Wednesday, December 29, 2010

Hey Entrepreneurs, lets go in to business…

My 8-to-5 Accounting view, and I love it !
Everybody have their own specific Tax issues and needs, for example “entertainers”, such as being employed for different gigs for a few weeks, days, hrs, and the lucky ones for months or years. In that event I end up with entertainers with a bunch of W-2 forms every year (that’s really good because it means they were employed and paying taxes at the same time) at the other side I have the unlucky ones with no W-2’s or even worse the 1099 forms for independent contractors (that have to pay their own taxes, out of pocket!)

With this economy is not uncommon to find entertainers that have collected unemployment for a few months (or most of the year) there’s nothing wrong with that, as long and you choose to have your taxes deducted every week, and I tell you why in a moment. I have a personal friend who gets acting jobs, always getting pay by job and later collecting unemployment, on and off all the time. For such a no-so-Monday-to-Friday-9-to-5-job it is very important to pay your taxes as you go, little by little, as you to be paid, why? Because later when you are in the low side and you don’t have any steady income (or worse, any money in your pockets!) and you are stuck a bill from Uncle Sam, let me tell you, and he thinks “that’s not cool”.


I have a friend who told me a long time ago that he is always choosing to overpay his taxes so he has money coming back to him, at the beginning it didn’t make any sense to me, why? Why should I pay money to somebody to later claim it? I have tax teachers telling me in the past “just pay what it’s fair, no more”. But later a whole bunch of other issues came along to me (after I mastered the art pf preparing taxes for my clients). Like in life, different people have different goals in life, different approaches and different way to do things. Example of this is paying your taxes and how you do it to fit your life style and your goals as well.

Some people pay as they go, little by little in every check (the best choice if you ask me) some people pay in big chunk at the end of the year (the lucky ones that have the will power to save the money without touching a penny of it, they can do that), others like my friend overpaid little by little with every pay check, and later when tax season came along he received a big income tax refund check. I tried it for the first time. It is really easy by just claiming “cero” instead of claiming “1” for yourself, then you end up paying a few dollars more every time, but later you receive a big check, your money that dear uncle Sam saved for you, and who can you trust more than uncle Sam to store money? Later I also thought that by overpaying taxes during the year you can save yourself from some contingencies like when for some reason you have to pay more taxes, or other events that can trigger something like that, whatever can happen, you overpay taxes and you won’t be bothered later. I’ve tried the first time and I still do it, and never stop doing it I think.


When you have a business that's another totally different animal! It has its own beauty on its own, and the best time to do it (from my own experience) is when you are fully employed, while you pay your taxes, while you have a steady income) why? Because that's an extra income you don't need at the moment that you don't need to have that you are not under pressure to make it happen. If it happens, then it happens. If not, not a big deal, you paid your taxes already.

Anybody can go in to business!!!
When you want to enter to the business world, a whole new world "literally" opens for you, why? Because you are entering the "business expenses world," and like in any game "if you learn how to play your cards right" then you can have a successful business going on while having a little extra something at the end of the month to pay for those extra expenses you always wanted but never could afford.


 If you are fully employed, pay rent, have a computer, that's all it takes for you to start a business, you can just start a hobby and charge money for it, start with your friends, then if you provide services or sell something, the next step is when your friends start referring you to their friends, and they start referring you to their friends, etc, and a chain reaction starts, well, that's just if whatever you do is well enough for people to keep calling you for more. While you're employed you don't have to worry about paying rent, your internet, your car insurance bills on time, and on your spare time you can check your Craig list, eBay, Amazon account and see if you sold those items you decided to sell (if you decided to start a selling business).


The business expenses deductions are those expenses you incurred in order to make that business moment happen. For example, you pay your share of the rent for your bedroom (for that apartment you share with your roommate), let us say $600.00, but you decided to start selling stuff on eBay, then you use half of your closet and/or part of your living room to store your selling items, and that space you use to store your items happens to be 30% of your rental space, then 30% of those $600.00, yes $180.00! are your business expense, then you pay $30.00 for your internet connection and you use 20% to upload and post ads for your sales, then 20% ($6.00) are for your business purposes, then you need people to call you, hey part of your cell phone usage now is for your business, your car payments, your gas, the usage of your oil change, your tires, the utilities, and next thing you know you realized a whole lot of things happened to be used for business purposes and you did not even know it!

