Posts by amberfox292

David Mitchell4 said:Thanks for clearing that up. Does that standard deduction still apply if you were paying yourself a monthly salary as a small business owner? Once you register for sales tax, you start dealing with income tax, but does the calculation method remain identical?

Nope.
You're mixing things up a bit here! 🙂
Sales Tax and Income Tax are two totally different beasts.

If your annual revenue hits over $85, $0.00 you have to register for Sales Tax. This means when you bill a client for goods or services, you have to charge and report Sales Tax (let's say 7% depending on your state). So, if your service costs $333, until now you just billed them $333, but once you're in the system, it becomes $333 + Sales Tax = $410. You pay that extra $77 to the government. On the flip side, any Sales Tax you pay on your own business expenses counts as an input credit, while the base price remains your net cost. Before this, your total expense was just the full amount on the receipt.

Income tax is calculated exactly like it always was: total revenue minus total expenses equals your income. Then, you subtract your standard deduction and any other tax credits to find your taxable income.

To actually become subject to corporate income tax, you’d need way higher revenue and to meet a bunch of other specific criteria.

David Mitchell4 said:Can someone give me a straight answer here? If a small business owner operating outside the sales tax system pulls in roughly $100,000 $0.00 annually but has expenses totaling about $80,000, what’s the actual damage regarding taxes throughout the year and at year-end? More importantly, how much cash is actually left over to transfer to a personal account? Thanks!

If you're pulling in 100k $0.00 and your expenses hit 80k $0.00, that leaves you with a yearly profit of 20k $0.00.
The standard federal deduction is 21k $200.
Basically, that means you won't owe any income tax because your annual deduction is higher than what you actually made!

Just a heads up—if your total revenue climbs above 85k $0.00 one year, you'll be required by law to register for sales tax the following year.