Starting a small business

You’ve got self-employment tax and health insurance to cover. Plus, get supplemental insurance just in case. Those $133 look like Chamber of Commerce dues on a flat rate. They'll skin you alive if you don't pay up—and the IRS doesn't play games. Also, stay on top of your federal obligations. Late fees pile up fast, and that's money down the drain.

Don't mess around with your books. Hire a solid CPA and sleep easy. Just make sure you actually check their work. The "friend discount" approach usually ends in disaster. As for fines? I won't comment; I haven't personally dealt with them. No sense guessing about things I haven't experienced.

If you don't have a receipt for that laptop, you can't write it off. Same goes for your dad's car. I'm not sure what you mean by "expense." If you mean depreciation for a vehicle, leave that to the accountant. Every single invoice for inventory—make sure every vendor puts your business name and Tax ID on the receipt. Bring those to your CPA at the end of the month so they can handle the sales tax filings. If you bought more than you sold, you might get a refund from the government. If not, you'll owe them. Don't toss fuel receipts either; ask for an itemized receipt every time you hit the gas station. You'll be driving a lot, so keep track.

Take the car to an authorized service center and demand a receipt.

One more thing: the moment you launch this business, you aren't "unemployed" anymore. You're a business owner. You live and die by your own venture.

Good luck.

Thanks,

but I’m still a bit stuck on one thing... why bring up sales tax when I'm not even registered for it? It just doesn't seem to apply to my situation...

And regarding the vehicle—I was actually thinking about using my own personal car for business trips, since it's really more of a family car anyway. I remember reading somewhere that you can just claim a standard mileage rate per mile...

So you're joining a group that isn't registered for sales tax. Honestly, I have no clue how that works. Good grief, do you even know how much money you could get back from the government if you were actually in the system? I’d never just hand that kind of cash over to the IRS...

I'll move away from the swearing—I guess I just have my own way of venting. Let me check with my accountant to see what the rules look like for those outside the system, and I'll let you know what I find.

Well, anyone starting a small business isn't automatically pulled into the VAT system... you have to clear $28 in annual revenue first, if I recall correctly. That’s when the tax man finally comes knocking...

I have my doubts about how wise it is to launch a new venture in this current economic climate

Since you’re mostly just freelancing for regular folks, there’s zero reason to deal with the headache of collecting sales tax right out of the gate. Just stick to standard income tax for now, and once you start pulling in serious bank—which, let’s be real, isn't happening overnight with this kind of gig—you can always make the jump to a sales tax registration later.
Regarding that car, since it’s technically in your dad's name, I’m not sure if you can even list it as a business asset, but honestly, it wouldn't matter much since you aren't collecting sales tax anyway; just make sure you track your mileage because those deductions are pure gold.
Keeping the books is actually pretty painless if you stay out of the sales tax system, so if you have a buddy who actually knows his way around an Excel sheet, you could probably DIY it—that’s basically how I handle my own stuff. Just don't get lazy; stay on top of whatever new IRS updates roll out so you don't get blindsided.
Expect your payroll taxes and social security hits to land around $567/month. Don't let those pile up; seriously, it's better to take a smaller paycheck than to end up in the crosshairs of the IRS.
Basically, any expense you rack up to keep the business running counts as a deduction—so we're talking mileage, software subscriptions, gear, office supplies, your cell phone bill, all that jazz. Just remember, you need to make sure every single receipt has your name and Social Security number on it so the accountants can actually use them.

Good luck!

If you’ve got a laptop or other gear you were already using before launching your business, you can roll those items into the company by filing a declaration stating their value. Just be smart about it—make sure the amount reflects what the gear is actually worth today. You don't want to list an old five-year-old MacBook at $3333 😉
prices.
If you're planning on heavy equipment investments, joining the VAT system makes sense because you can claim those tax credits back. But if you aren't planning big buys, staying out might be the wiser move initially. Like brisktinker15 pointed out, if your clients are just regular people, you'll actually be more competitive since you won't be tacking on that extra 22% sales tax to every bill.

And if you're using your own car for work, you're entitled to a standard mileage deduction of $0.67 per mile.

