Anyone have a side business?

[phunluvin82]

My H has been talking for well over a year about a potential side business and we finally took the plunge. I say "we" because I will be handling everything to do with the money since H sucks with money. I won't have any other involvement in the business, as the services offered require technical training that I don't have.

Does anyone have any insight or advice for me about managing finances for a home business? We are running this out of our spare room. We currently have an LLC, a business checking acct, and some books on taxes for small businesses (that I have yet to open ). We also took out a fairly significant loan to start this up.

The financial aspect I think will be fairly straightforward since there is really no overhead to speak of other than the loan payments (i.e. no payroll, no rent, no subscription or outsourcing services, etc). I've started up a basic Excel sheet for expenses & income, and a file for any receipts for business related expenses.

I'm not sure if there are other things I should be doing, tracking, etc., and thought that perhaps there are some other home business/side business owners on this board who might be able to offer advice? TIA!

[SJ]

I use Quickbooks for "our" (technically H's) business. It is registered as a sole proprietorship but I just emailed our accountants about moving to LLC or Corp.

Quickbooks is much more powerful than Excel and will let you categorize everything properly. You can also run financial reports, P&L's, etc. How will you be paying yourselves from the business? It's good that you have a separate checking account- I would like into a separate credit card as well.

I would also recommend hiring a CPA. You may have to pay quarterly estimated taxes, and the CPA will not only be able to help you with those but also will be able to help you maximize deductions. I know you say there is no overhead, but sometimes you are surprised by what counts. Perfect example- your "spare room"- there are ALL KINDS of deductions you can now take for a home office.

You should also look into Self-Employed Retirement Plans. There are ways to really sock a lot of money away using SEP IRA's or Self-Employed 401K's.

Keep a mileage log if he has to drive anywhere business-related.

Here is a basic list of deductions to get you started:

Common Home Office Expenses:

Rent
Insurance
Repairs & Maintenance
Utilities
Other Expenses

Other Self-Employed Expenses:

Vehicle Expenses (either mileage or proportional car expenses)
Health Insurance Premiums
Retirement Contributions

Regular Self-Employment Expenses:

Advertising
Business Travel
Commissions
Communications
Contract Labor (this is where we put payments to freelancers)
Interest Payments
Legal & Professional Fees
Meals & Entertainment (can only deduct 50%)
Office Expenses
Rental Expenses
Repairs & Maintenance
Supplies
Taxes & Licenses
Utilities

[Deleted]

don't forget to track miles. That is my biggest write off. I just do a log for how many miles driven and what I was doing.

[phunluvin82]

Thank you!! You gals are awesome, this is exactly the type of stuff I need to start looking into.

[Deleted]

I just wanted to ditto a CPA. Ours has really helped to get us all the deductions we can.

Other things to think about:
Are you going to claim home office? If so look into the tax implications if you rent or own.
If you are, you can start compiling the data you need for it:
square footage of house
Square footage of home office
utility bills, internet bills, etc.

Also start thinking of the percentages of the things that he is now going to use. Is his cell phone 50% business, 30%, etc.

These things won't come up until you file taxes for next year, but can be overwhelming the first time, so if you're prepared it might help.

[phunluvin82]

Aug 23, 2012 12:42:39 GMT -5 dbsk8dance said:

I just wanted to ditto a CPA. Ours has really helped to get us all the deductions we can.

Other things to think about:
Are you going to claim home office? If so look into the tax implications if you rent or own.
If you are, you can start compiling the data you need for it:
square footage of house
Square footage of home office
utility bills, internet bills, etc.

Also start thinking of the percentages of the things that he is now going to use. Is his cell phone 50% business, 30%, etc.

These things won't come up until you file taxes for next year, but can be overwhelming the first time, so if you're prepared it might help.

Yeah, sounds like a CPA is the way to go since there is really so much more to think about than I had considered at first.

[phunluvin82]

Re: Sarajoy's comment about how will we pay ourselves from the business...anyone have suggestions?

As I mentioned, we took a loan out to start this up so my thought was that we *wouldn't* be paying ourselves for quite a while (which is fine...we both still have our day jobs!), but really I'm not sure what the best way to handle this would be.

The interest we'll be paying on what we borrowed is pushing 10% so my thoughts were to pay that off ASAP before taking a profit for ourselves. I do not know what the tax implications are for doing this...another reason to hire a CPA I guess...

[SJ]

Aug 23, 2012 13:02:04 GMT -5 phunluvin82 said:

The interest we'll be paying on what we borrowed is pushing 10% so my thoughts were to pay that off ASAP before taking a profit for ourselves. I do not know what the tax implications are for doing this...another reason to hire a CPA I guess...

I am fairly sure you can write off the interest on the loan as long as it is for business expenses.

So it's up to you whether you want/need to pay yourself. Do you have friends or family whom you can ask for a CPA referral?

[Deleted]

Make sure he's insured

[jenjen]

Definitely talk to a good CPA soon. Most are busy in the spring so even if you are months away from doing work, now is a good time to talk to them. Sept 15th is a corporate deadline, so you might have to wait until after that.

As far as paying himself, discuss this with the CPA. You might be able to take a 'dividend' from the business as long as he has the basis to do it. Dividends are taxed at a much lower rate than salary or self employment wages. He/She should be able to tell you what is best based on your overall tax situation.