Tag: taxes

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If you have been paying yourself this year regularly, the next question is, “Are you ready to give yourself a raise?”

This week is the last week of June and marks the end of the first half of the year. Be honest, have you really been writing yourself a check every time I send an Entre Pay Day newsletter? If so, congrats! You have written 12 paychecks so far! If you haven’t yet started to make your paydays a thing, put them on the calendar and start this week. Even a $10.00 to $25.00 paycheck feels great and is a tangible reward for all of your entrepreneurial hard work.

 

If you aren’t thinking about a raise yet right now, that’s fine, but let’s define what the conditions are for you to go ahead and boost your own paycheck. You need something a little more concrete than, “someday” or, “next year” or the elusive “when we make more.” The six-month mark is a great time to plan our next salary move.

 

First, what calculation did you use to determine your current check amount?

 

Think back to when you first wrote yourself a check this year. Did you figure your personal four walls (food, utilities, rent or mortgage and transportation) as your first goal? Or did you take a percentage of your “goal” salary, say 40% of your desired $1,000.00 per week? Note how you came up with your current paycheck amount.

 

Next, try a bump up a bit to a percentage that feels good and is sustainable.

 

Go ahead, let’s play with the numbers. What does 5% look like? How about 10%? If you write yourself a  $500.00 net check every other week, what if you bump it up to $550? Remember to have a purpose for the money. So, take a moment and think about what you would be able to do with an additional $100.00 per month in this scenario? Hire a cleaner part time? Get a massage? How about that food order service you wanted to try? Or to pay a bigger chunk of the personal expenses if you still do the side hustle thing?

 

Don’t forget the bump in taxes.

 

Your business should be paying your taxes as well. In our example above of a $500.00 net check, the gross check that you write adds in the 25-30% that you deposit for self- employment taxes. If we add 25% to this example, the gross paycheck every other week is $625.00, with $125.00 for taxes and $500.00 for the next paycheck. Do a quick, back of the envelope calculation, and refigure the taxes and your new gross paycheck amount.

 

If You Don’t Start Now, Calendar your raise.

Maybe you aren’t quite ready to make this bump. But when will you be? Set a date on the calendar. Perhaps it is August 1st. Or maybe 4th Qtr. Whatever you decide, try not to let it go into next year. You want to relook your own compensation a few times a year as you are growing your business. Remember that as soon as you start writing that bigger check it is time to celebrate!

 

If you are struggling to pay yourself, or you are unsure if this is the right time for a raise, you may need to get more clear on your numbers and design a strong money strategy that encompasses the six pillars of business finance. The doors to Profit 101: The Creative’s Guide to Managing the Money are still open for our July 1st start. Visit https://entremoneycoach.com/profit-101 to get into the simple money management program creatives love.

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 Many people find business tax stuff difficult, and for the most of my clients it is a matter of organization.

Using these four categories of information, you can set yourself up to make taxes in 2021 stress-free.

 

  1. Track all of your income this year in a single place.

Some people like to use software, some like excel sheets, some get reports from PayPal for example, and some use good old-fashioned pen and paper. You need to account for every dime coming in, and it’s best to look at it month by month. I meet way too many entrepreneurs who don’t actually track the money coming in.  They just set expenses up on auto pay and use a credit card to cover any negative cash flow. The issue with this approach is that you can’t track trends or opportunities to make more money. It further makes quarterly tax deposits a pain. I recommend to my clients that they take 10-15 minutes every week to figure and track that gross income number.

 

2. Keep your routine expenses organized.

You need to keep everyone and everything you pay every month in one place. This serves two purposes. First, you don’t forget to pay something, and you have all of the info at your fingertips if we need to contact a creditor. You can get a free expense organizer from me by visitinghttp://entremoneycoach.com and you will have everything ready to go in about 30 minutes. As a bonus, complete the Breakthrough Number worksheets, you will also know the minimum amount you must make every month to breakthrough to profit.  That B-Number has the added bonus of reducing stress and frustration around your expenses.

