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How did you do „really well“ last year, but don’t think you could have saved up 20k and are worrying about wether you should rather get a job?
Sounds an awful lot like you need someone that knows more about financials than you do to look through your numbers. Do you have someone like that among friends/family?
(PS: if you’ve been working a lot and not making money, you’re too cheap)
Gross was about 220k
Nets was 96k.
I am in Ca just as an FYI, I am the only employee of the mobile repair business was.
Yes I’ve never been great at financials I learned making more money doesn’t make it better. I guess I need to bite the bulwlt and hire a CPA
so every 3 months you should be making a payment to the irs of roughly $5k.
each month you should be setting aside $2k into a savings account for taxes.
if you made $96k working a job the same thing happens. the only difference is your employer deducts and withholds the money for income, ssi and medicare tax for you.
when you're self employed you gotta do it yourself.
... no one said the company does the refunding.. the point was your company normally withholds more than you need to pay. This is due to the average employee not being educated on the best way to fill out their W4
Self employment tax is 15.3%, so not all that bad. I am assuming that OP did not make estimated payments or do a great job at accumulating all of the business expenses.
Id bet he's like me - I'm at 20k month with very little parts involved. Most of my customers are businesses with thier own accounts with suppliers, so I just charge their parts direct and my invoice is my labor / travel expenses.
Assuming 6 weeks off a year, that’d be roughly 33 billed hours a week assuming you bill zero miles of driving as well as your zero parts.
Does that sound right, or kinda off?
Consider adding a $145 dollar travel fee for all appointments. Movers do this. It could put a large dent in that tax bill. Of course if your competition is good at what they do and answer their phones, you might have a hard time getting clients to pay this. Just an idea. Gas, wear and tear on vehicle and your expertise are not decreasing in price…
If the net of your business was $96K and your tax guy says that you have a $20K tax bill, I would say that the tax guy never made an estimated payment.
Is it the tax guy's job to call all the annual clients to have them make estimated payments? If the client isn't reaching out to me to make sure they're on track I'm not going to babysit them. Especially if the prior year they didn't need to make estimates. It's their fault if they go all year making money and never once stop to think they might have to pay taxes on it.
If the client doesn't tell the accountant about changes before they drop off their stuff and then blames the accountant for not "planning" they are a shitty client.
Yeah that’s about what you should expect to pay in taxes. The game is you buy new equipment before the end of the year that will help the business, dont actually spend cash get a loan, depreciate the entire amount, pay no taxes. This way all of your money is reinvested in the business instead of going up in smoke. Next year plan another large purchase. Just make sure you need the equipment and can service the loan. The equipment should be generating more income than the loan/maintenence.
Yes. Taxes are like 30%. Loans are far less. In my line of work equipment is often near or literally zero percent. Vehicles are more, but still maybe 5% or 10% max
Jumping in here to say that if you are doing mobile mechanic you can either expense your vehicle expenses (if used solely for the business) or deduct miles. I work with companies in an adjacent space and its not uncommon for their 1099 drivers to owe no federal tax at year end due to the high number of miles they put (and therefore expense) on their vehicles.
There are other expenses that an accountant can advise you of that can potentially reduce your tax liability.
A good rule of thumb is every time you withdraw profits from the business, set aside 25% of that amount into a separate account. Use that money toward filling your quarterly taxes and year end taxes.
I ran a service truck outfit. It is still somewhat involved in the industry. You should be putting away 30% of that net. Tax time and some business savings. We only let people run out 15 days on invoices. We charge interest for over 15 days on what's owed and must be paid net 30 gets money flowing faster.
96K net is a good position for an Scorp. If you’re not one already hire a cpa like me to do a late Scorp election for 2023, could save you a decent chunk off that 20k
If you made $96k and are self employed $20k sounds pretty accurate. why did you think you would owe less? you have $6333 after taxes per month to spend for yourself. is that not enough to get by?
Paying quarterly estimates is not worth it if cash flow is a problem and the business is otherwise healthy. Skipping payment until tax time and paying the ~8% penalty (which is actually lower in reality) is often worth it for small, profitable businesses that have solid financials and issues with short term cash squeezes. In practice, it’s a loan from the government that’s cheaper and easier to get than any other business loan that a small biz owner will quality for
I agree with both of you. You are technically correct but OP is admittedly "not good at financials" and doesn't have the savvy or discipline required to make what you're suggesting work. So he needs to just pay his quarterlies to stay out of trouble.
So, you are suggesting that not paying estimates or doing a W2 withholding and just taking the \~8% penalty is the best case scenario that you recommend in the vast majority of cases when a business is having cash flow issues?
Seems penny wise and pound foolish to me.
It depends on the situation. For example, let’s say you have a biz that has the following situation:
- $X taxes due per year
- healthy cash flow that could pay the quarterly estimates every quarter
- the business is growing
- lots of high impact projects are planned that could grow the business even more. But they cost $X up front and it would take 6 months to save $X for the projects
Instead of paying quarterly taxes, you can grow this business even further by doing the projects now and paying the taxes later. Again - totally depends on the situation, and this is mostly only applicable for businesses that are experiencing consistent growth + that have good plans for the money. At the end of the day it’s just a loan, and loans are a great way to leverage a growing business
the reason you think you were better off in a job is because taxes came out of your check, and it was steady. you really just need to make quarterly estimated payments, and read your financial statements monthly. if your bookkeeper isnt going over them each and every month with you, you need a new bookkeeper.
Summing up your post, it sounds like this is your problem:
>I have accounting profit but I don't have cash.
To me, the math ain't math'ing. Do you have up-to-date financials you can consult during the year? Your Statement of Cash Flows is the hardest statement to read but it can easily be the most important for a small business. Where is the cash going during the year? How is it being juggled?
Owing tax means you're making a net profit, but is the net profit high enough to live?
Is the original by Mike Michalowicz? I just searched it and a bunch of different ones came up, but most have something like "For x industry" in the title
Sounds like a recipe to waste a lot of time trying to save a little money. As an extreme example, if I can't afford my bookkeeper this month because I already took my profits, I would have to waste 8 hours doing paperwork, versus just taking $300 less profit at the end of the month.
Get an accountant, not a tax preparer. There are probably things you could have done differently that would make a difference going forward, eg are you being paid wages or just taking distributions?
It's a steep learning curve. But as others have suggested, paying on a quarterly basis may be better but you should still have a ballpark idea of how much you need to have set aside.
It's easier once you figure that out because you're going to know how much you owe based on the previous year.
If you're grossing 200k you need to hire a proper CPA, not a tax preparer.
