Massage & Bodywork


Issue link:

Contents of this Issue


Page 18 of 100

16 m a s s a g e & b o d y w o r k j u l y / a u g u s t 2 0 2 0 BLUEPRINT FOR SUCCESS best practices Let's Talk About Tax, Baby! By Allissa Haines and Michael Reynolds Financial Literacy Series M i n d Y o u r M o ney 2 020 In the May/June column of the Mind Your Money 2020 series, we covered how to manage your cash flow. You probably have a vague understanding of how tax stuff works: You make money, pay your business bills, pay taxes on the remainder, and take home what's left. The bits and pieces of the tax process can feel tedious, which is exactly why we spent the first two columns in this series talking about bookkeeping. (You can catch up at Saving receipts, learning money software, and just staying all-around organized is an obstacle for many of us. FAMILIARIZE YOURSELF WITH THE PROCESS Getting familiar with the process of running a business and learning a few details about small business taxes can lower your tax preparation costs and your annual tax bill. This knowledge will also increase your confidence and decision making abilities in your business. It's a win-win. Let's clarify and review to get a better grasp of how this all works. When you own a small business, you pay several kinds of taxes. You're likely familiar with federal income tax, self-employment tax, and state income tax. Some of us may also pay income tax to our town or city. Most sole proprietorships (the default business type) and LLCs pay taxes based on a Schedule C filed along with your personal tax forms. Some LLCs and corporations may file as an S-Corp, which is a little more complicated and usually requires a payroll system and bookkeeper. In this column, we'll focus on the process for Schedule C filers. Gross income minus allowable deductions equals your net profit. All your self-employed income, known as your gross income, goes on that Schedule C. You then list all your expenses, and the form helps calculate your net profit. You pay taxes based on that net profit. ALLOWABLE DEDUCTIONS Even if you have a wonderful bookkeeper and a reliable tax preparer or accountant, it helps to have a solid grasp of how allowable deductions work. This way you can make better financial decisions in your business. And if you do all the bookkeeping, it's even more important to understand the details.

Articles in this issue

Links on this page

Archives of this issue

view archives of Massage & Bodywork - JULY | AUGUST 2020