One of the biggest challenges you will have in your business is handling taxes. Handling taxes as an employee is easy - taxes are deducted before employees
get their paychecks. But businesses have to figure out their profits and have the willpower to save a large portion of it for taxes. Cash is scarce and it is extremely easy to spend it on the owners' living expenses or business operating expenses.
Profits over an above your salary: Shareholders usually must pay between 15 and 25% of net profits in taxes.
Employment taxes: You must have at least 35% above the paychecks you write yourself and other employees
to cover employee taxes.
Gross Receipts tax: 100% of the gross receiptstax that you collected has to be paid in taxes.
Taxes are so high because you must pay both social security AND income tax. Here's how it adds up:
Social security self-employment tax
Federal income tax
usually between 15 and 25%
New Mexico income tax
So, the first thing you need to understand is how to calculate your business profits - and what is tax deductible.
Available cash and profits are NOT the same thing. Warning: If you have inventory, your inventory costs are NOT deductible until
the item is sold. Read the following:
If you do not have enough money to pay taxes, it is still critical that you file the tax forms. The fines for not filing tax forms
are much higher than the interest or penalties for late payments - so file your forms on time - EVEN IF YOU DON'T OWE ANY TAXES!
A business with 2 owners that delays filing an IRS 1065 form for 5 months can accumulate $1800 in penalties! So pay attention to due dates.
Gross Receipts Tax
If you are purchasing items for resale or if you have customers purchasing for resale, they are exempt from gross receipts tax - IF a tax exemption certificate
is completed. Below, you will find information about collecting sales tax.
Even though 2/3 of employment taxes are deducted from an employee's paycheck, the cash still needs to come
from your business. This means that in addition to writing paychecks, you need to have at least 35% in additional funds for taxes.