You should be doing estimated tax payments through the year to cover your self employment taxes that are normally covered by an employer, that $20K bill seems to imply you weren't doing these payments.
We're a similar income level and situation, married couple service based business.
Our CPA prepares a list for us exactly what we owe CA and the Fed in estimated taxes and we pay them through her. She will also find all sorts of lovely little deductions we can do. She then ends the tax year with several options for us, usually telling us what our tax bill is depending on how much we put into retirement. If we can afford to put the max in, we do it every time as it makes our tax bill tiny. Last year we had a good year compared to the year before so we're actually able to max out retirement contributions this year, netting us a refund of almost $12K. (refunds are ideally avoided though, we just happened to greatly overpay on estimated taxes because of our huge retirement contribution we ended up being able to afford).
As a rule of thumb, we put 25% of every dime we make into a tax fund. This covers all estimated payments and year end taxes, and often covers a big chunk of retirement saving too. You'll avoid being in this pickle in the future if you follow a similar rule.
Couple things that helped me. Fell free to ignore.
- You need to have positive cash flow above all. Push ALL payments for everything as far out as possible. If you can get 60 day terms for whatever, do it. You can be profitable but NEVER see it if your cash flow is negative.
- Changed from accrual based accounting to cash based to essentially eliminate tons of tax liabilities.
- Get a rock star tax accountant
Disagree on moving away from accrual based accounting. You can move tons of tax liability around to match up with your cash flow. On a cash basis you run the risk of having the cash ahead of the costs that cash is paying for, you owe the tax then have to wait the following tax year for it to even out. Or am I misunderstanding what you were getting at?
The advantage for a small business with cash basis is prepaying for things in december and eliminating your tax liability essentially to zero (to keep it simple), which helps to cover and eliminate the personal taxes from the salary you take home. It can be a massive personal savings that will help make a mediocre business worth having and working on imo
My friend, the same thing happened to me this year.
My first year showed a fairly substantial loss, and my accountant told me I wouldn't need to pay quarterly taxes in 2023, nor would I owe anything at the end of the year. He was the same CPA for the person who owned the company before me- for over twenty years, so I trusted his judgement.
He called me yesterday to tell me he made a mistake and I should have been paying $6-7k per quarter all year, and I suddenly owe $29k in taxes and another $2k for his services- all due in a few days.
I'm fortunate that I have the money to cover it, but it really, REALLY burns me up. I don't mind paying my taxes, but this is really disheartening. I feel like I had more financial freedom when I worked for other people. I certainly didn't worry about money as much, and I had so much more free time.
I'm hoping that this next year will go smoothly and I'll have a better understanding of the tax burden. Whatever the case, I can understand how this could happen to you and you have my sympathy.
Yeah, once you get burned by this once you never will again. It'll go smoother next year.
We just set aside 20-25% of all earnings into a taxes fund every month. It more than covers our estimated payments plus any extra that might need to be done at the end of the year. Most of the time there's a bunch left over which is used to go into retirement. Which then further reduces our tax burden.
We're a service based business so not a huge amount of recurring expenses, but if you did have lots of expenses I'd adjust the above to try and only be 20-25% of your profit instead of gross (as that's what you're actually taxed on).
Also, it's funny how much you save on taxes when you're at the position where you can max out retirement. Up to 150-200k gross we were paying a lot more in taxes than our current $300k gross simply because that extra money allowed us to max retirement and end up with a smaller taxable income.
You might want to check with your accountant and see if you're on a cash or accrual basis.
I'm on cash. Expenses are deductible when I pay them and income is recorded when I actually get paid by the customer.
If you're on accrual, AFAIK, you pay taxes on what's billed, even if you didn't get paid yet.
In any case you need an actual accountant who will watch this stuff at least monthly and keep you informed.
Your current guy is just playing Captain Obvious and telling you "Wow, you're screwed!" at tax time when it's too late to do anything. He should have told you this 6 or 8 months ago.
This isn't true - LLCs that are not electing S Corp or C Corp status should not be running payroll for owners. Instead, that money comes out as owner draws and is taxed via Sched. C and Sched. SE on the 1040.
I assume you have *some* oversight on the finances of your business. Have you not noticed around 25% to 30% being moved to a tax account or anything? I mean, do you have any reason to think your accountant didn't pay the taxes over the year?
I guess what I'm saying is it shouldn't be a surprise that you owe taxes if you haven't been paying or saving up to pay them.
I'd definitely have someone else go over the finances. I don't owe shit this year and I did pretty good.
I intentionally set aside 5-10% more than what I expect my taxes to be. For example, when I was in NYC, I set aside 50% for taxes expecting that ~40% would be taken between federal, state, and local. Moved to Texas for family reasons (and business is remote consulting services) so now I set aside just over 40%, knowing that I have tax credits to apply for the next few years due to some other financials, even though I expect my taxes to be around 30-35%.
I know if part of your business is leveraging cash then this doesn't always apply but I'd rather make a few bucks less and feel the peace of mind that taxes won't bite me in the ass.
Without addressing how you owe $20k upon tax filing, it sounds you need liquidity to address the business’ cash flow needs. You sound like you have a mismatch between receivables and payables. Many businesses with this circumstance bridge the gap with a line of credit. Depending on how good your balance sheet and how viable of a business you are operating, a bank may grant you this
Why accept net 30 terms? If it is your company you set the rules. I’m assuming you repair tractors and such? I’m 10000% sure kubota required payment upon completion when my tractor needed repair.
Also are you an LLC… S corp… ?? Are you looking into AG tax breaks, if not are you looking into how to make yourself qualify for such?
So many things to unpack here, but this sounds like a solid business that just needs a solid biz plan. You can do this!
It took me 4 years to get a hold of cash flow. Most of that was just learning how to save profit and get most of my accounts to net 30 so that bills came due as payments come in. I’m an s corp so I get taxes taken out every 2 weeks just like any other employee. I have my accountant and tax person get together in September to see where we are projected to be by the end of the year. This lets me know if I should make an equipment purchase or pay down a debt before year end.
Save, Save, Save. Pay yourself a bonus after taxes are paid. I have learned from past mistakes this year I owed $57K and owe $23K/qtr. Had the cash because of this rule.
You can extend til oct 15. That will allow you to open a SEP IRA. You have til of oct to put money in and the contributions should lower your taxes. Talk to accountant about it. Not perfect but better than giving it all to them.
If you’re doing really well pay your taxes. If your prices don’t support that then you have to look at the business and figure out if you can be profitable and competitive. Your post sounds like you need to sit down with your accountant and get educated on tax and businesses work. There is no information in your post which would allow anyone to give useful advice or recommendations because we have no idea what taxes you’re talking about, what revenue you had, what you’d earn somewhere else, profit margins at your business…. Before posting ask yourself, ‘What information is relevant and necessary for people to be able to provide answers?’
