How do you all store away money for taxes?

[DoNotInsertIntoMouth]

So I was wondering how everyone is taking care of this  - Its one of the few things I haven't really developed a "system" for.

 

Do most of you just calculate your taxes at the end of the year and just pay it? Do you take a certain amount out of each of your sales to stow away? 

 

I was thinking about just withdrawing 30% each time I withdraw from Paypal to a Savings account so I make sure I have money on hand. I was curious if others do it this way - or do you do more? Less?

 

Obviously its tough to know exactly what you will pay unless you are putting it straight into a tax calc - which maybe thats what people do?

[justafrog]

Estimated quarterly payments based on calculations provided by our accountant each year when she does our taxes and we go over our expectations and goals for the business for the year.

[matt1147]

DNIIM - if you're making enough "on the side" to where you owe taxes at the end over a certain amount, the IRS will tell you to start making estimated quarterly tax payments like frog says above. Until then, you can estimate how much to "hold back" like you mention - 20 or 30% OR if you have a w2 job - just increase the amount you pay in there each paycheck.

Check with your accountant for best options based on estimated revenue from your lego biz...

---Keep it secret. Keep it safe.---

[matrosov]

It depends on your volume really. 

 

If you are an AFOL and spend significant amount of money on your own collection then you can offset some or all  of your income with your hobby expenses. If you are primarily engaged in this as a for profit activity and it's a lot of money you'd eventually reach a point that you would have to make estimated tax payments. The cutoff for estimated tax payments is 1K of tax liability.  Problem is that you need to figure out the treatment for your income.  Long term capital gains are taxed at 15% if you're under 400K.  So technically if you sit on that new set for a year or longer before selling that's LTG.  Flipping would be ordinary income.  

 

When I had my own business we had a separate bank account for anything business related and very rigid accounting system, I would calculate my tax liability monthly and transfer money to another business account reserved for tax purposes.  Came quarter end I was set.   Taking 30% off every sale for taxes is an overkill IMHO you have other ongoing expenses like your ebay store fees, bricklink if you're doing used lots, gas, storage, all those things are deductible.  Talk to your accountant depending on your location maybe it is time for you to set up an LLC so you don't commingle your business and personal finances in legal and real sense.  Also consider a good bookkeeping software. 

[chinothegeeko]

I just cut back on the w-4. Went from claiming 5 to 0. Normally works out well although this past year made almost $30,000 more at regular job.

[asharerin]

Long term capital gains are taxed at 15% if you're under 400K.  So technically if you sit on that new set for a year or longer before selling that's LTG.  Flipping would be ordinary income.  

 

Capital gains on collectibles is a flat 28%, not 15%.

[matrosov]

That's between you and your tax accountant.   .  Collectibles are work of art coins etc. Lego is a commodity and I intend to file it as a LTG when it's time for me to report it.   .

 

http://www.irs.gov/taxtopics/tc409.html

 

Also you could treat it all as a regular business with inventory where inventory depreciates and appreciates based on supply demand cycles in which case it will all be your regular flat ordinary income.  In that case of course you'd be better off with an LLC or corp and your local jurisdiction might want a piece of that in the form of business license, fees etc etc. 

[ufema]

I don't put anything aside.  I do calculate mileage, square footage of storage and office space along with all receipts of lego purchases, shipping cost, fees and supplies.  I don't keep track of profits because your only taxed on what you actually pay yourself (if you even pay yourself).  If you use a professional CPA you'll end up getting a return.

[popalzai]

I thought if you make less than 20k sales on ebay you dont have to file if you go above 20k then you get 1099 from paypal

Sent from my iPhone using Brickpicker

[justgod]

I thought if you make less than 20k sales on ebay you dont have to file if you go above 20k then you get 1099 from paypal

Sent from my iPhone using Brickpicker

LOL. You are required by law to report ALL income, regardless of amount. Anything else is tax evasion.

[matrosov]

I thought if you make less than 20k sales on ebay you dont have to file if you go above 20k then you get 1099 from paypal

Sent from my iPhone using Brickpicker

Common misconception among many.  20K and 1099 and paypal itself reports you to IRS.  But you should self report any and all income you receive during the course of the year. IRS auditors are very bright people so ending up on their wrong side is usually not advisable.  

[fendiixx]

I thought if you make less than 20k sales on ebay you dont have to file if you go above 20k then you get 1099 from paypal

Sent from my iPhone using Brickpicker

 

It's amazing how many Lego resellers believe this (I know I was originally guilty of this too!). If your selling now I'd recommend you fix it asap

[popalzai]

Point noted i did not do any sales in 2013 did some in 14

Sent from my iPhone using Brickpicker

[StarCityBrickCompany]

So I was wondering how everyone is taking care of this  - Its one of the few things I haven't really developed a "system" for.

 

Do most of you just calculate your taxes at the end of the year and just pay it? Do you take a certain amount out of each of your sales to stow away? 

 

I was thinking about just withdrawing 30% each time I withdraw from Paypal to a Savings account so I make sure I have money on hand. I was curious if others do it this way - or do you do more? Less?

 

Obviously its tough to know exactly what you will pay unless you are putting it straight into a tax calc - which maybe thats what people do?

 

It would certainly be best if you simply had the funds available to pay. Aside from taxes, it's always a good idea to have money available - so you are prepared for a crisis.

 

If you have a large inventory, you can simply take a month off from buying - which should take care of any short term cashflow problems.

 

You should try to avoid ever having to sell your items at prices that are too low - just out of desperation.

[DoNotInsertIntoMouth]

I don't put anything aside.  I do calculate mileage, square footage of storage and office space along with all receipts of lego purchases, shipping cost, fees and supplies.  I don't keep track of profits because your only taxed on what you actually pay yourself (if you even pay yourself).  If you use a professional CPA you'll end up getting a return.

