Are you or someone you know a Rodan + Fields Consultant or do something similar? If so, tax time is right around the corner and this article is for you. Below are a few tips to make your investment worth it.
Should I set up an LLC?
Most likley Yes! Besides the liability protection a LLC offers to its owner, self-employed individuals are subject to self-employment taxes of 15.3% on their entire profit! That means if you made $50,000 in profit you would owe $7,650 in self-employment taxes plus 10%-39% income taxes on top of that! However if you set up an LLC and elect to be taxed as a S-Corporation, then part of the profit is treated as wages (subject to self-employment and income taxes) and the other part is profit (only subject to income taxes). The key is determining a "reasonable wage". For example, if you make a profit of $50,000 and we determine a reasonable wage is $20,000 then that amount, $20,000 is reported as wages, reported quarterly to the government. Self-employment taxes or $3,060 are paid on that $20,000. What happens to that other $30,000 in profit? It is not subject to self-employment taxes, saving you $4,590! All for setting up an LLC and making the S-Corporation election!
How much is this going to cost? I just started, when should I set up an LLC?
Every accountant charges differently and this post specifically applies to those receiving a 1099 in a Rodan + Fields type of business. My fees for these businesses are as follows:
Set up an LLC: $150, states normally charge a separate fee. $50 in AZ, $70 in UT, $100 in ID, $300 in TX, $105 in MO, $500 in IL.
Filing quarterly reports to the IRS and state you live in: $135/quarter.
File your S-Corporation business return: $500
File your personal return: $150-$200 average. This will ultimately depend on the difficulty of the tax return.
The total charge for the S-Corporation in year 1 is $1,390 plus approximately $150 to set up LLC. If you make more than $30,000 after expenses, then it makes sense to set up an LLC.
Should I open a separate bank account?
Yes! Any size business should have a separate bank account and never mix personal and business expenses.
If you are starting out, then keep it easy and keep track with a spreadsheet. Every month download your bank statement and tally your income and expenses in excel.
Eventually you will become too busy and this monthly task will be a headache for you to keep track of, or maybe it already is! When you come to that point buying Quickbooks is the logical next step, if that is daunting or too much trouble, I offer bookkeeping for $170 a month which includes bank/credit card reconciliations and a monthly profit and loss statement. Alternatively if you feel comfortable doing it yourself I offer a quarterly review at $350/quarter which includes a quarterly phone call to discuss strategy and tax planning.
What can I deduct?
The IRS says a business expense must be ordinary and necessary to run your business.
What does that mean? Well if you can answer yes to the following questions then it should be deductible. Is this expense normal for a Rodan + Fields Consultant? Is this an ordinary expense for a Rodan + Fields Consultant?
One of my college professors gave us this rule of thumb, if it looks like a pig and smells like a pig it usually is a pig. If the expense is a reach and you have to justify it then it's probably not deductible. If you have any questions, please contact me.
Should I keep my receipts?
Another resounding yes! The IRS wants you to verify that all your expenses are legit. Keeping track of your receipts is the best way to do that. For new starters keeping your receipts in the proverbial shoebox will do the trick for now but QuickBooks and other apps like Hubdoc are extremely helpful.
Do I have to pay taxes throughout the year?
Depending on how much you earn you may have to pay quarterly income taxes. With a normal job you have income taxes withheld on your paycheck. If you don't have an LLC set up as a S-Corporation then you should pay quarterly estimated income taxes. Even with an LLC paying a quarterly wages you still should pay estimated taxes on your non-wage income.
The break-even point for setting up an LLC is approximately $30,000. If you make that much then setting up a LLC makes sense.
Open a separate bank account for your business.
Ask yourself these two questions when you are making a purchase for your business: Is this a normal and ordinary expense for Rodan + Fields Consultant? If yes, then it should be deductible.
Hold onto all of your receipts.
I can help you with:
· Setting up an LLC
· Business and Personal tax returns
If you have any questions or would like to schedule a free consultation, please contact me at Chad@HuebschFinancial.com or 314-202-2680.