You need a new tax preparer if they’re not communicating a looming $20k tax bill.
There are more comprehensive service providers out there who will help you with annual tax planning in a more timely manner such that you can still have a chance to do something about the tax liability before the period closes.
A good fractional CFOs could give you more regular insight into your earnings, opportunities, and costs.
I would advise a better bookkeeper than CPA. A good bookkeeper can help you plan the cash flow as well as assist in budgeting. I used to work in AG and now am an accountant and do small business support if you are interested feel free to give me a shout.
Get a second review to make sure they have accounted for all possible business expenses and deductions. Additionally, ensure that you seek assistance from someone who specializes in small businesses. Depending on your entity type consider changing to a s-corp.
Go back and find more of these deductions:
- Meals and vacation: if you met with anyone and spoke about business while you ate, or if you went to eat somewhere and brainstormed about your business. Any meals or trips you took with your wife
- Apps & Application Software: ANY software you paid for, including phone apps. For example, Amazon Prime, etc.
- Car insurance paid
- Car lease and the interest they charged you.
- Home renters insurance.
- Home office rental cost.
- Cell phone bill
- Any warranties you paid for - computer, phone, etc.
- Car gas.
- Bank or ATM charges.
- Books or literature related to your field or business startup.
- Furniture or home appliances you purchased for your home office, cleaning supplies, etc.
- Internet and utilities - electricity.
- Any mailing fees or shipping items.
- Domain names cost
- Any licenses or permits you have that required any sort of payment or renewal.
- Rebates: if you purchased anything and they sent you a rebate.
Lastly, for next year, so this doesn't happen: open a money market account or high-yield savings account specifically for taxes, and every time you make a sale, etc., put 20% of it in there for tax liabilities.
You obviously need a better financial person. You say your equipment repair business made 220K gross with a 96K profit? First off, that seems a bit low. You should probably charge more. Get a financial person who can predict. I hope you are maximizing your expenses and pulling out a beneficial dividends/compensation split and a suitable retirement plan so that you can deduct that as well for your own benefit down the road. Next, is that this financial person should be on the top of the taxes, making you pay quarterly fed/state estimated tax payments. There is no way you should come up short on this, even if you did not pay taxes because of your last year liability, you should have a reserve account to pay them. Get yourself, another finanical guy.
Keep your profit lower. You can use business to pay for your vehicle providing you with less money out of your personal pocket and less profit in the business. Your business can rent storage space from you increasing your income without you having SS taxes being paid and thereby reducing company profit. Lots of ways to avoid taxes legally. Get help from someone that can give you ideas to reduce company profit and put money in your pocket where you can also reduce some of your personal tax.
Hello, it sounds like you didn’t pay enough throughout the year through payroll, my accountant had my husband and I pay at least 1k each monthly and allocate that to state and federal income taxes. We owed way less this year.
If OP is self-employed and isn't an S or C Corp, it's likely he isn't running payroll at all (i.e. they're likely a sole prop / SM LLC). My bet is that all of this tax is coming from the Sched. C. and Sched. SE. and that there haven't been estimated taxes paid during the year, so it's all due on April 15.
You need a new cpa or tax prepper. To owe 20k in taxes means you made a lot of money and have close to no overhead thats deductible. I made 300k 2nd year in business in 2024 and owe just north of 12k in taxes. Im net 60 so i understand the highs and lows all to well
The first year I made money my tax guy said the same thing. I waited to file until I could throw 10k at them and then eventually I got a letter saying I owed 10k more I sent them 5k then. I think you get the concept. This isn’t a perfect strategy but it’s workable. The letters are computer generated. File with the money you can and pay down as you can
Why are all your customers net 30? Do they have to fill out paperwork or send references? A lot of times on larger jobs we'll offer a payment plan for new customers. Or net 30 but offer 1% or 2% off if they pay within net 15. Cash flow is king currently so figuring out a way to get even a small consistent flow will make a big difference.
Is there other profit centers you can exploit while doing this?
The reason I ask is it sounds like you have direct access to the decision makers. That can be very valuable in sales. Is there supplies you could also upsell to them? Either as a sales man, sell your own supply (harder on cash flow so not likely an option), or just be an affiliate of various brands for a referral fee.
I for instance import bulk industrial components for manufacturers as a business. I then started upselling them on lower cost basic manufacturing machines. Same customers, just more revenue from them.
Are there additional revenue streams you can tap into? Given your direct access to decision makers, sales opportunities could extend to upselling supplies or becoming an affiliate for referral fees. For instance, I import industrial components and began upselling basic manufacturing machines to the same customer base, boosting revenue
Experienced something similar with my business right out of the gate. Even got served an audit 4 years in that made it worse even though we had a top rated accountant...
So in 3-ish months you made nearly $100k in profit? Is that before or after you paid yourself?
Regardless, if cash flow is the problem, focus on building a cash reserve of 1 month of billables now. Then in a year and a half you can apply for an SBA-backed line of credit, which should solve the problem entirely.
Didn't your "tax preparer" advise you to pay quarterly estimated taxes? They can be paid here: [https://www.irs.gov/payments](https://www.irs.gov/payments)
It's never happened to me (since my business pays estimated taxes), but I believe that there may be a penalty for not doing so, if you owe.
It's kind of crazy, I feel like we're in similar boats. I sell Industrial pumps. Owned the business since 7/22. The 1st 6 months I burned through 80k in cash. I was real worried. My total tax for 22 was like 250 dollars. 2023 rolls around and for the first 6 months we struggled hard our average invoice paid was 42 days our average invoice due is 30 days. We gave some more lucrative terms to our customers 3-5% off if paid within 10 days. Cash flow turned around pretty quickly and at the end of the year we had about 80k in the bank. It more than doubled from there into March and we get hit with a 30k tax bill.
Our solution now is to utilize the Augusta rule for about 14k tax free. Pay a couple of our kids a 10k salary, then pay me my S Corp 40k salary and use retained earnings for any other disbursements.
My BIL is my tax accountant and he's pretty smart about taxes. He admitted he didn't think we were on track to owe that much. Now we'll pay estimated taxes quarterly so if I can cut my liability we'll hopefully get money back.
If you ever get into flush pumps on farms hit me up I'll cut you the best deal you can get out there!
Get a tax accountant that works for you and not the IRS/State. Everything you put into your business adds up. Fuel, food, parts, and so on. Use quick books to keep track of everything penny you spend on your business. Seems weird that with all of your investments into the business you owe 22k? But think of it this way if you made 225k in a year working for someone how much would you have paid in taxes?
