2011 08 - _o_________ ___ ______

Wed, 24 Aug 2011

State Government Irony

The State of California publishes a booklet called Striking Gold in California. This is the most absurd name they could have come up with. Striking Gold describes the various bureaucracies to which a business must send forms and pay taxes.

Every year in California, thousands of new small businesses start up. Unfortunately, thousands of companies also go out of business each year.

The probably go out of business partially because they have to spend so much time filing forms with various government agencies, not to mention, sending them money.

The booklet is for sole proprietorships, so it doesn't cover the forms corporations must file. Here's a short list of the forms mentioned.

Federal Forms
- Schedule C (1040), Profit or Los from Business
- Schedule SE (1040), Self Employment Tax
- Form 941, Employer's Quarterly Tax Return
- Form W-2, Wage and Tax Statement
- Form W-3, Transmittal of Wage and Tax Statements
- Form 8109, Federal Tax Deposit Coupon
- Form 940, FUTA Annual Tax Return
- Form 1040-ES, Estimated Tax for Individuals
- Form SS-4, Application for Employer Identification Number
State Forms
- Franchise Tax Board
  - Form 540-ES, Estimated Tax for Individuals
- Employment Development Department
  - Form DE 88, Payroll Tax Deposit
  - Form DE 6, Quarertly Wage and Withholding Report
  - Form DE 7, Annual Reconciliation Statement
- State Board of Equalization
  - Form BOE-401-A, State, Local, and District Sales and Use Tax Return

They forgot the 1099s that have to be filed with the IRS, the FTB and the EDD.

Also, your city or county may have tax or license requirements not covered in this publication. See the government listings in the white pages of your telephone book.

Yep, City of Los Angeles has a Business Tax of 0.5% of gross sales.

business | Permanent Link

Self-Employment Tax Thoughts

I filed my taxes Tuesday night. It wasn't quite the relief it usually is though. This was the first year in which my income was mostly 1099 income. That means that self-employment tax reared its big ugly head. I knew it was coming, but when it looks you in the eyes, it's still frightening. After writing off my business expenses, my total taxes were actually about $3,000 less than the rough estimate I made last year when filling out my 1040-ES. Nonetheless, I still owed the feds over $10,000 of the almost $19,000 total tax liability.

What makes the number so shocking is when you compare it to a return for which all of the income is W-2. With W-2 income, the section of the 1040 labeled Other Taxes is generally blank. As an employee, you pay 7.65% of your wages for Social Security and Medicare insurance, but this amount doesn't show up on your tax return. When your self-employed, the 15.3% tax on your net business profit shows up under Other Taxes, increasing the bottom line (line 62, that is) substantially.

One nice thing about being self-employed is being able to write off business expenses that employees typically can't. This year, I expensed gas and other automotive expenses, internet access, office supplies, part of my rent and utilities, and depreciated computer equipment and part of my car. Working from home, I don't have too many expenses so I was only able to reduce my gross income by about 6% in calculating my net profit. I was also able to write off my health insurance premiums, but that only reduces my adjusted gross income rather than business income, and thus doesn't reduce the SE tax. So I was left with a large amount of self-employment tax to pay.

In 2005, I'm going to set up and contribute to a SEP-IRA and a Health Saving Account which will reduce my income tax, but not my SE tax unfortunately. To reduce my SE tax, I may form an S Corporation. Paying myself half the corporate income in salary, which is subject to SE tax, and rest as a distribution, which is not, would probably be fair and would reduce my SE tax by quite a bit.

business » taxes | Permanent Link

Slovak Spas

Over on TJ's Weblog, they picked a company planning on opening a spa in Slovakia as one of their top 3 business plans.

TOP 3 - comes in MAGMA ZAFÍR s.r.o. that aims to develop a hot water spa in Slovakia. Central Europe has been less then well served with wellness facilities so far and has the advantage of cheap labor costs. A world-class spa for clients from Germany and Austria could easily fill a market void.

I'd be interested in reading their business plan. Slovakia already has a number of spas, and Piestany has attracted foreigners from around the world to its spas for a long time, even during Communism.

Slovaks, in general, see spas as places for the elderly and infirm, but that may start to change. When I was in Slovakia a few weeks ago, there was an article in a magazine describing a visit to a spa by a young woman. She hadn't been too thrilled about her assignment to visit and write about her experiences at a spa. She figured she had twenty or thirty years before she should start visiting spas. She was delightfully surprised by her experience and concluded that visiting spas was a great way for young professionals to relax.

I think there could be a good opportunity in marketing spas to Slovaks between 20 and 40.

business » marketing | Permanent Link