Making the leap from being employed to becoming a self-employed small business owner can be very exciting and potentially financially rewarding. Whether you plan to call yourself a freelancer, sole proprietor, or independent contractor- you are actually a small business owner.
However, you must be aware that there are lots of issues that could potentially come up and overwhelm you. Following, you will find some resources that will help you get through the confusion that comes with implementing one of your web-based business ideas.
When you become a small business owner, you will be wearing a variety of hats. You will suddenly be responsible for financials, operations, sales, and even legal. When you go into business for yourself, one of your best friends needs to be an accountant.
It’s best to find someone who is local so that you can sit down and meet with them. Talk to a few different people about your business and choose the one that listens to you and understands what you will be doing. A good accountant will help you save money by planning taxes accordingly and writing off as many expenses as possible.
When you become a small business owner, one of the most critical things is to be prepared when tax time comes. Small business owners must pay self-employment, or SE, tax. This is how you will be paying into the Social Security system as a sole proprietor. Unfortunately, this often takes business owners by surprise.
Here’s the reason why: when you are an employee, you are only paying half of your Medicare and Social Security taxes- and your employer pays half. Most people who work their entire lives don’t realize that the company paid the bill for half of their benefits. As your own boss, you are required to pay all of the taxes- and it is likely to be more than you think.
In 2009, the SE Tax was 15.3 percent of net earnings. This is the total of social security (12.4 percent) and Medicare (2.9 percent) taxes. You are only required to pay Social Security on the first $106,800 that you make.
After that, you are not required to pay any more Social Security tax for the remainder of the year. On the other hand, you must pay Medicare tax on everything you earn. You will use Schedule SE with Form 1040 to fire your self-employment tax. Keep in mind that if you don’t report your income, your Social Security benefits will be decreased.
In addition to paying self-employment tax, you’ll also be required to pay federal and state income taxes. After all, you no longer have an employer who is withholding and paying them for you. Typically, you must pay your estimated taxes each quarter based on the amount you expect to earn- even if you’re only working part time. This will keep you on track with payments so that you’re not spending money that is not yours. Otherwise, you’ll end up paying a huge tax bill at the end of the year. Talk to your accountant to help you figure out what you should be paying each quarter.
Even though you’re paying more in taxes as a business owner, you also get the benefit of deducting qualified business expenses. This means that the common, necessary costs of running your business such as computers and software, supplies, insurance, travel, entertaining, and more can be deducted from your taxable income. This means that the amount you owe is decreased.
There are lots of programs and services that are designed to assist you with keeping up with your business expenses and tax deadlines to ensure that your business is run smoothly. You can get desktop software or you can work in the cloud with some innovative bookkeeping services. Then, when you get to where you need more advanced functioning, you can move to a more comprehensive plan for a monthly fee.
A successful entrepreneur understands how he/she can leverage their unique abilities and skills. If you are not great at keeping up with your finances, make sure that you get a professional bookkeeper or accountant to help. You should never try to do it all yourself. Take the time to explore and master your talents so that your business will grow.