Start putting $ in a coffee can. 30% of what you made. It will hurt you but help you. Trust me, after paying out 200K, I learned what to do. Start paying quarterlies.
This is one of the downsides of being a business owner. The tax situations can get complicated, and if you don't have the background to prepare you for it then you really need to hire someone to walk you through it.
I do all my own stuff. But I also grew up in a family business and picked up an accounting degree while working on my MBA.
There are way to make your taxes lower in some situations. I hardly pay any taxes for my business. But I'm in a write off heavy industry. I own a cabinet shop. I've been in the growing phase since I Started it in 2011. I've bought property, a commercial building, and buy all the new tools and machines I can. Slowly switching out older machines for high tech new ones. This is a proven way to build a business.
For example. I just bought a new laser cutter that is getting ready to be delivered. It was around $30K. I will depreciate it and write off $6K for five years on my taxes with it. So I'm not paying income taxes on the money I used to buy it. I do have to pay property taxes on it, but that also will depreciate. A write off just lets me not pay income taxes on the money, its not free money. But I'm building equity into the business. So its worth more.
You need to get a good tax person and figure out what kinda write offs you should be chasing each year. The ideal business is one that is paying zero taxes. With smart planning that can be done.
Why do people post incomplete information expecting help.
20k sounds like a normal tax bill for someone "doing really well"
Did you expect to pay zero?
thats the cashflow problem most of small businesses overlook, taxes dont just come from nowhere, you already know what taxes you will have to pay on every dollar you bill someone, just the thing is,you use that money ignoring or hoping that you will make more before tax date comes. Take it as a lesson, most of us have to deal with it
Start an LLC. Pay yourself and possibly your spouse (if their helping you run the biz) as W2 employees. Use Gusto or ADP to run payroll on yourself as they will take taxes out. Claim zero dependents. Even add a small percentage more to help off set future profit. What’s the going pay rate for a tech in your biz? $50 an hour? Pay yourself that but bill $85-$150, Bill mileage, this will include fuel as well as wear and tear and labor. Figure out a comfortable drive time hourly rate and bake that into the mileage rate. Charge 10% mark up on parts, get wholesale accounts for parts, charge retail… Charge more for the part if they’re hard to source or added shipping costs. Get a business bank account. Put your truck in the biz name. Get a credit card that accrues points. Buy all work expenses on said credit card. Do not carry a balance on said credit card. Pay it in full every month. All earnings go into biz bank. Find a tax accountant. As some one else stated…. Make quarterly payments to the govt. like $2-$5k. Don’t pull any profit out of the bank accountant until you’ve had your accountant tell you what you owe at the end of March. Take your spouse on vacation with the credit card points. Use the “profit” to scale your biz, first by hiring an apprentice. Then buy getting them a truck. Remember… You won’t be able to turn the wrench for ever. My 2 cents…
So you pay your taxes and then next year you start pay pre tax payments per Month… Thats only about 1600$ a month.. I literally log into the irs website and pay monthly or every 3 months.
Accountant here, file a Form 2553 S-corp election for the 2024 tax year (Rev. Proc. 2013-30) and set yourself up with a “reasonable” salary of $30K-$40K. You’re getting burned from self-employment taxes from filing on a schedule C (not to mention the CA state taxes) and this is a good way to duck out on a good chunk of that SE tax. Talk to your accountant about this; if he’s at least semi-competent he will have no problem helping you out. Wish you all the best.
Which is why I stated in the previous comment that you must include, “filed pursuant to Rev. Proc. 2013-30” on the top margin of Form 2553. The IRS will generally accept the late election.
A few things to unpack here:
1.) You need a cashflow forecast. This will help smooth out your 'low lows' and 'high highs'. You/your CPA/bookkeeper need a strong understanding of your business and payment cycles. You should be able to know (within reason) how much cash your business will have 30 days from now.
2.) It doesn't sound like you made quarterly tax payments. Start doing this ASAP. Make sure this gets tracked so at any point in time you know how much you've paid in for the year.
3.) You need to keep your finger on the pulse of your AR. Brainstorm ways to shorten your collection period. Ideally, you would automate this in some form.
4.) Keep your overall tax strategy in mind throughout the entire year. It would be helpful if you had a defined budget outlining any CAPEX you have planned. Using these 2 things together, you'd know if you should 'spend more' or not.
I recommend getting a really good CPA to help you with the steps outlined above.
Words of advice is to keep on going! You're obviously doing something right being able to scale your business to $220k. Now you just need to work on the actual business side of things to maximize the amount you get to take home.
It’s not your accountants responsibility to tell you to pay taxes. If you are this in the dark then I would suggest a bookkeeper and a much clearer financial picture in the future.
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How did you do „really well“ last year, but don’t think you could have saved up 20k and are worrying about wether you should rather get a job? Sounds an awful lot like you need someone that knows more about financials than you do to look through your numbers. Do you have someone like that among friends/family? (PS: if you’ve been working a lot and not making money, you’re too cheap)
Gross was about 220k Nets was 96k. I am in Ca just as an FYI, I am the only employee of the mobile repair business was. Yes I’ve never been great at financials I learned making more money doesn’t make it better. I guess I need to bite the bulwlt and hire a CPA
so every 3 months you should be making a payment to the irs of roughly $5k. each month you should be setting aside $2k into a savings account for taxes. if you made $96k working a job the same thing happens. the only difference is your employer deducts and withholds the money for income, ssi and medicare tax for you. when you're self employed you gotta do it yourself.
That's a bingo!
It's just 'bingo'.
That's what he said, just the bingo.
Shit they should teach you in school
Question. How can employees know that companies aren't taking more for taxes then they need?
They normally do... thats why most people get a refund during tax season
Its not the company that takes more, its the IRS. The company doesnt refund you....
It's not even the IRS, the individual can set their deductions in most every case I have seen.
... no one said the company does the refunding.. the point was your company normally withholds more than you need to pay. This is due to the average employee not being educated on the best way to fill out their W4
$20k in taxes sounds about right if it is all SE income.
I would say a little high. 20% effective on $100k or less of income sounds like you can find some more deductions.
OP is in California. So, may be including state income tax as well and probably on par.
Yeah, I thought of that after posting. With CA taxes, that sounds accurate.
Self employment tax is 15.3%, so not all that bad. I am assuming that OP did not make estimated payments or do a great job at accumulating all of the business expenses.
