Trying to save for ER while self employed ain't that easy!

[thefed]

Especially when all of your income is from recently started businesses. It's sooo easy to put $$ away when the employer takes 8% of your 401k...but when you get cash/checks on a daily basis....it's tough.


I really dont think I'm on track for anything right now... I havent contributed to my Roth or IRA for a few months...mainly due to new start-up costs I've incurred. Im also a bit gun-shy...I think the market is poised for a let-down soon....but who knows.... Maybe I should DCA and fugeddaboutit


I'd like to structure my business in such a way that I actually draw a check...for more reasons than one.... That would make it easier to 'snag' a few bucks before I get to spend the $$. I also would like to explore the possibilities of laying myself off during the winter. Can anyone elaborate on that if they are familiar? I know a painter who does only exteriors...and lays himself off in the winter to collect UE. So, he must be paying into Social Security etc..... I dont even know if I pay into Soc Sec....I dont think so?? I just pay ALL of my taxes at the end of the year...after deductions and such... How does that work?


Well....I guess there's no point to this post...just rambling...sorry!

[crazy connie]

Get into an accountant and get some education on this. You need to pay SS and quarterly income tax. The IRS gets a bit persnickity if you do not play by their rules.

[Scrapr]

You are probably paying SE tax. If you are doing Scedule C income most likely one of your forms is SE. But if you are not doing witholding you need to do the 941 quarterlies.

One of the best things you can do is start taking a salary. That does a couple things. First, you get paid like a regular wage slave. But it also forces you to be a little more professional.

If you know that you need to meet payroll on the 1st and 15th you hustle a little more business to keep the cash flow going. And by taking a salary you have the SS taken out. I have seen several cases where owners try to evade SS tax, then go bust. And there is nothing in SS for you. (well, if you are young there may not be anything there anyway, but that is another discussion) So the owner is at 50-55, BK with no SS and not enough time to catch up for contributions. Can you say catfood for dinner?

If you are ever going to have employees, I would start off with a payroll service to do your payroll processing. Very easy. They take care of the deposits for SS, UE, medicare, etc.

Once you have your payroll set up, just make one of the payroll deduction for the Roth. It's not unusual in the first couple years of business to not make contributions. But the sooner you start the better off you will be. And DCA is painless.

I wouldn't try to scam the UE deal. but that's me. Your UE rate just goes up because it's based on claims made.

[kcowan]

You should set up Quick Books to allocate income as it is received and build a reserve for taxes, other deductions, and savings as well as a draw for you own expenses. Remember that if you are 100% owner, you no longer need a salary per se, just enough to cover your expenses.

In the same way, you can build up retained earnings while you are working very hard that will suffice to pay your expenses when you are not working or when your revenues are down foir other reasons.

[eridanus]

eftps.gov to pay quarterly taxes.

[farmerEd]

If you are not sure if you are paying SS or not, you need an accountant, or else you need to spend sometime educating yourself about tax laws.

There is a LOT to know about doing things right when you are running a business - as you are finding out you are not just an employee where others "take care of the details" (like funding your 401K and paying your SS). Spend some money on an accountant, and have him or her get you setup with a system and then if you feel like it you can take over in a year ot two once you see what is required.

[OKLibrarian]

Very timely thread for me--I'm in the process of launching my research consulting business--right now it's a sideline to my day j*b but if all goes according to plan I should be able to transition to full time in 2 1/2-3 years. For those of you who are self-employed (especially those of you in consultant-type busineses), What should one look for in a accountant?
I'm educating myself as well as I can, and plan to take an accounting 101 class through my employer this fall (I know I need to understand the books even if I'm not the one keeping them), but there are a lot of details and I don't want to screw it up.

[retire@40]

Quote:

Originally Posted by OKLibrarian Very timely thread for me--I'm in the process of launching my research consulting business--right now it's a sideline to my day j*b but if all goes according to plan I should be able to transition to full time in 2 1/2-3 years. For those of you who are self-employed (especially those of you in consultant-type busineses), What should one look for in a accountant?

