Tuesday, March 18, 2014

Rebecca: Death and Taxes

When Ben decided to start his own company, we thought he just needed to hang his shingle and start  attracting customers, who purchases goods, that pay the bills...ahh, life is good.  Actually, the very first step is obtaining a business license.  Although it is a relatively simple process in Washington state, it has many implications.  What is the nature of the business (retail, consulting, manufacturing, farming, etc.), how is the business owned (LLC, partnership, corporation, etc.), and many other questions that Ben and I puzzled over.  The answers are important primarily for tax purposes.  In Washington, the business classification determines the tax rate for revenue; and it may affect how you declare your income for federal tax purposes.  The IRS.

A few months after starting the business, we finally contacted a CPA to help us understand taxes.  ADVICE:  Hire an accountant BEFORE starting your business.  The IRS does not like do-overs.  It is a process to change your business classification.

Our CPA helped us to understand the tax implications of different business structures(LLC or sole proprietor, or many other options).  There is no right answer, but it is important to make the choice with some understanding of the tax code.  Honestly, I still find the tax part very confusing and intimidating.  Because of this, the accountant completes our taxes.  She explains what expenses are allowable, what receipts I need to retain, how the business affects our personal tax liability, and how to stay compliant with a voluminous tax code.

While the business is still in the "struggling" phase and revenue is limited, paying a CPA is well worth it.  If one decides to complete their own taxes, I believe it is still valuable to get some professional tax advice before hanging the shingle.  As Benjamin Franklin said, "...in this world nothing can be said to be certain, except death and taxes."




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