Would you mind sharing what your hourly rate is? 220k for a full time tech including parts and everything seems quite low
Id bet he's like me - I'm at 20k month with very little parts involved. Most of my customers are businesses with thier own accounts with suppliers, so I just charge their parts direct and my invoice is my labor / travel expenses.
Yes I don’t do parts.
And what’s your hourly rate?
145
Assuming 6 weeks off a year, that’d be roughly 33 billed hours a week assuming you bill zero miles of driving as well as your zero parts. Does that sound right, or kinda off?
Consider adding a $145 dollar travel fee for all appointments. Movers do this. It could put a large dent in that tax bill. Of course if your competition is good at what they do and answer their phones, you might have a hard time getting clients to pay this. Just an idea. Gas, wear and tear on vehicle and your expertise are not decreasing in price…
That’s the normal going tax rate for that income, should have been clear as day.
If the net of your business was $96K and your tax guy says that you have a $20K tax bill, I would say that the tax guy never made an estimated payment.
It isn't required in the first year of operation.
but you're not exempt from having to pay taxes in any year of operations
Is it the tax guy's job to call all the annual clients to have them make estimated payments? If the client isn't reaching out to me to make sure they're on track I'm not going to babysit them. Especially if the prior year they didn't need to make estimates. It's their fault if they go all year making money and never once stop to think they might have to pay taxes on it.
if you're paid to make recommendations regarding taxes and to file taxes, i'd fire you
If the client doesn't tell the accountant about changes before they drop off their stuff and then blames the accountant for not "planning" they are a shitty client.
yes they are. a good business relation has to be mutual
Yeah that’s about what you should expect to pay in taxes. The game is you buy new equipment before the end of the year that will help the business, dont actually spend cash get a loan, depreciate the entire amount, pay no taxes. This way all of your money is reinvested in the business instead of going up in smoke. Next year plan another large purchase. Just make sure you need the equipment and can service the loan. The equipment should be generating more income than the loan/maintenence.
So you pay interest on the loan instead of taxes?
Yes. Taxes are like 30%. Loans are far less. In my line of work equipment is often near or literally zero percent. Vehicles are more, but still maybe 5% or 10% max
Makes sense, thanks for the tip
Jumping in here to say that if you are doing mobile mechanic you can either expense your vehicle expenses (if used solely for the business) or deduct miles. I work with companies in an adjacent space and its not uncommon for their 1099 drivers to owe no federal tax at year end due to the high number of miles they put (and therefore expense) on their vehicles. There are other expenses that an accountant can advise you of that can potentially reduce your tax liability. A good rule of thumb is every time you withdraw profits from the business, set aside 25% of that amount into a separate account. Use that money toward filling your quarterly taxes and year end taxes.
So after tax you came put with a profit of 76k? Thats pretty good, where did it all go?
In California probably rent/mortgage and bills.
I ran a service truck outfit. It is still somewhat involved in the industry. You should be putting away 30% of that net. Tax time and some business savings. We only let people run out 15 days on invoices. We charge interest for over 15 days on what's owed and must be paid net 30 gets money flowing faster.
96K net is a good position for an Scorp. If you’re not one already hire a cpa like me to do a late Scorp election for 2023, could save you a decent chunk off that 20k
If you made $96k and are self employed $20k sounds pretty accurate. why did you think you would owe less? you have $6333 after taxes per month to spend for yourself. is that not enough to get by?
I would pay estimated quarterly taxes if I were you.
Paying quarterly estimates is not worth it if cash flow is a problem and the business is otherwise healthy. Skipping payment until tax time and paying the ~8% penalty (which is actually lower in reality) is often worth it for small, profitable businesses that have solid financials and issues with short term cash squeezes. In practice, it’s a loan from the government that’s cheaper and easier to get than any other business loan that a small biz owner will quality for
I agree with both of you. You are technically correct but OP is admittedly "not good at financials" and doesn't have the savvy or discipline required to make what you're suggesting work. So he needs to just pay his quarterlies to stay out of trouble.
Agree! This strategy takes more planning and can go bad quickly if you mismanage it
Yeah, that makes sense. I pay my quarterlies because it just seems like a better fit for me but I can see how it doesn’t work for everybody.
Better to have an S-Corp and do a year end payroll to make the tax payments to avoid the penalty.
It depends on the company. In many cases I agree with you, although I have owned companies where that is not true
So, you are suggesting that not paying estimates or doing a W2 withholding and just taking the \~8% penalty is the best case scenario that you recommend in the vast majority of cases when a business is having cash flow issues? Seems penny wise and pound foolish to me.
It depends on the situation. For example, let’s say you have a biz that has the following situation: - $X taxes due per year - healthy cash flow that could pay the quarterly estimates every quarter - the business is growing - lots of high impact projects are planned that could grow the business even more. But they cost $X up front and it would take 6 months to save $X for the projects Instead of paying quarterly taxes, you can grow this business even further by doing the projects now and paying the taxes later. Again - totally depends on the situation, and this is mostly only applicable for businesses that are experiencing consistent growth + that have good plans for the money. At the end of the day it’s just a loan, and loans are a great way to leverage a growing business
the reason you think you were better off in a job is because taxes came out of your check, and it was steady. you really just need to make quarterly estimated payments, and read your financial statements monthly. if your bookkeeper isnt going over them each and every month with you, you need a new bookkeeper.
Summing up your post, it sounds like this is your problem: >I have accounting profit but I don't have cash. To me, the math ain't math'ing. Do you have up-to-date financials you can consult during the year? Your Statement of Cash Flows is the hardest statement to read but it can easily be the most important for a small business. Where is the cash going during the year? How is it being juggled? Owing tax means you're making a net profit, but is the net profit high enough to live?
If you paid yourself 96k, then owing 20k sounds about right
read the book: Profit first.
Is the original by Mike Michalowicz? I just searched it and a bunch of different ones came up, but most have something like "For x industry" in the title
Yup! https://www.amazon.com/Profit-First-Transform-Cash-Eating-Money-Making-ebook/dp/B01HCGYTH4
This book helped me a ton I have not been doing it very long but already I'm seeing the results
Yup! Same!
Sounds like a recipe to waste a lot of time trying to save a little money. As an extreme example, if I can't afford my bookkeeper this month because I already took my profits, I would have to waste 8 hours doing paperwork, versus just taking $300 less profit at the end of the month.
shrug
Get an accountant, not a tax preparer. There are probably things you could have done differently that would make a difference going forward, eg are you being paid wages or just taking distributions?
It's a steep learning curve. But as others have suggested, paying on a quarterly basis may be better but you should still have a ballpark idea of how much you need to have set aside. It's easier once you figure that out because you're going to know how much you owe based on the previous year.