You want a local CPA you can call any time of the year and who takes the time to give you directions how how to set up your business properly and answer all your questions.

By the way, you will also want to have an attorney as part of your business "team" that you can call from time to time.

Not having a CPA and an attorney from the start is one of the biggest mistakes small business owners make. The second biggest mistake they make is not establishing a good long-term relationship with them and not listening to the advice they give.

[OKLibrarian]

Quote:

Originally Posted by retire@40 You want a local CPA you can call any time of the year and who takes the time to give you directions how how to set up your business properly and answer all your questions. By the way, you will also want to have an attorney as part of your business "team" that you can call from time to time. Not having a CPA and an attorney from the start is one of the biggest mistakes small business owners make. The second biggest mistake they make is not establishing a good long-term relationship with them and not listening to the advice they give.

Fortunately I'm on a nonprofit board, and I'm pretty sure our treasurer is a CPA (I know she has a degree in accounting). If not there's a good CPA friend of the family I should be able to use. The lawyer thing may be a tad trickier to sort out--but I think that I can probably ask either the folks at my incubator or one of our professors in the uni's paralegal program. I sent in my application for an LLC last week but haven't gotten the paperwork back yet, otherwise I haven't really done anything major yet on the legal/financial side of things. I'm hesitant to sink tons of money into stuff before I even start bringing in revenue, but it seems like a few hours of professional advice up-front is worth the investment.

[retire@40]

Quote:

Originally Posted by OKLibrarian ...I sent in my application for an LLC last week...

I hope your future CPA and attorney would have advised an LLC for you from the start

[OKLibrarian]

Quote:

Originally Posted by retire@40 I hope your future CPA and attorney would have advised an LLC for you from the start

That's my only anxiety in the wake of your post, but It looked like the best bet for my situation based on my research, and it's the most popular format for other freelance researchers that I know. Worse comes to worst, I haven't gotten any revenue, so I can dissolve the LLC, file as an S-corp, and chalk up the $100 filing fee to stupidity tax.

[Scrapr]

I would look for a CPA (and lawyer) that are on the same wave lenght as you are. Ask about risk and how they feel about it. I am pretty risk averse.

On a scale of 1-10 with 1 being "Send all your money in, we will see if you qualify for any refunds"

and

10 being The Big 6 accounting folks getting thier names in the WSJ for abusive tax shelters".

I am about a 4. But so is my CPA. And my lawyer is probably about a 5-6. But we are in the same area code. I would not want an advisor telling me to expand nationwide. When my plan was to stay small.

One thing I highly reccomend is monthly Financial statements. We have been doing it every year we have been in Biz. 17 years now. Not Audited or Reviewed. Just compiled. We aren't going to be bought out by a national player that would need audited F/s. But this gives you a good idea of where you are at. And you can see trends. Catch problems before they are ginormous.

Maybe look for somebody with relevant experience. One of the CPA's that I used did have a competitor that he was keeping F/S for. That always made me squirm. But I like someone I can talk with intelligently about the biz.

[retire@40]

Quote:

Originally Posted by OKLibrarian That's my only anxiety in the wake of your post, but It looked like the best bet for my situation based on my research, and it's the most popular format for other freelance researchers that I know. Worse comes to worst, I haven't gotten any revenue, so I can dissolve the LLC, file as an S-corp, and chalk up the $100 filing fee to stupidity tax.

My point was and is, you want to be informed, with the help of a CPA and a lawyer, about the pros and cons of all the available business entities.

You normally start with the simplest (and cheapest) form and only get more sophisticated (and more costly) if your particular situation warrants it.

So, you would start as a sole proprietorship unless there is a reason not to.

