Today, Dina from Santa Barbara, CA moans, “Help! We owe $14,000.00 in taxes this year. My husband has a small business and only made $61,000.00. What happened? How can one live and provide for a family of four on that? Now our savings are gone.”
Well, Dina, two things you and your husband really need to understand:
1.His business income is subject to taxes and he needs to be paying them quarterly. If you understand it’s not your money in the first place (like payroll withholding) you’ll find it easier to deal with. Put 1/4 of his monthly profits aside NOW. You’ll have send the to IRS each quarter.
2.Being in business, he does have some interesting planning options that can cut those taxes dramatically. One of them is an S Corporation. Handled properly, it could eliminate most those Self Employment taxes and cut that balance due in half.
That Self-employment tax money isn’t wasted. It goes to his Social Security account. This may come back to you both (if social security still exists) when you’re ready to retire.
If you’re fortunate enough to have a profitable business, expect to pay SE taxes, even if your other deductions, like mortgage and property taxes wipe out your taxable income. This often comes as a shock to people doing their own tax planning, without the help of a tax pro. You really need to get a good tax pro if you’re in business.
Dina, you’re moaning over not being able to live on $61,000?
That may not be a lot, but…I know families, even in California, who manage to live reasonably well on $40,000 even less. It’s all a matter of perspective. Rethink your budgets and ‘must haves’ as long as this is your income level. They’re way too high if you can’t manage on that. You’re living beyond your means.
Better yet, help your husband increase his sales/profits.
Boy, are you folks perfect for my new book, Small Business Taxes Made Easy! Not only will it give you at least 15 ways to slash your taxes – it will give you a dozen ways to increase his sales, too. Pick up a copy at Amazon.com or your local bookstore.
And remember, you can find answers to all kinds of questions about self-employment taxes and all kinds of other tax issues, free. Where? Where else? At TaxMama.com[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips. Please click on the subscribe link and join us.]
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