Discussion:HELP! growing out of a Sch C business
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| + | {{ForumReplyPost|UserID=MsTwizz|Date=1 April 2007|Text=It's hard work though.....although no harder than our work...but at least we get to sit down while we are working....my feet would be KILLING me!}} | ||
Current revision
Discussion Forum Index --> Tax Questions --> HELP! growing out of a Sch C business
| 31 March 2007 | |
| Hey everybody,
I think I'm in over my head on this one. It's a simple Schedule C, but my client's business is growing fast. She owns a very successful hair salon. When I figured her taxes this year, she owes $27,000! There's no way! Last year, she earned only $100,00 less and only owed $3,600!!!! I am thinking of taking it to another tax accountant, have them look it over, and let me know what they think? and I am willing to pay for that. Is this wrong? Would any of you be interested in checking my figures? Also, I am wondering if it is time that she turn her business into a S- corp or C corp (she may be making too much money to be an S-corp). The Self-employment tax is killing her! Thanks! | |
| March 31, 2007 | |
| Did you check for typos? Earned $100 less last year, and she owes $23,400 more this year? Hmmm... | |
| March 31, 2007 | |
| The word "only" led me to believe the comma should have been a decimal, especially with only two zeroes after. | |
| 31 March 2007 | |
| Yes, I checked this over and over again.
Look! last year: gross income $460,967 expenses" $441423 net profit $19,544 this year: gross income: $563,202 expenses: 473,804 net profit: $89,398 | |
| 31 March 2007 | |
| yea, sorry.....forgot a zero $100,000 less
It looks like her income is going up and her expenses are not going up in proportion with her income....is there a better taxable entity she should be in. Her business is going to keep growing! | |
| 31 March 2007 | |
| no eitc, more SE tax, seems right to me
She should be proud to have such a profitable business! But, yes, I'd talk about S corp now. | |
| 31 March 2007 | |
| Man! I'm so scared to break this to her! She's going to have a heart attack!!!! :o) | |
| 31 March 2007 | |
| They are taxing her on her profit...sounds about right to me...the SS portion of the SE tax is 11085.36. (I'm too fried to remember much of anything other than take the net (.062) and multiply by 2) S-Corp definate possibility. | |
| 31 March 2007 | |
| o-k, thanks guys.... I'll go in prepared with some solutions for the future! | |
Sierrafc.com (talk|edits) said: | 31 March 2007 |
| If you are specifically talking self employment taxes I would say 30% of taxable business income seems high. The self employment tax is 12.4% for OASDI which caps out at $94,200, and 2.9% for Medicare which does not cap. How can you be at 30%? (Tax $27K / Profit $89K = 30%).
R.S. | |
| 31 March 2007 | |
| She won't be upset if you tell her how successful she is, She already knows how much more she has been putting in the bank. She is no dummy. | |
| 31 March 2007 | |
| I know a lot of people in an S-Corp that wish they never did it. A LLC taxed as a sole proprietorship is usually/often preferable. Someone here educate me - other than slightly better treatment for medical, I have never heard a good reason for an S-Corp over a LLC. The IRS is on the look out for small Corp dividends that really should be W-2 wages. I have a self employed neighbor who got hit for back workman's comp and unemployment comp taxes on his one man corp. | |
| 31 March 2007 | |
| Didn't you see this coming? Any client I have grossing that kind of $$ is getting monthly accounting services or quarterly at worst. This way you can see this kind of think way in advance. | |
Sierrafc.com (talk|edits) said: | 31 March 2007 |
| So, she is actually paying about 14% in SE tax which sounds correct. She is also getting 7.5% back as an adjustment to income on her 1040. That isn't bad when you think about it as a percentage of the income she has earned. The remainder of the tax will be found elsewhere on her return, perhaps wages or investment income?
R.S. | |
Sierrafc.com (talk|edits) said: | 31 March 2007 |
| It doesn't sound like the growth in the business that caught her off guard since the increase in SE tax went from approx $4K to $13K. That is only a $9K increase. The total tax bill was $27K, which means $14K of the increase has not been explained but was not related to the business. It should not be hard to forecast estimated tax payments and come reasonably close to what is owed given the small percentage of tax related to the business. | |
| 31 March 2007 | |
| Jake - the only thing a sole owner LLC is going to do to help this client is give her liability protection - she needs some of that self employment income reduced...which is why she needs to move to an S corporation.
