-employment tax on business profits
- One owner only
- Common in businesses losing money up to about $50k in profits
- Files income and expenses on Sch C of individual tax return
- Responsible for self-employment tax on business profits
- One owner only
- Common in businesses losing money up to about $50k in profits
Photo by Alexandre Godreau
CORPORATIONS
Both the C- and S- Varieties
- Requires filing articles of incorporation with the state
- And the EIN and 2553 election with the IRS
- Multiple owners possible, owners are employees of the corporation and get wages
- C pays its own taxes, S passes through profits and losses to the owners based on the percentage of ownership
- S common with businesses $50k-$275k in profit annually
- C common with businesses $275k+ annually
- And the EIN and 2553 election with the IRS
- Multiple owners possible, owners are employees of the corporation and get wages
- C pays its own taxes, S passes through profits and losses to the owners based on the percentage of ownership
- S common with businesses $50k-$275k in profit annually
- C common with businesses $275k+ annually
Photo by Joshua Rodriguez
PARTNERSHIP
- Though not required, recommend doing this by creating LLC
- Requires filing articles of formation with the state
- And the EIN with the IRS - being very careful about how it wants to be taxed!!!
- Multiple owners possible, owners are NOT employees of the corporation and get guaranteed payments
- passes through profits and losses to the owners based on any percentage they want
- common in creative firms, collectives, of all income ranges
- Requires filing articles of formation with the state
- And the EIN with the IRS - being very careful about how it wants to be taxed!!!
- Multiple owners possible, owners are NOT employees of the corporation and get guaranteed payments
- passes through profits and losses to the owners based on any percentage they want
- common in creative firms, collectives, of all income ranges
Photo by stevepurkiss
NONPROFIT
- Requires filing articles of formation with the state
- And the EIN and 1023 with the IRS. 1023-EZ available for small nonprofits. (Recommend getting help)
- No owners, managed by BOD
- can be appealing, but comes with a lot of additional paperwork
- might also consider L3C or Benefit Corporations for some benefit without the full burden of tax-exempt status
- SN about Kickstarter and other crowdfunding campaigns
- And the EIN and 1023 with the IRS. 1023-EZ available for small nonprofits. (Recommend getting help)
- No owners, managed by BOD
- can be appealing, but comes with a lot of additional paperwork
- might also consider L3C or Benefit Corporations for some benefit without the full burden of tax-exempt status
- SN about Kickstarter and other crowdfunding campaigns
Photo by HowardLake
TAKING CONTROL
TRADEMARKING
- The difference between acquiring a domain name, registering with the state, and filing a trademark
- You'll pay separate filing fees per class
- International considerations
- You'll pay separate filing fees per class
- International considerations
Photo by Leo Reynolds
TRACKING
SPREADSHEETS
- simplest and often free way of keeping score
- Name, date, amount, category
- Template available in the Resources at the end of the deck
- Talk through the pro's and con's
- Name, date, amount, category
- Template available in the Resources at the end of the deck
- Talk through the pro's and con's
Photo by irina slutsky
TRACKING
XERO
- Xero benefits over QB
- QB: $20-60 a month, Xero: $9-30 a month until international
- Ecosystem of partner products
- Automate a lot of the data entry and eliminate possibility of user errors or missing data
- Really becomes necessary when moving to incorporated, but often used even earlier
- QB: $20-60 a month, Xero: $9-30 a month until international
- Ecosystem of partner products
- Automate a lot of the data entry and eliminate possibility of user errors or missing data
- Really becomes necessary when moving to incorporated, but often used even earlier
Photo by benn
TRACKING
APPS (LIKE SHOEBOXED OR HUBDOC)
- Shoeboxed and Hubdoc are great options
- Eliminates need to keep paper
- $10-40 a month
- Backup plan for paper
- Eliminates need to keep paper
- $10-40 a month
- Backup plan for paper
Photo by bigyahu
REPORTING
- Sole Props / Individuals: April 15th
- S-corps: Quarterly Payroll and March 15th
- Partnerships: March 15th
- Incorporated: annual report
- 1099s
- Also April 15th for C-corps
- 1099 implications
- SN: Independent Contractors vs Employees
- 1099 implications
- SN: Independent Contractors vs Employees
Photo by angelaathomas
TAX PLANNING
20% OR 30%
- How to think about income taxes on your business
- Rough estimate: 20% of gross or 30% of net
- Set aside in separate account or pay in quarterly
- first year exception to underpayment penalty
- Rough estimate: 20% of gross or 30% of net
- Set aside in separate account or pay in quarterly
- first year exception to underpayment penalty
Photo by CarbonNYC
SALES TAXES
- Tangible goods (gray area of software)
- Origin vs Destination
- New definitions of "nexus" includes no presence, but $100k sales or 200 transactions (Wayfair rule)
- Services that plug into e-commerce like Taxjar
- Origin vs Destination
- New definitions of "nexus" includes no presence, but $100k sales or 200 transactions (Wayfair rule)
- Services that plug into e-commerce like Taxjar
DEDUCTIONS
THE GOLDEN RULE
- Explain the idea behind deductions and the "golden rule"
- Why no deduction list will ever be complete
- Why no deduction list will ever be complete
Photo by Biking Nikon SFO
DEDUCTION MYTHS
- Donation of services
- Travel
- Research
- Home Office
- Cell phones, Internet, computers
- Walk through each of these myths
- Travel: inc meals at 50%, all other costs of being away from "home"
- 51% business, otherwise only direct costs
- Home office: regularly and exclusively, exception to exclusive for inventory
- Travel: inc meals at 50%, all other costs of being away from "home"
- 51% business, otherwise only direct costs
- Home office: regularly and exclusively, exception to exclusive for inventory
Photo by Lujia Zhang
RESOURCES
- IRS EIN application: bit.ly/revelEIN
- Self-Employed Organizer: bit.ly/seorganizer
- Google Sheet Accounting: bit.ly/GSaccounting
Photo by Sanwal Deen
RESOURCES
- xero.com/us
- hubdoc.com
- shoeboxed.com
- Employee vs Contractor Help: bit.ly/EEorIC
Photo by Sanwal Deen