[TargaDave]

Aside from proper accounting advice there is always a struggle in determining how much you reinvest in the biz versus what you take out now. Accountants-lawyers can't help you there as much as you'd like, and it get's tricky when the biz value is not easy to determine. You are always going to underpay yourself to establish-grow a biz. As it grows how much more do you pay yourself versus reinvest? How sellable is the biz? You might get way more on a lump payout (favors reinvestment), or it might not be worth much at all without you or a few key people. Always a tough balance.

[Jay_Gatsby]

While it may seem hard, the key is discipline and paying yourself SECOND (after Uncle Sam, of course). The advantages of having your own business in terms of retirement savings are enormous. You can put away a ton of cash in tax-deferred accounts and let it grow -- far more than a measly 401(k) and regular (or Roth) IRA will allow. I recall that you can put away up to $40,000 a year in tax-deferred retirement, assuming your business earns that kind of cash, which is HUGE when it comes to FIRE. Yes, your money will be tied up in tax-deferred accounts, but I speak for most of us in saying that I'd prefer my money grow tax free.

[Bigritchie]

I know this thread is a month old, but I thought I would chime in here.

I did the self-employment route, and I am 29 and will retire in 2 months.

Just a few things I have learned.

Get a accountant, that A. Does not cheat Uncle Sam, but B. knows how to legally run every item you can through a corporation.

The biggest difference with having your own corporation, is we pay taxes AFTER all our expenses (not all but most, and there are mass amounts you can write off).

So is Joe Bob works for someone and makes 10k a year, he pays taxes on 10k.

if self employed Joe Bob makes 10k, he may only wind up paying taxes on 1k.

When your business takes off, DO NOT fall into the trap of fool's gold. it will slow down. If it takes you for example 800 a month to live before you make big cash, make it a point to spend 800 to live when you make massive cash.

Sacrifice, Sacrifice, Sacrifice. Screw keeping up with the Jones, they are sheep.

I was never a big fan of IRA's and Roth's myself, just for the fact that I never planned on working till the age of 65+. My goal was 30. We have 2 IRA's and hate them, in fact we just said to hell with it and have them in CD's that pay interest into another account without tax penalty. If you work for someone and plan on ER at 65 then I can see the benefits.

Never invested a extra penny in my store besides coupons every now and then (although I never had aspiration to grow it and get massive etc etc) My goal all along was, make as much as I can, save every penny I can.

This takes alot of discipline, but I am not a believer in saving 30% or whatever of your income. Save 90% if you can, live as cheap as you can, keep your expenses low, as my grandpa would say "live at the foot of the cross". If you make 3000 one month, and your expenses are 500, save 2300. Does it suck? Yep it gets rough sometimes, and sometimes stressful, but my wife and I will never work again in our lives unless we choose to.

DO NOT tell people what a smashing hit your place is. If you do, you will have 5 places like yours pop up all around you. You will have less solicitors and people wanting hand outs too. When I had solicitors, I told them how disabled I was and how tight things were, and asked them for cash! That stops them real fast lol.

If and when you marry, marry a spouse that will be a compliment and asset to you, if you are trying to retire young, and she wants to live the high-life now, you are going to have big problems. Marry someone that will make a good mate, and be great for your kids, in fact I tell young men to ask themselves "If you could never have sex with this woman, would you still marry her?" Your spouse is by far the Biggest investment you will ever make. They are your rock and your support.

The time/effort you put into your business = what you get out of it. Many fail because people think they can play golf all day. Expect to be a slave to your place.

If things get slow and tight, DO NOT sit around and whine about it, get off your ass, and do something about it! Create your own reality. I loved the Big bear market, it put my weak competitors out, and I really learned to run my place then, and make even more money.

Depending on where you live, or what you do, alot of advertising can be as helpfull as pissing in the wind. For me (food), I just run around and give people free food to get them addicted. TV/Radio are a waste of money for the return.

