Hope you are doing well. I have been reviwing your accounting and transaction history as part of my Financial Planning Certification Course. Starting this year, I will start offering Tax Planning Services to my new clients.
Of course, you are my friend and I will not charge you ever for anything but working through your books from last year is a worthwhile excercise and practice.
So, here are my observations and reconmendations for next year's tax filing:
1. You need to discipline yourself and maintain separate accounts for business and personal use. Do not use your business account card for purchases that could be questionned as legitimate business transactions.
2. Transfer every week 30-40% of the business revenue to your personal acount as compensation. If need be, transfer additional funds but avoid using the business card for trivial purchases.
3. Your income will most likely cross the $100K threshold this year. Thus, it will be more advantegeous to file form 1120s for the LLC in addition of your 1040 form. It has a number of advantages that should result in a reduction of your tax liability.
4. You should increase your IRA contribution to around $300/mo. in order to attempt to fully fund the account for the year ($7K) and gain tax credits as a consequence.
5. Add 10% of your gross revenue to a regular savings account so you can start planning to purchase a starter home within the next 3 years. That will be your largest deduction going forward as you are not likely to qualify (any more) for the earned income credit, based on your income earning potential going forward.
6. You should add 8% to the cost of your services and we can do a quarterly State Tax Return to NE and thus reduce your Federal liability in lieu of the tax paid to the state. It would mean adding, say $10 per client served. Only the products used in providing the services are subject to tax, not the service itself.
Now, that would require you to set up a tax account (you can name it so ) at your bank and automatically direct say, 3.5% of the total transaction (from square or your payment terminal) to that account and DO NOT TOUCH IT. Please, note that the account could be audited and it should have no transactions other than the deposit and withdrawals matching the quarterly returns.
If you decide to persue any of the reconmendations, we should make some time and chat a bit about the process and how I can help going forward. It may require a bit of work at your end initially but it should go on autopilot after that. Remember, the tax rates/brackets are progressive. The more money you make the more that government wants from you. So, the smarter you need to be to reduce your tax liability by using the options available to you through the tax code.
