This section of the forum is for discussing the business and finance issues of the t-shirt industry. Which business structure to use (sole proprietor, LLC, S Corp, etc), how to handle billing, where to register your business and get the proper licensing, etc.
I'm starting a t-shirt company and right now I'm in the research stage. I've been researching tax responsibilities lately, and there's two things that seem confusing to me:
1. If I'm paying estimated tax every quarter, do I pay end of the year taxes on April 15 for the actual income I earned? If I do, do I pay that on TOP of the estimated tax I already paid? Also, how is estimated tax even logical? As a start up, there is no way I can estimate what kind of income I'll make in the next year.
2. Let's say I earn $1000 net income for a month, and I reinvest all of that back into the business. Do I still owe tax on that income? Or does it become an expense deduction?
3. After looking at what kind of tax I'll have to pay (sole proprietorship), it looks like about 30% of my net income will be going to taxes (federal and state income tax (lowest tax bracket), self employment tax). Is that about right?
I'd appreciate your help on this.
Last edited by Bulent; September 6th, 2009 at 11:13 AM.
Best advise is talk to a CPA or better still an enrolled agent. April 15 comes and your total hypothetical tax is $1000 and you've paid $900, you owe $100 or if you paid $1100 you get $100 back.
Be aware that all the deductions like equip, if you close the business and you still have that $100000 auto press, you now own it and its value becomes income.
I'm starting a t-shirt company and right now I'm in the research stage. I've been researching tax responsibilities lately, and there's two things that seem confusing to me:
I agree to talk to a tax specialist, the last think you want to do is set up a great business, and then do taxes wrong.
1. If I'm paying estimated tax every quarter, do I pay end of the year taxes on April 15 for the actual income I earned? Yes you will file summary forms, and if you did not pay enough in you do on april 15th, if you overpaid, you recieve a refund.
If I do, do I pay that on TOP of the estimated tax I already paid? Also, how is estimated tax even logical? As a start up, there is no way I can estimate what kind of income I'll make in the next year.
2. Let's say I earn $1000 net income for a month, and I reinvest all of that back into the business. Do I still owe tax on that income? Or does it become an expense deduction? You will pay tax on that and your deductions will be calculated on your scedule C profit loss forms
3. After looking at what kind of tax I'll have to pay (sole proprietorship), it looks like about 30% of my net income will be going to taxes (federal and state income tax (lowest tax bracket), self employment tax). Is that about right? when we get done it is a high percent, and if you have employees you will also have witholding tax and UI tax as well as workers comp Insurance. contact a Cpa or someone to have a good talk with,, and they will help you with the forms to keep great records..
Just curious - why did you decide to do an SP rather than an LLC? I suppose the biggest benefit of the SP is that you only have one tax form. But, you're taking on the liability. If you use an LLC, you can get pass through taxation (if you want) and then have the benefit of liability protection.
Regarding your estimated payments - I'm assuming you're talking about the estimated tax payments for profits right? If so, be sure to read the tax forms for your state. Many states require that you make at least a certain amount of money before you start estimating your tax payments. There's a good chance that, as a start up, you're not going to make any money your first year (i.e., no profit) so you're not going to need to pay estimated tax payments.
If you cannot hire a CPA, consider just going into the IRS office or contacting the department of treasury for your state. They generally have people on hand to answer these questions for free.
hostingdiva, I decided not to go with an LLC because I've read that there's much more paperwork and money involved with registering one. I just don't have the kind of money that would be needed. Sole proprietorship seemed like the simplest way to start in terms of paperwork, taxes, and costs. I may switch to LLC a few years in for the benefit of staying in a lower tax bracket and liability protection.
Yes, SP's are cheaper and LLCs do require you to file additional paperwork. But, honestly, it's generally overblown - the paperwork is no complicated (for your situation anyway) and the fees are not that outrageous. The fees do differ from state to state so I can't give you specific amounts. If you tell me your state though I can find out. In any case, if you're concerned about the expense, check with a law school in your area. Many law schools have clinics for people starting their businesses and they will do all the paperwork for free (you will still have to pay the fees in your state).
Moreover, if you plan on hiring employees or having a shop (where people walk in and out of), I urge you to reconsider. The risk of a lawsuit is just too great. But, if you plan on working alone, then you should be okay.
what ever questions you guys have on taxes let me know, i ve been a tax preparer for 7 years. I can prepare corps or individual tax returns. I am also will to prepare your taxes via the internet. thanks guys.
A few tax questions 
