New Small Business Tax Questions

[handslikesecrets]

I have a new recruiting company startup in Washington state, and we just launched a couple of months ago. I have two questions:
(1) Let's suppose the company has $50,000 of net profit in 2015, and I haven't personally taken any income from it yet. At the end of the year, that $50,000 will be taxed. However, if I pay those taxes and then pay myself $20,000 of that, it gets taxed again, correct? So it would make sense for me to pay myself out from that profit before the end of the year to avoid being double-taxed. Is that correct?

(2) Hypothetically, let's suppose the company's gross income in 2015 is $60,000, but the business expenses are $80,000 (mostly one-time startup expenses).
I understand that the $60,000 is untaxed (other than employer payroll taxes, unemployment etc), but does the other $20,000 of expenses roll over into 2016 for tax purposes? That is, I wouldn't have to pay taxes on up to $80,000 of income since I have $80,000 of business expenses. Does that reset in 2016, or is the first $20,000 the company makes in 2016 also untaxed even though the expenses were accrued the year before?

I appreciate any input!

[tallen]

How is your company organized? Sole Proprietorship? Partnership? C-Corporation? S-Corporation? LLC? (if so, single-member, multi-member, or s-corp election?)

No one can really begin to answer your questions without knowing the above!

[jacob@finserveusa.com]

I would find a CPA and save all of your receipts and let him deal with keeping you in the Green. My CPA usually can keep my taxes to almost nothing! It may cost $900.00 for 1 hour but he saves me so much money and keeps me out of trouble.

[handslikesecrets]

Thanks for your responses. Registered as a single-member LLC.

How is your company organized? Sole Proprietorship? Partnership? C-Corporation? S-Corporation? LLC? (if so, single-member, multi-member, or s-corp election?)

No one can really begin to answer your questions without knowing the above!

[tallen]

Ok, an LLC is a "dis-regarded entity" as far as the IRS is concerned, so unless you have elected to be taxed as an S-corp, you would be taxed as a sole proprietor, which means you will complete a schedule C with your 1040 return.

So in scenario 1, that $50K is already yours, even if you haven't yet transferred any of it from your business bank account to your personal bank account. You will be paying taxes on all of it, including self-employment taxes!, but you will only pay taxes on it once.

Note that you will need to make quarterly estimated tax payments in order to avoid penalties for late payment if you wait until April 15.

I don't know the answer to scenario 2. Often a loss can be used to off-set other income in that year, but I'm not sure about carry-overs...

[tallen]

So thinking a bit more about your scenario 2 -- for your start-up and organizational costs, you can deduct as expenses in the current year only a certain amount up to a given threshold. Beyond that, those costs must be amortized over 15 years -- meaning that you get to deduct as expenses some portion of those costs each year, until all of the costs have been accounted for. If reading IRS publications about things like Business Expenses (pub 535 (http://www.irs.gov/publications/p535/index.html)) or Depreciation (pub 946 (http://www.irs.gov/publications/p946/index.html)) really makes your head spin, then as suggested above, you probably should be consulting with an accountant to help you figure these things out.