Excel Budget Formulas With Taxes Taken Out Of My Paycheck Hobby or Business – Which Is Better For Me?

You are searching about Excel Budget Formulas With Taxes Taken Out Of My Paycheck, today we will share with you article about Excel Budget Formulas With Taxes Taken Out Of My Paycheck was compiled and edited by our team from many sources on the internet. Hope this article on the topic Excel Budget Formulas With Taxes Taken Out Of My Paycheck is useful to you.

Hobby or Business – Which Is Better For Me?

If you generate hobby income, you can deduct only a small portion of your expenses as part of the miscellaneous itemized deductions on your tax return. Because most people take the standard deduction allowed by the Internal Revenue Service and don’t itemize, they don’t get even this small amount. In other words, you declare hobby income without the benefit of expense deductions like a for-profit business does.

Take a look at the 60 Minutes report on the Internal Revenue Service. According to their commissioner: … budget cuts have hampered implementation efforts. Several solutions are pending, including delaying the payment of refund checks until they match the W-2 forms filed by employers. Do you believe that your employer’s records with the Internal Revenue Service do not match the wages you declared on your return? So, don’t lose too much sleep over the small amount you made at the craft show.

Many people craft, knowing that they need to keep their day jobs. What if, after a while, your hobby takes over your day job? It doesn’t cost much to start a business and start reducing your taxable income by taking deductions. The Internal Revenue Service only puts up a red flag if your business has not shown a profit in 3 of the last 5 years of doing business. Consistent losses may mean you’re looking for a cut instead of a profit.

When is it appropriate to start a business? The difference between a hobby and a business is the profit motive. Are you interested in making money? Do you want others to see you as a business? Five main things the Internal Revenue Service looks for if you have all or most of the following.

They prefer to have a business card with the business name, even Jane Doe’s Crafts, along with a business license registered in your state. You can do business cards on your home computer. The paper you buy is a deductible expense, as is the mileage to get the paper. For about $20 you can register a trade name in Colorado and renew it for $5 each year.

A set of books that you maintain and keep current as you watch the bottom line and thus make money. There is no cost for bookkeeping. Use a spreadsheet with dates in one column and a list of income and expenses in the upper columns and do it by hand. Add it all up each month, see if there’s a profit, and start the next month with the same titles. This is easy to do with spreadsheet software, such as Excel, which may come with your computer or may be available online for free.

A separate checking account for business shows that you’re taking accounting seriously and tracking both income and expenses. If you have an established relationship with your banker, you should be able to set up a business checking account (a Jane Doe craft) for free, even if you have to put a minimum amount in it.

Craftsmen must collect sales tax when selling their items, thus a sales tax license also adds legitimacy to the business. A 2-year sales tax license in Colorado is $16. If you only sell in the fall at craft shows, you can get by with a “use tax form” and don’t need a license. But serious businesses also sell from online websites. The money you bring in determines whether you have to file quarterly or monthly sales tax while building your business. If you pay for a program to please local agencies using the “use tax” form, be sure not to double pay when you file your business sales tax return. (If your sales tax rate is 8%, you would have to sell $12,500 worth of crafts to pay $1000 in sales tax. Remember that sales tax is what you collect from customers. You are only the temporary custodian of the sales tax money you collect. (It’s spent locally, so everyone benefits.)

Finally, the Internal Revenue Service likes to see evidence that you are marketing the business to others, whether it’s flyers listing upcoming events or a website that allows others to contact you or buy your items.

More paperwork comes in the form of the dreaded quarterly estimated taxes. You may be able to avoid this by going from your day job to zero deductions on your paycheck. This means your employer takes a little more each paycheck, which may be enough to cover your estimated taxes. Now you know why tracking those accounts (income and expenses) is important. The first year of business is hard to predict, but it’s better to pay more to Uncle Sam than pay less. You can print estimated tax forms online and pay a small amount every quarter. You can also get your spouse to zero in on his salary deductions.

You will be surprised by the amount you have to pay, because as a business owner you are an employer (of yourself) and you have to pay social security tax (also known as self-employment tax or 7.65%) that employers pay. A good way to estimate what you’ll pay is to apply the tax rate you pay now and add 7.65% for the first year of business. Say you and your spouse made $60,000 last year (use the adjusted gross income figure on your return). You paid $8000 in taxes, but you got a $3000 return. Divide the net tax (8000 minus 3000) or $5000 by your $60,000 income and this will give you the tax rate you can use (8.3%). Add 7.65% to Social Security. Thus, 16 to 17% is a good estimate of what your tax rate will be on your new business. Recalculate your tax rate in two years and that 7.65% should be included in your tax rate equation. Talk to a professional to verify this figure, as your taxes can vary greatly from year to year. The good news is that if you pay more, you get a bigger return, which you can apply to your estimated taxes for the next year.

It can be all inclusive, but it doesn’t have to be. If you do your own taxes, you already know whether or not you’ll get a big return at the end of the year. If you do, then you are covered for a small income from your crafting business. If you pay taxes with your return and you decide to go for a business instead of a hobby, then you need to look at things more closely.

Here is an important factor to consider when considering going from a hobby to a business. If your craft hobby is income, you virtually cannot deduct expenses. Would you rather pay 8.3% on $12,500 in hobby income or would you rather pay 17% on business income minus business expenses (assuming a net return on your business of 30% after deducting expenses or $12,500 times 30%) or $3750 net income. That is, do you want to pay $1038 in hobby income tax or $638 in business income tax? Again this is very simple and not professional advice, but it might be worth looking at how much you’re making from that hobby, track what it costs you in materials and trips to the post office, supply store, etc. And whether or not it’s worth it to you given the requirements (mostly paperwork) to start a business.

Video about Excel Budget Formulas With Taxes Taken Out Of My Paycheck

You can see more content about Excel Budget Formulas With Taxes Taken Out Of My Paycheck on our youtube channel: Click Here

Question about Excel Budget Formulas With Taxes Taken Out Of My Paycheck

If you have any questions about Excel Budget Formulas With Taxes Taken Out Of My Paycheck, please let us know, all your questions or suggestions will help us improve in the following articles!

The article Excel Budget Formulas With Taxes Taken Out Of My Paycheck was compiled by me and my team from many sources. If you find the article Excel Budget Formulas With Taxes Taken Out Of My Paycheck helpful to you, please support the team Like or Share!

Rate Articles Excel Budget Formulas With Taxes Taken Out Of My Paycheck

Rate: 4-5 stars
Ratings: 3998
Views: 56332304

Search keywords Excel Budget Formulas With Taxes Taken Out Of My Paycheck

Excel Budget Formulas With Taxes Taken Out Of My Paycheck
way Excel Budget Formulas With Taxes Taken Out Of My Paycheck
tutorial Excel Budget Formulas With Taxes Taken Out Of My Paycheck
Excel Budget Formulas With Taxes Taken Out Of My Paycheck free
#Hobby #Business

Source: https://ezinearticles.com/?Hobby-or-Business—Which-Is-Better-For-Me?&id=8874953