Bookkeeping itself isn't rocket science; with a little guidance and someone checking in on you occasionally, you could probably handle it yourself. Personally, though, I wouldn't recommend it. A solid accountant does way more than just track numbers—they'll steer you toward tax breaks and government incentives that most of us don't even know exist.

Good luck navigating the waters of small business ownership. Hope you stay afloat. 👍

Thanks a million
Anyway... how on earth am I supposed to prove my mileage? I know, sounds ridiculous, but how do I actually request an R1 for this... Should I be asking for an R1 receipt for every single thing?

In principle.
Every single time, I draft my own travel voucher detailing the destination, the mode of transport, the business purpose, and the total mileage logged. Obviously, you aren't going to write that you drove 311 miles miles from Washington, D.C. to Pittsburgh.

You don't need an R1 form for that. There’s a specific regulation somewhere stating the allowable mileage reimbursement rate. If I recall, it’s about $0.67 per mile. So, if you traveled from Washington, D.C. to Pittsburgh 31 miles times at $0.67 miles each, that equals $33. You use those $33 to reduce your taxable income. Similarly, if the trip lasts over 12 hours, you can claim $57 per diem—I think—and if it's between 8 and 12 hours, you get half a per diem.

The experts here will probably chime in on what the standard per diem is in America and how much you can actually deduct for using your own vehicle for work.

Check out the IRS guidelines on income tax here: http://www.irs.gov/instructions/i8829

Section 13 covers what qualifies as a deductible business expense.

You should double-check whatever nonsense our dear Congressmen have changed through recent amendments, but this is a good starting point. The last update to the regulations was just back in January.

Thanks, everyone 😁

I’m just trying to figure out the timeline here... when exactly am I supposed to start buying all those business ledgers and actually getting the books in order?
Is this something I need to have squared away the second I register my LLC, or am I just waiting until the end of the month to get organized?
And who even looks at this stuff anyway... who am I supposed to be handing all these records over to?

Grab your business ledgers right away; you can just keep them digital and have them on hand. If an IRS auditor shows up, you're legally required to cough them up immediately.

So, if you aren't registered for sales tax, what’s the plan when a client actually asks for an invoice? Look, I know a locksmith who runs a small shop and isn't in the tax system. He gives me receipts for his work, but there’s no way for me to claim any tax credits. For my business, that’s just bad math. Plus, the guy always pushes for cash, which makes the receipt pretty much useless to me. I usually just end up looking for a different locksmith. If I were in your shoes, I’d join the tax system. There are actual benefits to it. Think about it.

Get stuck in. Don't be lazy. If you price yourself lower than everyone else, the work will never stop coming. My business includes service work, and my crew makes great money because of it. On average, our rates are about 30% lower than the competition. In this economy, people care about every single dollar. Remember that.

What am I supposed to do if a client asks for an invoice?
Well, I'll just hand them a receipt... and since there’s no sales tax tacked on top, the total looks a lot smaller. It's cheaper, more appealing to the average consumer... keeps things simple. 🙂

Honestly, the whole concept of sales tax just feels fundamentally broken to me...

You can issue an invoice like that, but you absolutely have to include a note stating that the owner isn't registered for sales tax.

Yeah, that’s already printed right there on the receipt you get when you pick it up at the local CVS

Great. You know everything, you've got it all figured out. Just take the job and get to work.

haha, loud and clear, auntie 😁

I’m still not quite following what your actual plan is here. Come on, give me a hint. You never tell us anything.

Computer repair—software or hardware—I come directly to you... wherever you need me.

neonstag5 said:Thanks, everyone 😁

I’m just trying to figure out the timeline here... when exactly am I supposed to start buying all those business ledgers and actually getting the books in order?
Is this something I need to have squared away the second I register my LLC, or am I just waiting until the end of the month to get organized?
And who even looks at this stuff anyway... who am I supposed to be handing all these records over to?

For someone just starting out, my best advice is to sit down and actually read the Small Business Act and the federal income tax code.
As others have already pointed out, you need to start keeping those business books immediately.
A small word of caution—or perhaps a reality check: when the IRS comes knocking... their whole philosophy is "ignorance is no excuse."
Good luck with the venture!👍

Oh, and I should probably mention the Treasury regulations regarding income tax as well.
Since you’re just launching, you might want to pick a CPA's brain about depreciation schedules and what specifically qualifies as a deductible business asset.