I am a utter asshole to rude customers, I will not put up with them, they will stress your employee's out and drive you nuts, and you will loose good people. Your place will have less stress over all, and you can concentrate on your good customers. You wouldn't believe how much customers love me throwing someone out of my store, because they put up with that crap everyday too. In fact I have a picture with me holding a shotgun, that says "the owner is always right!". It does shock some new customers but makes for great conversation starters, and people that have dealt with the public roll laughing at it. Having the reputation of dealing harsh with jerk-offs and scam artist will keep alot of trouble out of your hair. My customers love knowing that I will not tolerate jerk-offs that hurt their atmosphere.

Customers will rob you blind, and employee's will rob you blind also.

"the customer is always right", is the biggest bunch of horse **** I have ever heard in my life. The customer is a un-informed idiot, that would steal food out of your kid's mouth. Everytime I have EVER had a customer tell me that, they were trying to rob me blind or rip me off. I really think this is a huge reason 75% of small B's go under, they base their store on idiots and not common sense. I can see how back in the day you could run a place with that motto, back in the 50's, but not today.

Of course I am not saying treat your customers bad, treat them like gold. Or better yet treat them like Stock. If they are costing you money, get rid of them. I have had super rude customers that I have cursed for 30 minutes at them, and then they were perfect angels, and never gave me crap again. if they go to your competitors...GREAT, let them drive those people nuts so their employees quit.

Be your own person, I refuse to participate in halloween in my place, and I tell customers that it teaches kids to get a free hand-out and that it is a pagan holiday. Some people think I am weird, but they respect me for it. I stand for my principles and for what I believe in.

Get advice from people who have done what you want to do, and have done really well off it. Your average Joe will want you to fail, and wants you on his level. You would be suprised how many older people will tutor you, and share their wisdom, when you humble yourself before them, most are excited to share advice and wisdom and blown away that you ask.

Well I am tired of typing hehe, I may think of more later.

[Jay_Gatsby]

Bigritchie,

Darn good advice if you're willing to sacrifice. Most people aren't, but this is not to say that failing to sacrifice as suggested is a bad thing. The vast majority of people won't sacrifice because they're sheep, while a few have come to the decision that they don't want to give up typically the healthiest years of their lives (20s & 30s) just to retire early. RE for many people, including many on this board, would appear to be 40-45 as opposed to the accepted retirement age of 62-67 (when Social Security can be taken). That translates to enjoying 20-25 more years of retirement, and more importantly, years without many of the health problems associated with being 60+ years old.

[retire@40]

Quote:

Originally Posted by Bigritchie ...So is Joe Bob works for someone and makes 10k a year, he pays taxes on 10k. if self employed Joe Bob makes 10k, he may only wind up paying taxes on 1k...

I agree with almost everything you wrote, but the statement above is a little deceiving.

The difference between the $10K and the $1K are all the business expenses the self-employed person has that the employee does not have.

In this example, I would rather be the employee (hurts to even think that), than the self-employed person.

[Bigritchie]

Quote:

Originally Posted by retire@40 I agree with almost everything you wrote, but the statement above is a little deceiving. The difference between the $10K and the $1K are all the business expenses the self-employed person has that the employee does not have. In this example, I would rather be the employee (hurts to even think that), than the self-employed person.

Let me put it more this way.

Bob A. makes 10 grand, pays taxes on that 10 grand, and then pays his car payment with the money left over.

Bob B. makes 10 grand, pays his 1k car payment, then pays taxes on 9 grand. So even though they both made the same, the corporation gets taxed less.

[retire@40]

Quote:

Originally Posted by Bigritchie Let me put it more this way. Bob A. makes 10 grand, pays taxes on that 10 grand, and then pays his car payment with the money left over. Bob B. makes 10 grand, pays his 1k car payment, then pays taxes on 9 grand. So even though they both made the same, the corporation gets taxed less.

That's only because "Bob B" has a business expense of $1K that "Bob A" does not have.

You are comparing a personal car expense to a business car expense.