Question about starting Business

[Paul Seaman]

Badboy4453:
Think of it this way if some member of the family were to say I am going to take the grinder off your truck and keep it, you would say hey this is my living! As facts be facts you have a great investment in equipment and if you don't respect yourself enough to ask for it, then you are the one at fault. Self esteem is a hard sell but if you get to the point where it becomes part of the program, {do work- get paid} and people will understand that there is $5000 or $10,000 on the books for equipment. Also when the bill comes due for a new machine, because your old one rolled over and played dead if you've sold yourself cheap there is no money and your out of business.

I am no pro welder, but I know the facts of business from failed ventures {my fault for selling myself too cheap or working for old people who couldn't pay and just writing the whole thing off, yes it was the right thing to do in my heart but the books looked a bit red when I folded. I only had outstanding debt of about $500 so i recovered real quickly but learned fast, get the work,get it done, and get the money!!!!!

[Badboy4453]

Great points PJS. I am to the point now where I am becoming more and more comfortable approaching it as a business instead of a brother, cousin, or friend. you are definately right, with the equip on the books it only makes sense for them to pay for the quality they are getting from not only the skills I have taken the time to try and aquire(and somewhat have), and the quality of the machines that I own (and have paid for with my hard work).

Nick.

[ChrisV]

Hi All,
This has been a great thread, I myself have recently started a small business doing metal/woodwork fabrication. When I first started in the construction business (residential) back east, I did work for small $ just so I could get my foot in the door and get my name spread around. It is tough but eventually the quality of your work will pay off. Although I have just started this new business, my prior skills from the construction have given me the confidence to charge the correct amounts now instead of undercutting myself. There is also those customers that like to negotiate the price you have given them, this is where you really need to stand your ground and accept the fact that you may loose the work.

Now a number's question: I have never fully grasped the write off concept, my accountant explained it to me and now I left with the question of how much would I get back. Basically I work a regular 9-5 job and the business is classified as a sole proprietorship. The accountant said my write-offs would be deducted from my taxable income from the regular job (schedule C)To make the numbers easy...lets say my yearly income from the regualr job is 100K and I have 50K in write-offs (work truck, tools, shop...etc). This means only 50K of my regular salry is taxed correct? So how much would I get back due to the write offs...the tax amout asscoicted with the 50K deducted??

Did I loose everyone? Help would be greatly appreciated. (In addition if the work truck is 600lbs or more I can write 90% of the purchase price off)

Thanks
Chris

[Badboy4453]

Chris- You are in a similar situation as I am. My mother is an accountant but I am no pro at this, so I'll give it to you as I think of it. Basically You and I work for a company and make our living full time (I just do it all in the summer). That money is all looked at as profit and is taxed accordingly. Now, because we are also sole proprietorships(no separation between business and personal), the money we make (or lose) from our business is also reflected as a personal gain or loss, not a corporation gain or loss. Basically, if you work your job all year long, whatever writeoffs you have from the business will deduct from your taxed income from your regular job. Does this make sense? I know this year I made a pretty good sum of money working construction. The purchases of my machines, shop rent, a certain amount of meals, some steel(mainly for shop improvements), and a lot of misc (tanks, some consumables if not charged to a job, etc) are all writeoffs. More or less this means I will get almost, if not all of my taxes back. There are many tax laws as to how much you can write off. Meals, for instance, can only be a percent, maybe you can writeoff 50% of meals? I'm not really sure. Work clothes is another good one-- all clothes related to your work/job can be written off.

Hope this makes sense.

Nick.

[JHB]

The tax man and your accountant are the two folks you want to keep happy. I don't know specifics about how much you get back from 'write offs' but it is extremely important to keep receipts and if your truck is used for personal stuff, keep mileage records. Your accountant can save you lots by depreciating your equipment over time. One of the things I found to be very difficult to accept was having to estimate my income and pay the IRS every quarter.
It really makes you realize how much goes out and that you've got to save that back as you go so you've got the money when the time comes. After federal income tax and social security, I ended up with about 2/3 of what I brought in. Out of every 3 hours, I'm working one for the goverment.
That also gives incentive to charge for your work.
Hope this helps someone.
Joe

[JTMcC]

[QUOTE=ChrisV]Hi All,


Now a number's question: I have never fully grasped the write off concept, my accountant explained it to me and now I left with the question of how much would I get back. Basically I work a regular 9-5 job and the business is classified as a sole proprietorship. The accountant said my write-offs would be deducted from my taxable income from the regular job (schedule C)To make the numbers easy...lets say my yearly income from the regualr job is 100K and I have 50K in write-offs (work truck, tools, shop...etc). This means only 50K of my regular salry is taxed correct? So how much would I get back due to the write offs...the tax amout asscoicted with the 50K deducted??



