How much to set aside for taxes

[amber1]

I have been taking pictures as a side hobby/business for a few years

now with way more than my profits going for equipment, supplies

etc. I just balanced my books for what I have done this year and I

am pretty close to making an actual profit. No problem--I can just

go shopping! My concern is for the upcoming year. My clientel has

doubled in the last year (with only word of mouth referals) and I am

expecting to do the same next year since I will begin a little

advertising.!(And believe it or not I am running out of things to

buy!) My question is how much should I expect to pay in taxes when I

start making a real profit.I have been told to put as much as 40%

aside, but is that from my gross income or my profit? I do plan on

getting a good CPA, but I was hoping to get an idea now so that I

can gradually start adjusting my prices now to help cover the

overhead. Im sure things vary from state to state (I live in Texas)

but I just want to get over the shock now. Thanks!

[Jerry_]

...you might figure 14 to 17 percent for your self-employment and social security taxes (federal.) Texas taxes are best covered by which-ever agency that collects taxes in your state government. (You have been collecting and paying sales tax as you go along __ right?)

[Spearhead]

Pay to see the accountant now.

 

It isn't as simple as setting aside money, you have quarterly taxe filings, for example.

[grinder]

Amber the advice to see a CPA is sound, He/She will save you ore than there cost with there knowladge of tax laws. Some exmples You can take depretiation of up to 20% a year on equipment, primary bussiness vehicles can have milage deducted, If your bussiness loses money you can claim it as a deduction. Other side of it is protecting you personel assets you will want to set up a LLC or SP. Fight every urge to be cheap like me and consult a CPA and a lawyer. The 100-1000 you spend now could save everything you have worked for in the future.

 

,Grinder

[stephen hazelton]

Texas doesn't have state income tax, so that issue is simplified. You may be able to deduct state sales taxes from your purchases. You may need to collect sales taxes on your gross sales (IE, your services may be taxable). You should be able to hunt state sales tax info up on the internet.

 

A visit to your local bookstore and an IRS office should get you the info you need for the Feds.

[Jerry_]

"It isn't as simple as setting aside money, you have quarterly taxe filings, for example."

 

 

 

The first year one is in "business" is not the first year the IRS wants quarterly installments paid on "estimated" earnings. It is the second and other years the business name is filing a federal tax return with business income and/or losses.

[Spearhead]

It sounds like she is doing it as an individual. Individuals pay estimated quarterly tax. There is plenty of documentation at the IRS site about this.

 

However, an accountant is really the only way to go.

[amber1]

Thanks for all of the info. I will definately see my CPA before the begining of the year. I plan making a few last major purchases this year so that I will still be in the negative and have a plan set up before January. Hopefully with my new credit card machine and the advertising I will do I can make enough to keep my head above water, but going from hobby to business is a pretty scary thing! Thanks again for all of your help!

[straightarm]

Tax would be levied on profits, not gross income.

 

you also said you were planning on making major purchases. If these are cameras, lenses etc, they might be considered capital expenditure, rather than this year's costs so even though in cash terms you're negative, the IRS might consider you've made a profit and want tax on that profit!