I see a market for my skill set that no one else is filling.  I am a headhunter, who specializes in insurance producers, salesmen, etc.  There are a few firms that focus on experienced people, but there is a market for "career changers."  My former employer has floated the idea of contracting me to source candidates.  The company has a national presence and the regional leaders are very close knit so I believe I could generate enough business to make a solid living. 

I have business plan, understand the market, I'm starting to see the potential and create goals but what I am not sure about is how to manage taxes.  I won't be large enough to merit an accountant in the near future, but I don't want to go down like Al Capone either.  So, self-starters out there, how do you manage your taxes and keep Uncle Sam happy?     

 

Views: 93

Reply to This

Replies to This Discussion

I'm not clear if you're asking how to manage your personal taxes, or business taxes/ employees.

For personal taxes, if you're paid as a 1099 employee (contractor), you need to withhold 15.3% for Medicare/SS taxes, plus your income tax rate.  You're supposed to file quarterly returns with estimated tax payments.  I am currently 1099, and withhold something like 1/3 of my paychecks in a separate account for taxes.  I don't really do quarterlies, though ... I'd rather pay the penalty than do five tax returns a year.

If you're talking about business taxes, it depends on how the business is structured, and in what State you live.  If you're a sole proprietorship, your business taxes can be filed as a Schedule C on your regular 1040 .... meaning, your business income (minus expenses) will be taxed as personal income.  Make sure you track expenses well, or your income is going to look a lot higher than it actually was ... and your taxes are going to be ridiculous.  If you're a corporation or something, you'll have to file separate income taxes for the business.  Form 1120, I think.

If you're hiring employees, you have to decide whether to classify them as 1099 employees or W2 employees ... i.e. contractors vs. employees.  W2 employees are more expensive.  Don't misclassify somebody just for the tax situation,  though.  That can come back to bite you.  Hard.

1099 contractors withhold on their own, like you would be.  W2 employees have taxes withheld from their paycheck for them ... and employers must pay 1/2 of their SS/Medicare taxes (along with unemployment insurance and worker's comp).  If you have W2 employees, you probably ought to hire a payroll company to help you handle it.  You need to file tax form 941 quarterly to report tax withholding for employees, and make continuous (bi-weekly) payments of withheld sums.  Don't drop the ball on this -- the IRS doesn't look kindly on employers withholding from employees, and then not making payments.  The penalties are ridiculous ... I've seen tax debts double from 941 penalties alone.  You'll also need to file Form 940, annually.

Don't worry about Capone.  He was nailed for tax evasion, not simply owing a tax debt.  Owing the IRS is not a crime.  Evading the IRS is a crime.

JB

Do you do your own income taxes now?  Do you itemize deductions?  If so, maybe you want to look at some books, get some software, and do your own taxes as a self-employed person or business owner with 1 worker (you).

But businesses, like individuals, can hire accountants to come in once a year and prepare the returns.  You don't have to have an accountant on staff, or even on retainer.  If you're not comfortable preparing a complicated individual return based on W-2s, I don't think you should handle self-employment or business taxes.

If you have workers, there are payroll companies that handle their withholdings, etc.

You have the choice of creating a corporation, LLC, or just simply remain a sole proprietor.

As you begin I would vote for remaining a sole proprietor. Use a lawyer or legal service, (legal zoom or Legal Shield) to create the contracts that clearly lay out your compensation for providing the candidate and how you will be paid. Another document that holds you liability free for the actions of your candidates.  Then get $1 million to $5 million of Umbrellas Insurance.

I think it is a mistake to assume that a person working as a sole proprietor can protect themselves by simply setting up a corporate structure.

Then record all your expenses and all your income.  home office, mileage, hiring family members are all legal and all helpful.   using Tax Act or Turbo Tax will probably serve you well for many years.

I have been in this business (similar) and you can be very successful and keep things very simple.

happy to talk about this one on one if you'd like.

RSS

Latest Activity

Aubrey J. Riley replied to Kneller's discussion business casual shoes for under $100?
"I personally love my Doc Martins. They are pretty non descript, can be shined to a high polish, and are extremely comfortable. I was able to get mine at an outlet store which might be a good idea to bring cost down. Only thing with them is the first…"
1 hour ago
Jay D replied to Padre's discussion Girls in football
"I dont see the problem."
1 hour ago
Jay D replied to Padre's discussion Girls in football
"scarred to get beaten by a girl?"
1 hour ago
Christopher B Miller replied to Andrew's discussion How do you take your coffee? I prefer it black with a slice of butter in it.
"Butter seems to work for everything else, why not coffee. I'll give it a try. "
2 hours ago
N. Vest replied to Padre's discussion Girls in football
"The main problem with your argument about rights is that you do not have the physical ability need to operate a vehicle, where as the girl in question does have the ability to play football at the needed level or she wouldn't have made the team…"
2 hours ago
Jay D replied to Leto Atreides II's discussion Ferguson Grand Jury Decision in the group The Great Debate
""I notice you left out the Ukraine, where protests & riots led to a change of gov't, a foreign invasion & subversion, & might lead to regime change. There's a case that's obviously nothing to do with poverty or the…"
2 hours ago
Jason V. replied to Andrew's discussion How do you take your coffee? I prefer it black with a slice of butter in it.
"I take my coffee black (or occasionally with a little Kahlua or brandy in an evening cup of decaf), but I'm intrigued by the butter and coconut oil additions -- I'll try those tomorrow morning! My wife and I were using a Keurig machine for…"
3 hours ago
Andy updated their profile
3 hours ago

© 2014   Created by Brett McKay.   Powered by

Badges  |  Report an Issue  |  Terms of Service