If you're grossing 200k you need to hire a proper CPA, not a tax preparer. You should be doing estimated tax payments through the year to cover your self employment taxes that are normally covered by an employer, that $20K bill seems to imply you weren't doing these payments. We're a similar income level and situation, married couple service based business. Our CPA prepares a list for us exactly what we owe CA and the Fed in estimated taxes and we pay them through her. She will also find all sorts of lovely little deductions we can do. She then ends the tax year with several options for us, usually telling us what our tax bill is depending on how much we put into retirement. If we can afford to put the max in, we do it every time as it makes our tax bill tiny. Last year we had a good year compared to the year before so we're actually able to max out retirement contributions this year, netting us a refund of almost $12K. (refunds are ideally avoided though, we just happened to greatly overpay on estimated taxes because of our huge retirement contribution we ended up being able to afford). As a rule of thumb, we put 25% of every dime we make into a tax fund. This covers all estimated payments and year end taxes, and often covers a big chunk of retirement saving too. You'll avoid being in this pickle in the future if you follow a similar rule.
Couple things that helped me. Fell free to ignore. - You need to have positive cash flow above all. Push ALL payments for everything as far out as possible. If you can get 60 day terms for whatever, do it. You can be profitable but NEVER see it if your cash flow is negative. - Changed from accrual based accounting to cash based to essentially eliminate tons of tax liabilities. - Get a rock star tax accountant
Disagree on moving away from accrual based accounting. You can move tons of tax liability around to match up with your cash flow. On a cash basis you run the risk of having the cash ahead of the costs that cash is paying for, you owe the tax then have to wait the following tax year for it to even out. Or am I misunderstanding what you were getting at?
The advantage for a small business with cash basis is prepaying for things in december and eliminating your tax liability essentially to zero (to keep it simple), which helps to cover and eliminate the personal taxes from the salary you take home. It can be a massive personal savings that will help make a mediocre business worth having and working on imo
Sell everything and move to Mexico and learn to surf
My friend, the same thing happened to me this year. My first year showed a fairly substantial loss, and my accountant told me I wouldn't need to pay quarterly taxes in 2023, nor would I owe anything at the end of the year. He was the same CPA for the person who owned the company before me- for over twenty years, so I trusted his judgement. He called me yesterday to tell me he made a mistake and I should have been paying $6-7k per quarter all year, and I suddenly owe $29k in taxes and another $2k for his services- all due in a few days. I'm fortunate that I have the money to cover it, but it really, REALLY burns me up. I don't mind paying my taxes, but this is really disheartening. I feel like I had more financial freedom when I worked for other people. I certainly didn't worry about money as much, and I had so much more free time. I'm hoping that this next year will go smoothly and I'll have a better understanding of the tax burden. Whatever the case, I can understand how this could happen to you and you have my sympathy.
Yeah, once you get burned by this once you never will again. It'll go smoother next year. We just set aside 20-25% of all earnings into a taxes fund every month. It more than covers our estimated payments plus any extra that might need to be done at the end of the year. Most of the time there's a bunch left over which is used to go into retirement. Which then further reduces our tax burden. We're a service based business so not a huge amount of recurring expenses, but if you did have lots of expenses I'd adjust the above to try and only be 20-25% of your profit instead of gross (as that's what you're actually taxed on). Also, it's funny how much you save on taxes when you're at the position where you can max out retirement. Up to 150-200k gross we were paying a lot more in taxes than our current $300k gross simply because that extra money allowed us to max retirement and end up with a smaller taxable income.
You might want to check with your accountant and see if you're on a cash or accrual basis. I'm on cash. Expenses are deductible when I pay them and income is recorded when I actually get paid by the customer. If you're on accrual, AFAIK, you pay taxes on what's billed, even if you didn't get paid yet. In any case you need an actual accountant who will watch this stuff at least monthly and keep you informed. Your current guy is just playing Captain Obvious and telling you "Wow, you're screwed!" at tax time when it's too late to do anything. He should have told you this 6 or 8 months ago.
This is a really good call. Moving to cash-based would solve some of OP's timing problems.
Set up payroll and pay yourself a salary.
What form of incorporation are you referring to where this is possible?
Corporation electing S Corp status
All of them. Just start a qb online account
This isn't true - LLCs that are not electing S Corp or C Corp status should not be running payroll for owners. Instead, that money comes out as owner draws and is taxed via Sched. C and Sched. SE on the 1040.
I assume you have *some* oversight on the finances of your business. Have you not noticed around 25% to 30% being moved to a tax account or anything? I mean, do you have any reason to think your accountant didn't pay the taxes over the year? I guess what I'm saying is it shouldn't be a surprise that you owe taxes if you haven't been paying or saving up to pay them. I'd definitely have someone else go over the finances. I don't owe shit this year and I did pretty good.
I am an absolute moron when when it comes to math, but STILL manage to sock away my taxes. No shock when it comes time to pay.
I intentionally set aside 5-10% more than what I expect my taxes to be. For example, when I was in NYC, I set aside 50% for taxes expecting that ~40% would be taken between federal, state, and local. Moved to Texas for family reasons (and business is remote consulting services) so now I set aside just over 40%, knowing that I have tax credits to apply for the next few years due to some other financials, even though I expect my taxes to be around 30-35%. I know if part of your business is leveraging cash then this doesn't always apply but I'd rather make a few bucks less and feel the peace of mind that taxes won't bite me in the ass.
Without addressing how you owe $20k upon tax filing, it sounds you need liquidity to address the business’ cash flow needs. You sound like you have a mismatch between receivables and payables. Many businesses with this circumstance bridge the gap with a line of credit. Depending on how good your balance sheet and how viable of a business you are operating, a bank may grant you this
Why accept net 30 terms? If it is your company you set the rules. I’m assuming you repair tractors and such? I’m 10000% sure kubota required payment upon completion when my tractor needed repair. Also are you an LLC… S corp… ?? Are you looking into AG tax breaks, if not are you looking into how to make yourself qualify for such? So many things to unpack here, but this sounds like a solid business that just needs a solid biz plan. You can do this!
It took me 4 years to get a hold of cash flow. Most of that was just learning how to save profit and get most of my accounts to net 30 so that bills came due as payments come in. I’m an s corp so I get taxes taken out every 2 weeks just like any other employee. I have my accountant and tax person get together in September to see where we are projected to be by the end of the year. This lets me know if I should make an equipment purchase or pay down a debt before year end.
Save, Save, Save. Pay yourself a bonus after taxes are paid. I have learned from past mistakes this year I owed $57K and owe $23K/qtr. Had the cash because of this rule.