What you call a write off is a deductable expense, or deduction. It's just that, a legitimate business expense. The IRS allows you to deduct that business expense from your taxable income. The end result is that you get to pay for your legitimate business expense with pre-tax dollars.
The key word is expense. In business you want as few expenses (or overhead) as possible, resulting in more profit, and therefore more tax liability. There is no way around it in the present tax code, if you want to make a lot of money, you are going to pay a lot of taxes.
A deduction is a loss of income, it means you have spent money in the course of doing business. It's not some magical tax windfall like some people I've met think. You want as few deductions (overhead) as possible (therefore making as much profit as possible) and at the same time you want to deduct all legitimate expenses come tax time.
In my opinion there is no reason for a small service business to hire an accountant to do the books/taxes. In fact there are several reasons not to. The bookeeping and taxes are really pretty simple in a service business and doing your own books every month is the only way to know just exactly what financial state your company is in. And doing your own taxes gives you an understanding of how you can run the outfit to minimize your tax burden. Accountants are notorious for making suggestions that complicate the lives of small businessmen, because they profit from that overcomplication. There is cheap software that makes doing the taxes so simple it's unbelievable. I've done mine for 12 years, and I love turbo tax. I did them the hard way for years, but I knew and understood how and why and on what I was being taxed.
We are a full time welding outfit and I've been in business since 92. As far as a part time-after hours gig, keep in mind that you better be making a profit before long, or the IRS will classify it as a hobby, and dissallow your deductions, past and present. Lot's of people try to turn their hobby into a fake business, but the IRS is hip to that scam.

JTMcC.

[ChrisV]

BB,JHB & JTMcC,
Thanks for the info, the initial start of this can be somewhat overwhelming especially when you dont have the time to do it in the first place. I agree on keeping expense to a minimum as I will be running the bus. out of my home and the only employees are my fiance and myself. I plan to keep it simple. It's great talking with others who are venturing into the same field! Has anyone tried Quicken to track the books?

Chris

[Paul Seaman]

Hey guys I've been reading the tig book download from the millerwelds homepage bingo- there is a great formula for figuring total cost of a weld. This is on p68 which is chapter 9. If you think your working cheap just drop in a job you've done and figure the equations and see what you charged and what you should have charged. I think you will be frightened and supprised, I know I was. A job I billed at $150 is really worth $280, big oops!!

I read and pass it on, peace

[Badboy4453]

I saw that also, didn't take the time to compute anything though. Want to buy the book, but I just printed the pages off and had them bound. Works great until I can get to buy the book!

Nick.

[fatfrank]

JTMcC has given some really good advise. There is much more to running a sound welding buisness then just being an expert welder. Some of the things needed to run a buisness are not learned in the welding shop or in the field. Its important to know about taxes, payroll, legit expenses, estimated taxes, retirement investing etc. All play a key roll in keeping your business alive. I think a good CPA is a must if your starting a buisness and don't have any experience or a mentor to help get the books, taxes, payroll in order. Once everything is up a running smoothly, it isn't that difficult to do once you see what needs to be done.

[Teeps]

Great advice guys,

BTW, not to be discouraging, but 85-90% of small businesses are failures their first year out.

Because of this, the IRS allows you to deduct for these business expenses/losses for 3 years, if your not making money by then, you best not be listing these expenses anymore.

You can however, close this business, and open a new one, but either it has to be making money, or it has to be a completely different business plan.
IE, you can't just rename it, and restart the same type of business, they are "hip" to that.

Other than that, they can't do anything about deducting your hobby expenses for 3 years, if you are being honest, and they are legitimate expenses, then you are just following the laws that are written.

After all, many business owners, started out everything as a hobby or experiment, if you can turn your experiment into something that generates you a profit, then it was a successful endeavor, and you hopefully will be making those losses back, and be paying uncle Sam even more!!
This is allowed, and legal.
Failure is a certain possibility, but the possibility of success, while doing something you love, is definately worth the trials.
BTW, if you bought new equipment this year, I believe some of it can be deducted at 100% depreciation, before December 31st. Used equipment is a different storry. And this Article/Law changes at the end of this year.

Best of Luck!!!