With the year basically 7/8ths behind us, I felt like it’s an excellent time to address some important topics concerning all of my business and taxpaying people.
1099-K reporting
Do you take credit cards? If you used to receive over $20,000 in transactions in a year it would trigger a 1099-K from your merchant, meaning they were required to tell the IRS that you’re getting money.
Well, now that’s the same $600 threshold as paying a single contractor.
If you are diligently reporting your income, and tracking properly, this should not make a damn bit of difference to you. So don’t worry about it.
Another example of our government creating idiocracy to keep themselves amused and waste the tax dollars they take from us.
Large Overhead Timing
Have you ever read somewhere that December is a great time to buy and spend in your business, because it drives your net (read, taxable) business income down?
This is true, BUT…
Please keep in mind that you are actually saving a percentage of the expense, not the entire cost
That percentage translates to your Form 1040 as the effective tax rate.
Put simply, that’s the taxable (not AGI) income divided into the tax itself.
Middle Americans are going to be somewhere between 10 and 24%, with 15% being a reasonable average.
You buy XYZ Whizbang Gadget on December 15th to get your taxes down for $10,000, you really save yourself $1,500 in tax.
Net savings is a negative $8,500, so…
If you’re going to do it, make sure it really is necessary, okay?
Payroll Considerations
Do you have employees? You have an opportunity to be a really exceptional boss, and suggest that they run the IRS Tax Withholding Estimator while it’s still mid-November.
If your staffer and his or her spouse sit down in front of a computer for 5 minutes with their most recent paystubs they have a strong likelihood of discovering hidden Christmas money!
People get $2,000 to $10,000 tax refunds because of over-withholding in April, which is a terrible practice that gives your government more of your money to waste because they’re earning your potential interest and investment dollars, not you.
Yes, they’ll have to do a new W4 to reduce withholding, and maybe even do it again in early January.
Be a good boss, and don’t make it hurt for them. You get the most out of your people when you empower them, and treat them like adults, anyway.
Estimated Taxes
The entrepreneur’s withholding, estimated taxes are crucial to your personal wealth equation.
Unlike a wage earner that is babysat by their employer for tax withholding and FICA payments, we business-people are treated like adults and allowed to “pay-as-you-go” just four times a year.
The most crucial of these deadlines is the mid-January 4th quarter one, technically on January 15th but quite often delayed due to Martin Luther King’s birthday.
This is the one big fat chance to pay as much of 2022 tax as possible without going over, and completely avoid underpayment penalty in March or April.
If you do not have your IRS Account Online sign-on yet, after all the stimulus and advance child tax credits of the past couple of years, get on that.
It will tell you what you’ve already paid year-to-date, as well as advise any past due amounts or unfiled returns.
I take a look at my year in review starting about now, through the end of December, and I can tell you my wife and I never pay underpayment penalties.
If your business has grown to the point where you “don’t have time,” first of all you’re wrong, everybody has time.
You have to be generous with money and stingy with time, the opposite of the working majority.
Yeah, I know, practice what you preach! The trick though is to buy time, either by getting help with your financials, or at least with your business to the degree to free up time.
A thought to chew on, though, just a little allegory:
“A man who defends himself in court has a fool for an attorney.” – unknown
Work/Life Balance
In the midst of all of this new-found organization you’re encouraged to begin doing for yourself, don’t forget that funds are just a small part of true wealth.
I like M.J. DeMarco’s vision of wealth, the 3 F’s:
Family, fitness, and freedom.
The business and tax wealth strategies I hope I’ve helped you with today, even if just a little bit, falls into category number 3.
I believe that’s on purpose.
The people you love, and that love you, are the biggest thing you’ll regret not attending to on your deathbed, so don’t wait until you’re almost dead.
After all, my favorite turkey day holiday of the year approaches, and what an opportunity for family and friendship that is.
With the celebration of Christ’s birth following closely behind.
Make time to be a good family member and take care of your personal temple (that meat sack you call a body) as well.
You are not just your body, but you certainly need it to navigate the roads of life.
Would you put sugar and corn syrup in the gas tank of your car?
Be good to yourself, and kind to others.
Even if you don’t know them.
May you enjoy the 3 pillars of wealth and abundance, and all the joy of the impending season.
And turkey! And pie!
Especially pie.