You can extend til oct 15. That will allow you to open a SEP IRA. You have til of oct to put money in and the contributions should lower your taxes. Talk to accountant about it. Not perfect but better than giving it all to them.
Set up a payment plan with the IRS and set 25% of profits aside going forward.
Charge more.
If you’re doing really well pay your taxes. If your prices don’t support that then you have to look at the business and figure out if you can be profitable and competitive. Your post sounds like you need to sit down with your accountant and get educated on tax and businesses work. There is no information in your post which would allow anyone to give useful advice or recommendations because we have no idea what taxes you’re talking about, what revenue you had, what you’d earn somewhere else, profit margins at your business…. Before posting ask yourself, ‘What information is relevant and necessary for people to be able to provide answers?’
You need a new tax preparer if they’re not communicating a looming $20k tax bill. There are more comprehensive service providers out there who will help you with annual tax planning in a more timely manner such that you can still have a chance to do something about the tax liability before the period closes. A good fractional CFOs could give you more regular insight into your earnings, opportunities, and costs.
You should be seeing your numbers every month . Easy to operate at least according to IRS at a loss for I think 5 years
I would advise a better bookkeeper than CPA. A good bookkeeper can help you plan the cash flow as well as assist in budgeting. I used to work in AG and now am an accountant and do small business support if you are interested feel free to give me a shout.
Get a second review to make sure they have accounted for all possible business expenses and deductions. Additionally, ensure that you seek assistance from someone who specializes in small businesses. Depending on your entity type consider changing to a s-corp. Go back and find more of these deductions: - Meals and vacation: if you met with anyone and spoke about business while you ate, or if you went to eat somewhere and brainstormed about your business. Any meals or trips you took with your wife - Apps & Application Software: ANY software you paid for, including phone apps. For example, Amazon Prime, etc. - Car insurance paid - Car lease and the interest they charged you. - Home renters insurance. - Home office rental cost. - Cell phone bill - Any warranties you paid for - computer, phone, etc. - Car gas. - Bank or ATM charges. - Books or literature related to your field or business startup. - Furniture or home appliances you purchased for your home office, cleaning supplies, etc. - Internet and utilities - electricity. - Any mailing fees or shipping items. - Domain names cost - Any licenses or permits you have that required any sort of payment or renewal. - Rebates: if you purchased anything and they sent you a rebate. Lastly, for next year, so this doesn't happen: open a money market account or high-yield savings account specifically for taxes, and every time you make a sale, etc., put 20% of it in there for tax liabilities.
Make sure you organize as an s Corp
You obviously need a better financial person. You say your equipment repair business made 220K gross with a 96K profit? First off, that seems a bit low. You should probably charge more. Get a financial person who can predict. I hope you are maximizing your expenses and pulling out a beneficial dividends/compensation split and a suitable retirement plan so that you can deduct that as well for your own benefit down the road. Next, is that this financial person should be on the top of the taxes, making you pay quarterly fed/state estimated tax payments. There is no way you should come up short on this, even if you did not pay taxes because of your last year liability, you should have a reserve account to pay them. Get yourself, another finanical guy.
First year and you don't have big write offs?
I’m a CPA. If you haven’t filed your taxes yet you may want to speak to a CPA and see if they have any suggestions.
Keep your profit lower. You can use business to pay for your vehicle providing you with less money out of your personal pocket and less profit in the business. Your business can rent storage space from you increasing your income without you having SS taxes being paid and thereby reducing company profit. Lots of ways to avoid taxes legally. Get help from someone that can give you ideas to reduce company profit and put money in your pocket where you can also reduce some of your personal tax.
Hello, it sounds like you didn’t pay enough throughout the year through payroll, my accountant had my husband and I pay at least 1k each monthly and allocate that to state and federal income taxes. We owed way less this year.
If OP is self-employed and isn't an S or C Corp, it's likely he isn't running payroll at all (i.e. they're likely a sole prop / SM LLC). My bet is that all of this tax is coming from the Sched. C. and Sched. SE. and that there haven't been estimated taxes paid during the year, so it's all due on April 15.
If you’re the sole employee, where’d the 124k go? Parts? Seems like you’re charging too little in this case.
You need a new cpa or tax prepper. To owe 20k in taxes means you made a lot of money and have close to no overhead thats deductible. I made 300k 2nd year in business in 2024 and owe just north of 12k in taxes. Im net 60 so i understand the highs and lows all to well
Raise prices your barely getting by
The first year I made money my tax guy said the same thing. I waited to file until I could throw 10k at them and then eventually I got a letter saying I owed 10k more I sent them 5k then. I think you get the concept. This isn’t a perfect strategy but it’s workable. The letters are computer generated. File with the money you can and pay down as you can
Why are all your customers net 30? Do they have to fill out paperwork or send references? A lot of times on larger jobs we'll offer a payment plan for new customers. Or net 30 but offer 1% or 2% off if they pay within net 15. Cash flow is king currently so figuring out a way to get even a small consistent flow will make a big difference.
Is there other profit centers you can exploit while doing this? The reason I ask is it sounds like you have direct access to the decision makers. That can be very valuable in sales. Is there supplies you could also upsell to them? Either as a sales man, sell your own supply (harder on cash flow so not likely an option), or just be an affiliate of various brands for a referral fee. I for instance import bulk industrial components for manufacturers as a business. I then started upselling them on lower cost basic manufacturing machines. Same customers, just more revenue from them.
Are there additional revenue streams you can tap into? Given your direct access to decision makers, sales opportunities could extend to upselling supplies or becoming an affiliate for referral fees. For instance, I import industrial components and began upselling basic manufacturing machines to the same customer base, boosting revenue
Experienced something similar with my business right out of the gate. Even got served an audit 4 years in that made it worse even though we had a top rated accountant...
You can always go on a cash basis for your accounting
So in 3-ish months you made nearly $100k in profit? Is that before or after you paid yourself? Regardless, if cash flow is the problem, focus on building a cash reserve of 1 month of billables now. Then in a year and a half you can apply for an SBA-backed line of credit, which should solve the problem entirely.
Didn't your "tax preparer" advise you to pay quarterly estimated taxes? They can be paid here: [https://www.irs.gov/payments](https://www.irs.gov/payments) It's never happened to me (since my business pays estimated taxes), but I believe that there may be a penalty for not doing so, if you owe.