And that Dam tax preparer didn't tell you about! Or worse, like happened to me years ago, when I showed up with my shoe box full of paid invoices, that bastard told me as soon as he saw my invoices, words that I will never forget "I won't be organizing and adding up those invoices, so come back when you have those organized, I don't have time for that," I should have said: "OK," then I'll take my business somewhere else, you're fired!. I could have had saved a good chunk of money by claiming my business expenses, or at least itemizing my personal deductions, but thanks to that shady tax preparer that's money I'll never see again because you only have 3 years to amend a tax return, to claim your overpaid money; to claim what is yours.


The next best thing to know is when you are stepping up, firing your past tax preparer and finding one that can help give you excellent tax advice, to make your business born and more important, make it grow, to make it happen!

Don't feel bad if it already happened to you, we all learned from our mistakes; the next best thing you know is that you need a new tax preparer, the one that has the knowledge, experience and the patience to explain you all about these things. A good hint is when your brand new tax preparer is not rushed to pick up your check, and rushing you out into the exit door like happened to me over a decade ago.

My passion? numbers, money, numbers, money... numbers
Once you decided to be in business, what you need to figure out is what is your passion, what makes you happy; I would suggest starting with something easy, and if you have a steady income, then start with something that you would do even for free. Don't put yourself against the wall and just go for something easy.

Getting a business license is not difficult at all. Just walk to your local city hall and apply for one.

Sole Proprietorship

I see an entrepreneur inside everybody and I always try to encourage people to start a business early in life "just like starting a retirement account" 401 (k), Roth, etc. or my favorite... a Roth ira. And yes, you guessed! That's another totally different animal and another entire blog. Yes, I will...

Starting it simple is really important; do not complicate yourself with stuff you don't understand. Start as simple and easy as you can. Do not worry about liability (such as Sole proprietorship, LLC, Partnership, LLP, Corporation, S Corp. Yes, it is another blog) at this point, when you start a business be assertive on what you do, do your homework, take your measurements. If you sell stuff, make sure you have a sales license, if you do massages, make sure your get the right license, you don't want to hurt somebody and not having the proper license; so I suggest doing some research and get your license.

Once you are in business, make sure you start saving all your receipts for everything, even the ones that you don't think would matter "some personal expenses". I have people that tossed away receipts that they thought were not relevant or important, or they just thought they won't be allowable expenses, but later they found out "I told them" these expenses were a part of their business expenses.

Remember, I can help you in business
What I always suggest is to open business account and charge everything for the business from there, pay with ATM or checks ALWAYS. It is easier to keep track with a special bank account than itemized your business expenses from your personal account; and in the case you are in doubt "whether business expenses or not" charge it anyway because its easier to take out "non business" expenses than track and put in the ones that you missed.

I would say this is just the beginning of the "business expense" world, believe me when I say there is a lot, A LOT out there to be self conscious about ALWAYS, but you know what? Do not worry about it for now, that's why you want me around, that's why you ask me questions; for now I can tell you: you don't -need an expensive accounting software to be in business, you do not need to spend your hard earned money to hire a CPA or a lawyer to start a business, just shoot me a quick email or call and we will discuss what best suits your needs for now, and what you need to do in the future to make it happen.

My website

5 comments:

  1. Hi Enrique,

    What a very nice read. I esp. loved the part in your article about your friend over paying in taxes. Thank you for sharing such information. I look forward to reading more articles. Thanks a bunch.

    Justin from Hollywood

    ReplyDelete
  2. Thank you very much for helping me with such short notice. Def, you're my tax guy for life

    ENRIQUE YOU ARE THE BEST !!!

    Ashley Jones, Venice Beach

    ReplyDelete
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