How do i fugure what percentage of profits to hold back for taxes on a startup?

Question

I'm about to start a business and was curious how much to keep out of the profits for taxes. Lets say i sell 50k a month in product with around 20% of profit, which is like 10k a month. Out of that 10K how much should I hold back for taxes? I do plan to use a bit of it to reinvest back in the business, probably 50% of the 10k or so. I'm just curious how you figure out how much to hold back so I don't get a huge tax bill at the end of the year that I couldn't afford. Also, if I only have to play taxes on the profit after business expenses, what kind of expenses can be deducted? thanks for any help you can provide, i'd consult an accountant but unfortunetely, all the money i currently have is tightly budgeted for startup costs. Thanks.

Ummm, thanks for the answer, but can you define revenue, are you talking about the total sold? Total net (sold minus cost of products)? Some number after expenses? sorry, i seem to be a moron when it comes to this stuff.....

Answer 1

Assuming that this is a Sole Proprietorship or one of the pass-through entities such as an S-Corp or single-member LLC, get a copy of the FORM 1040ES package from the IRS website. It includes worksheets to help you determine how much you'll need to pay in estimated taxes. (You don't just hold it back until tax time, you must make quarterly payments to the IRS as well as your state if your state has an income tax.)

The net profit of the business is taxable. Any reasonable and necessary expenses related to the production of income are fair game. Without knowing what your business plan is it's not possible to give you any examples that would be meaningful to your situation.

You really need to re-budget your start-up costs to provide for guidance from an accountant. Not doing that is a fools undertaking. There are many issues that you need to consider (not just taxes!) and if you don't get it right, you'll be destined to fail. You said it yourself, you're a moron when it comes to "this stuff". Get an accountant, or just flush your $$$ down the toilet as it will be much less painful in the long run.

Answer 2

To be able to figure out how much to withhold would really depend on the form of business you've started. The organizational choices (in the USA) include sole-proprietorship, partnership, S-Corporation, C-Corporation, LLC - Disregarded Entity (sole-proprietorship), LLC - Partnership, LLC - C-Corporation, LLC - S-Corporation. LLC rules vary from state to state but for Federal taxation the election to treat an LLC as a corporation can be made at anytime. By default, unless a seperate election is made, a single member LLC is treated as a sole proprietor for federal tax purposes.

The organizational structure makes a difference for 3 reasons: 1) Different tax brackets for different entities 2) how income to the owner is treated 3) Deductibility of expenses. As bostonia recommends, not only should you speak to an accounting professional you might want to discuss with them which organizational choice would benefit the business the most. It could have a significant impact on your year-end tax liability and your profit.

Answer 3

If you send me your exact budget to my e-mail address I might be able to figure something out - could you send it on excel - try to be as exact as you can and include indirect costs (ie wages, light and heat, rent) - I think you need to get financially organised in conjunction with your start-up - I may be able to advise when I see your budget

e-mail: [e-mail]

Answer 4

I'd say 30% of your revenue on a quarterly basis