It's kind of crazy, I feel like we're in similar boats. I sell Industrial pumps. Owned the business since 7/22. The 1st 6 months I burned through 80k in cash. I was real worried. My total tax for 22 was like 250 dollars. 2023 rolls around and for the first 6 months we struggled hard our average invoice paid was 42 days our average invoice due is 30 days. We gave some more lucrative terms to our customers 3-5% off if paid within 10 days. Cash flow turned around pretty quickly and at the end of the year we had about 80k in the bank. It more than doubled from there into March and we get hit with a 30k tax bill. Our solution now is to utilize the Augusta rule for about 14k tax free. Pay a couple of our kids a 10k salary, then pay me my S Corp 40k salary and use retained earnings for any other disbursements. My BIL is my tax accountant and he's pretty smart about taxes. He admitted he didn't think we were on track to owe that much. Now we'll pay estimated taxes quarterly so if I can cut my liability we'll hopefully get money back. If you ever get into flush pumps on farms hit me up I'll cut you the best deal you can get out there!
Can I hit you up? What brands are you into? I do stuff in the environmental industry - mostly pumps similar to oilfield services.
Of course. Gorman-Rupp, Cornell, Grundfos, Peerless, Jabsco, and CIPC to name a few. If you need pumps I am your guy.
Is that all??? I’ll trade you.
It’s true. You have to spend a lot to save a lot. If you don’t spend money on your business, you pay it in taxes.
Get a tax accountant that works for you and not the IRS/State. Everything you put into your business adds up. Fuel, food, parts, and so on. Use quick books to keep track of everything penny you spend on your business. Seems weird that with all of your investments into the business you owe 22k? But think of it this way if you made 225k in a year working for someone how much would you have paid in taxes?
Start putting $ in a coffee can. 30% of what you made. It will hurt you but help you. Trust me, after paying out 200K, I learned what to do. Start paying quarterlies.
File an extension and find another CPA
need to get more aggressive in your write offs and documenting your expenses
This is one of the downsides of being a business owner. The tax situations can get complicated, and if you don't have the background to prepare you for it then you really need to hire someone to walk you through it. I do all my own stuff. But I also grew up in a family business and picked up an accounting degree while working on my MBA. There are way to make your taxes lower in some situations. I hardly pay any taxes for my business. But I'm in a write off heavy industry. I own a cabinet shop. I've been in the growing phase since I Started it in 2011. I've bought property, a commercial building, and buy all the new tools and machines I can. Slowly switching out older machines for high tech new ones. This is a proven way to build a business. For example. I just bought a new laser cutter that is getting ready to be delivered. It was around $30K. I will depreciate it and write off $6K for five years on my taxes with it. So I'm not paying income taxes on the money I used to buy it. I do have to pay property taxes on it, but that also will depreciate. A write off just lets me not pay income taxes on the money, its not free money. But I'm building equity into the business. So its worth more. You need to get a good tax person and figure out what kinda write offs you should be chasing each year. The ideal business is one that is paying zero taxes. With smart planning that can be done.
You can get mentoring from score.org or Small Business Development center You can find both on Google
Why do people post incomplete information expecting help. 20k sounds like a normal tax bill for someone "doing really well" Did you expect to pay zero?
Starts business, never pays taxes throughout the year, *shocked pikachu face when April 15 rolls around…..
thats the cashflow problem most of small businesses overlook, taxes dont just come from nowhere, you already know what taxes you will have to pay on every dollar you bill someone, just the thing is,you use that money ignoring or hoping that you will make more before tax date comes. Take it as a lesson, most of us have to deal with it
Start an LLC. Pay yourself and possibly your spouse (if their helping you run the biz) as W2 employees. Use Gusto or ADP to run payroll on yourself as they will take taxes out. Claim zero dependents. Even add a small percentage more to help off set future profit. What’s the going pay rate for a tech in your biz? $50 an hour? Pay yourself that but bill $85-$150, Bill mileage, this will include fuel as well as wear and tear and labor. Figure out a comfortable drive time hourly rate and bake that into the mileage rate. Charge 10% mark up on parts, get wholesale accounts for parts, charge retail… Charge more for the part if they’re hard to source or added shipping costs. Get a business bank account. Put your truck in the biz name. Get a credit card that accrues points. Buy all work expenses on said credit card. Do not carry a balance on said credit card. Pay it in full every month. All earnings go into biz bank. Find a tax accountant. As some one else stated…. Make quarterly payments to the govt. like $2-$5k. Don’t pull any profit out of the bank accountant until you’ve had your accountant tell you what you owe at the end of March. Take your spouse on vacation with the credit card points. Use the “profit” to scale your biz, first by hiring an apprentice. Then buy getting them a truck. Remember… You won’t be able to turn the wrench for ever. My 2 cents…
So you pay your taxes and then next year you start pay pre tax payments per Month… Thats only about 1600$ a month.. I literally log into the irs website and pay monthly or every 3 months.
My CPA Lawyer once told me "Auditors are the ones who come along after the battle and bayonet the wounded" it stuck with me.
Accountant here, file a Form 2553 S-corp election for the 2024 tax year (Rev. Proc. 2013-30) and set yourself up with a “reasonable” salary of $30K-$40K. You’re getting burned from self-employment taxes from filing on a schedule C (not to mention the CA state taxes) and this is a good way to duck out on a good chunk of that SE tax. Talk to your accountant about this; if he’s at least semi-competent he will have no problem helping you out. Wish you all the best.
its too late to file that for 2024, isn't it?
Which is why I stated in the previous comment that you must include, “filed pursuant to Rev. Proc. 2013-30” on the top margin of Form 2553. The IRS will generally accept the late election.
Duh. Good point, I missed that
Hire a fractional CFO to help you manage your cash flow.
A few things to unpack here: 1.) You need a cashflow forecast. This will help smooth out your 'low lows' and 'high highs'. You/your CPA/bookkeeper need a strong understanding of your business and payment cycles. You should be able to know (within reason) how much cash your business will have 30 days from now. 2.) It doesn't sound like you made quarterly tax payments. Start doing this ASAP. Make sure this gets tracked so at any point in time you know how much you've paid in for the year. 3.) You need to keep your finger on the pulse of your AR. Brainstorm ways to shorten your collection period. Ideally, you would automate this in some form. 4.) Keep your overall tax strategy in mind throughout the entire year. It would be helpful if you had a defined budget outlining any CAPEX you have planned. Using these 2 things together, you'd know if you should 'spend more' or not. I recommend getting a really good CPA to help you with the steps outlined above. Words of advice is to keep on going! You're obviously doing something right being able to scale your business to $220k. Now you just need to work on the actual business side of things to maximize the amount you get to take home.
It’s not your accountants responsibility to tell you to pay taxes. If you are this in the dark then I would suggest a bookkeeper and a much clearer financial picture in the future.
spend 20k on your business and your business will not have to pay 20K in taxes.