Question by charlesm4450: Net income and small business taxes??
I am a small business owner and am using Quickbooks to do my financials. We just starting paying salaries (to myself and the other owner) and now we notice that the net income is taking a big hit, from these salaries. How can we plan each month, or account for the real net income while still paying these salaries? For example, last month our books say we lost $ 5000, but that is only because it is reflecting the salaries we paid ourselves for the month prior. We only pay salaries once a month, for example, June 5 is payday for May, and July 5 is payday for June. How can we manage this??
Best answer:
Answer by Cat
1) Payroll is usually the biggest expense for a business
2) It takes time before a new business becomes profitable.
3) Expect to show losses on paper for awhile until you build up your client base (or whatever will increase your income to a profitable lever)
4) If you have no profit this year, you won’t pay any taxes at least. And you may be able to carryforward some of the loss to offset taxable income in future years.
Add your own answer in the comments!
I’m not sure how your business is organized. Partnership, Corp., or S-Corp, LLC etc.. But I would suggest that if you are a partnership, book the checks as distributions instead of salary. A distribution would reduce the partner’s equity and would not affect the income statement.
Read more about self employed tax filing: http://taxipay.blogspot.com/2008/04/tax-filing-by-self-employed-sole.html
What type of business are you? If you are not a corporation but a sole propietership you cannot pay yourself a salary. You can take a withdrawal.