Ms Twizz - I'd still go back to the client and ask her again if she has given you all her expenses...have her check for credit card expenses, cash outs that she hasn't given you...explain that she owes alot of money and she needs to go back and make sure she's given you everything. Compare last years expenses to this years to see if there is an area that is alot lower than the prior year....As Kevin said she knows she's done well this year...and if she changes to an S corporation and you do her payroll quarterly you'll be in a better position to monitor future growth. | |
| 31 March 2007 | |
| What's she have in the way of a retirement plan? There is still time for her to set up a SEP. I'd get her talking to someone about that real quick. | |
Death&Taxes (talk|edits) said: | 31 March 2007 |
| Could it be she is doing more of the work and relying less on other operators [Chair rental, anyone? Deb?]? So often I have seen this be the case. Maybe she is now ringing up the customers instead of the person who did it in 2005 and is now driving a BMW? Maybe she wants to sell and is willing to pay some taxes to impress a buyer? That is the cynic in me. | |
| 1 April 2007 | |
| Vbcpa - So the only advantage of the S-Corp is to move some income from W-2 type that is subject to FICA to Div? For someone making onuy a net of $90,000 that doesn't seem very convincing. Perhaps you could justify $15,000 of that as dividends. I suspect there are other costs of a corp that would largely offset that. | |
Death&Taxes (talk|edits) said: | 1 April 2007 |
| It is not just the SE saving, but rather that the pension comes with before FICA Dollars, not after FICA dollars as on the C. | |
| 1 April 2007 | |
| Did she have any self employed health insurance premiums that she paid? That might help. I would print out a tax summary showing this year's figures and last years and show her how well the business has expanded and then go into the this is how much you owe. I'd also tell her that maybe you should meet quarterly to see how things are going and see if any adjustments need to be made in her estimated tax payments. Where is her shop located? She's doing very well. | |
| 1 April 2007 | |
| To Death & Taxes: But . . . if there are employees then the Corp has to give everyone the same pension deal. Plus - you have to be netting a lot more than 90,000 to afford any major pension contributions. That said - never understood why our STUPID Congress always writes the rules to favor the "Corp" entity. Sch C med insurance finally got to 100%, but it is still not exempt from FICA. For that and other reasons I would not give those idiots in Congress (or the Presidential candidates on either side) the sweat off my you know whats - and I tell them that every chance I get. | |
| 1 April 2007 | |
| Jake, isn't socialism wonderful? It's the slow road to slavery. | |
| 1 April 2007 | |
| I didn't see this coming. This is the first year I've done her taxes. Her business is growing by leaps and bounds, so I frustrates me that the prior accounting firm was more proactive in counseling her to get her ready for future increase in income. So, this is my first year, and I get to give her the bad news.
Yes, CrowJD. She had no retirement plan. This is something I want to suggest she start up. I had compared this year's expenses to last years.. they seem pretty comparable. Death&Taxes...she is working all day. I have been going to her for over 10 years. She works harder than anyone I have seen! Her salon was just named one of the 2-- fasted growing salons in North American by Salon Today magazine! And no, she doesn't want to sell...she worked so hard to get where she is now. Her husband has W-2 income and is taking extra out for her health insurance. I think she should be changed, because I can't deduct that on his tax form (Sch A not above income limitation). She should be paying it so it can go on her tax form. They file separately. | |
| 1 April 2007 | |
| Yes, Jokadah...I agree.. We live in Ohio! Small town-go figure! This just proves how good of a business woman she is! :o) | |
| 1 April 2007 | |
| Correction---- Her salon was named one of the 200 fasted growing salons in North America. | |
| 1 April 2007 | |
| I've noticed that anything to do with personal appearance these days is big money (every doctor now claims to be a plastic surgeon). Plus, you get the repeat business all year long in this business. Perhaps I should change my name to Pierre, and get to clippin!!! | |
Www.cpa1.biz (talk|edits) said: | 1 April 2007 |
| He he...If you find the right barbar, you are gold. What sucks is when you lose your favorite barbar. The knife to the heart! | |
| 1 April 2007 | |
| It's hard work though.....although no harder than our work...but at least we get to sit down while we are working....my feet would be KILLING me! | |