 

3. Organize your other receipts by month.

Just take an envelope and write the month on the front. Every expense receipt for the month goes into the envelope. Then the receipt amount and purpose of the expense goes on your monthly tracking sheet. If you buy ink for the printer, for example, write “ink” on your tracker, and put the receipt in the envelope for the month. That’s it! At the end of 2020 you will have 12 envelopes with every expense and 12 months of tracking. This can be used to spot trends in costs and other things that you can use for business planning, as well as for filing taxes.

 

4. Enroll in EFTPS and deposit your self-employment taxes online.

Take the time now to enroll in the Electronic Federal Tax Payment System at https://eftps.gov Once you are enrolled you can log in every time you write yourself a paycheck and deposit your taxes. Rather than making quarterly deposits (and perhaps accidentally spending the money), make your smaller deposits, perhaps every time you write yourself a paycheck.  For tax time 2021 you will just print out a summary of payments to the IRS and include it in the documents you give your accountant. Easy peasy.

 

By taking these few actions above, and consistently tracking your income weekly and your receipts once a month, you will be organized and ready to provide everything to your tax pro in 2021.

 

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If you are new to business, or don’t already have your self-employment tax system set up, this post is for you.  Many entrepreneurs treat taxes as an afterthought, often because cash flow is tight, and they don’t set back personal taxes when they take a paycheck.  In the US Self-employment taxes are Social Security and Medicare taxes, like those that are withheld from when you are employed. When the IRS speaks to self-employment taxes, it is referring to this type of tax. There may be additional taxes that business owners and self-employed people have to file.

 

The rates for self-employment taxes may seem high when you first start paying your own. For the 2019 tax year the self-employment tax rate is 15.3% of net earnings, meaning after your expenses.  The truth is that the employer must pay about ½ of  the tax expenses for their employees. So, generally the same percentage is paid by everyone, but if you are employed you pay half (7.65%) and your employer must pay the other half (7.65%).

 

You must withhold your taxes and deposit them at least quarterly, and this is where many small business owners run into problems. The rules don’t allow for self-employed people to just pay annually, you must deposit quarterly, or you can face late-payment penalties. Here is a simple process for setting up your tax system for a successful 2020.

 

  1. Pay Regularly Online. You can easily set up to deposit your taxes online through www.EFTPS.gov by enrolling in the program and receiving a PIN from the IRS, and can deposit your taxes online whenever you take a paycheck. You don’t have to pay them quarterly, just make sure what you paid in each check totals what you owe by the end of the quarter. If you always deposit 20%, this shouldn’t be a problem. This is what I do, I don’t hold back and deposit quarterly anymore. I deposit online every payday.

 

  1. Write Yourself a Paycheck. The easiest and best way to track your income, and the amount you must pay taxes on, is to write yourself a paycheck. When you just take money out of the till and spend it, it becomes a tracking and accounting nightmare. If you get into the habit of writing yourself a regular paycheck, and immediately withholding your self-employment taxes, you will simplify your accounting and reporting for the end of the year and keep yourself protected from tax issues. You can join the movement of entrepreneurs who have committed to pay themselves a paycheck in 2020 by visiting www.entremoneycoach.com/payday.

 

  1. Stay organized with your expenses. Your self-employment taxes are calculated on your NET income, meaning after expenses. Keep your receipts organized, perhaps in an envelope by month, and put the total on the outside of the envelope for each month. You can very easily keep a running total of your expenses on a sheet by totaling the expense envelopes. This doesn’t need to be complicated!

 

The rules for reporting self-employment income are straightforward. If you are a sole proprietor or a single member LLC, you must report your self-employment income and pay taxes using a schedule C when you file your 1040. If you have a corporation or an LLC with more than one member you must file a different form. Staying organized and regularly handling tax deposits will make your 2020 tax year simpler and less stressful.