Today Irina from the Internet is concerned. “My husband is self-employed and he hasn’t had any deductions taken out of his checks since the time he started his business.
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He claims that after he writes off his business expenses, he’ll get more than he owes.
On top of that, he is telling me to claim exempt with my employer because his expenses are going to be much larger. I don’t completely like that idea.
Is this safe to do? Or is it still better for me to pay my federal withholding?
Dear Irina,
Far be it from me to come between a husband and wife!
But let me tell you my experience with people who start their own businesses, OK?
They don’t have a clue about what expenses are really deductible and what must be capitalized (treated as inventory or as assets and written off over several years). All they know is, at the end of the month, they have no money left.
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Too often, I’ve had people come to me, proud that they have a loss and won’t owe any taxes. Only to be shocked, after I’ve gone over their books and pulled out the fixtures, leasehold improvements, inventory, etc.
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and it turns out they have a $100,000 profit.
So, if I were you, I’d just take some precautions. I would just keep on taking some reasonable withholding out of my paycheck until I saw the final numbers at the end of the year.
Then, if he’s right, well…look, guys like to be right. So, he’ll get to strut around and say, “I told you so” a lot. ;~)
But, you’ll have a nice, healthy bundle of money to pay the debts he’s incurred in order to be right.
Let me tell you a little secret: If he IS correct, if he WILL have all those deductions to reduce your taxes —- it means he’s LOSING money!
It means, he’s working hard, but wasting his time.
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(Unless it’s a business that takes a year or two to ramp up towards being really profitable…)
So, find a subtle way to help him become profitable. And suggest that perhaps he should have a tax professional to guide him and help him keep his business on track…
Naturally, you’ll find answers to all tax questions and lots of tax resources – free, where? Where else? At TaxMama.com !
- Ask TaxMama :: Where taxes are fun and answers are free
- Small Business Taxes Made Easy :: Read this to reduce taxes – and increase profits, too.
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