Q: I’m about to start a small home repair business and plan to have two employes working with me. But first, I’m worried about how my personal income might be affected for 2012 taxes and that keeps me from going ahead. How will this new business affect my 2012 taxes?
A: I recommend that folks start their own businesses all the time. There is alot of satisfaction in being your own boss and in control. Notwithstanding, I hope, that you make more money then you currently are. Since I am answering this question very late in the year, December, the effect on your income and by extension, taxes, would probably be very low. You would have start-up expenses that would be deductible up front, such as licenses, tools and other equipment that may create a loss, thereby reducing your income and taxes. If, however, we were in October, and you had a large project started and finished before the end of the year, the profit from that job may not be offset by start-up and other expenses, (which, by the way, is a GOOD thing, we WANT to make money!) so that you may owe tax on those earnings.
Also, in business, the idea, first, is to make money, and when we start making money, we end up with a tax problem. It is much more difficult to make money in business, then anything else. If you are afraid to start your business becasue of the taxes, then you have it backwards. For example, if you are already making good money in a full-time job, and this new business was going to be a side-line, and it generated a profit of $10,000 after our best efforts to reduce your taxable income, you might owe $3,000 in tax. One way to look at that is you owe $3,000. Another way, is that you earned $7,000 after tax.
One more thing. It is much easier to work for someone else. When you become the business owner, many new worries and issues come up. Taxes are one of them. The other issues, in comparision, are much harder to deal with than taxes. Which employee’s to hire, which to fire, which jobs to accept, and how to get paid for them, and how to quote them correctly so you don’t lose money, etc.
Richard Graves is an accountant living Centreville, Maryland
Richard C. Graves, CPA, LLC Phone: 410-75809785 • [email protected]
Mailing Address: P.O. Box 161, Centreville, MD 21617
Rich is joining our Maryland 3.o Team and will answering your tax questions throughout the year. If you have questions please submit them to [email protected]. If you are looking for in depth accounting consultation contact Rich directly at the contact information above
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