 

Not sure I understand what you mean by "your only taxed on what you pay yourself". So your income from sales is just sitting out in noman's land owned by no one?

 

I thought if you make less than 20k sales on ebay you dont have to file if you go above 20k then you get 1099 from paypal

Sent from my iPhone using Brickpicker

 

Yeah if you want to be audited

 

It would certainly be best if you simply had the funds available to pay. Aside from taxes, it's always a good idea to have money available - so you are prepared for a crisis.

 

If you have a large inventory, you can simply take a month off from buying - which should take care of any short term cashflow problems.

 

You should try to avoid ever having to sell your items at prices that are too low - just out of desperation.

 

For sure - I have available money, just spread out through other bank accounts, etc. I was trying to think of a good way to just set back money for it and was curious how others did it.

 

I was researching the quarterly tax payments which will make it easier. I am gonna talk about it with my tax advisor.

 

As for an accountant - I do that myself so I couldn't ask him. Although my buddy is an accountant and helps me out with Federal stuff. Lives in a different state though so hes not as much help state-wise.

[Migration]

I set aside a bit from each sale and stick it in three or six month CDs based on how long until tax time. The interest is crap, but you do gain a little and it keeps me from spending it. I usually overestimate what I owe so after filling I wind up with a nice chunk to spend.

[matrosov]

DNIM  here's how it works. 

 

If at the end of this year you owe 1K or more of taxes on your personal tax return you're required to start making estimated tax payments next year.  There might be a penalty involved as well for this year.  Estimated tax payments is not as simple as 30% of every sale.  There are types of sales and  deductions that have to be considered.

 

For example sale of   part out bricks is an ordinary income and taxed at your tax bracket.  Sale of sets held for more than one year could be long term gain on investment which is 15% or could be 28% sale of collectible or it even could be ordinary income depending on how you want to interpret IRS rules. 

 

Now deductions, your storage space even if it's in your house is deductible, your wear tear on the car is deductible as it relates to your business, packing supplies, phone, printer ink, internet connection, etc etc. 

 

The proper way to do it is not at the time of sale but rather at the end of the period, based on the proceeds and expenses of the period. Based on what you are saying I would say that you should segregate yourself from your business at least financially if not legally.  My suggestion is to have two business accounts totally separate from your personal ones. One account would be your operating account, the other would be your tax liability holding account you would transfer funds on a monthly basis from operating account to liability account depending on your calculations.  You don't use your business accounts for anything personal, i.e. personal bill payments, vacations, etc. You withdraw money from operating business account to your personal one and then do as you please.  Also I would get a separate credit card just for the business expenses and pay it out of the business operating account.  I would also say that if you made 10K last year from your lego business you go LLC route and completely divorce yourself from your business. 

 

The only per sale tax that you should stash away, right away is the sales tax that you charge your customers. 

[Grolim]

Some good advice above.

 

If you have a good handle on your expenses you can estimate a net profit for each sale and transfer the tax portion of the profit straight away into a separate savings account in order to accrue a little interest.  At the end of the period you can do a washup between your estimated amount and the actual amounts to top up or deduct from your tax account.

[DoNotInsertIntoMouth]

So if I go the LLC route - which I plan to do anyway - would that only apply for purchases made after the date I register as that? Or could I do it for next year including the sales already this year?

[matrosov]

LLC is a legal entity.  Not to be confused with a tax entity.  LLC is a separate legal entity from you it can enter contracts it can apply for loans it can own a building. You cannot get sued for the most part for liabilities of LLC.  For tax purposes LLC is a pass thru entity.  Meaning that any net income LLC has made goes directly to your tax return.  If LLC consists of one member for tax purposes IRS considers it a sole proprietorship.  Where it makes it easier tax wise is you keep completely separate books, accounts, finances for your LLC figure out its income and then add it to your 1040.  Meaning you don't commingle your personal and business books.  If you want to completely divorce yourself tax wise then corp is a way to go.  With corp of course you get into situation of double taxation,  Corp pays taxes as a legal entity and then you pay taxes on a salary and/or dividends that you get from the corp. 

 

When we had our business I set it up as a corp just because I didn't want to be bothered comes tax time.  Paid myself salary got my W2 paid myself dividends at the end of the year filed two fairly easy tax returns one for me one for corp. 

[justafrog]

I don't put anything aside.  I do calculate mileage, square footage of storage and office space along with all receipts of lego purchases, shipping cost, fees and supplies.  I don't keep track of profits because your only taxed on what you actually pay yourself (if you even pay yourself).  If you use a professional CPA you'll end up getting a return.

 

This is not at all accurate.

 

If you file a schedule C (which is where deductions for things like mileage, storage, receipts from purchases, etc. would be reported), you WILL be paying self employment tax on your net profit. There is no such thing as "actually paying yourself" - you have received the money, you get to deduct the expenses, and whatever's left, whether it's sitting in PayPal or a checking or savings account or stuffed in your mattress - is net profit you're going to be paying taxes on.

 

If you have not paid taxes on it thus far, it's because you've been showing a loss (not uncommon, as there are many expenses that can be taken legitimately to reduce profit, and many people don't actually make much if anything on this kind of side business because they're bad at math. :-)

 

Edited to add: And, while using a CPA or an EA for tax preparation is a good idea, it's not a magic wand to receiving a refund. All they can legally do is plug in the numbers and give you the results. Some people do indeed legitimately owe tax regardless of using a CPA.

[DoNotInsertIntoMouth]

This is not at all accurate.

 

If you file a schedule C (which is where deductions for things like mileage, storage, receipts from purchases, etc. would be reported), you WILL be paying self employment tax on your net profit. There is no such thing as "actually paying yourself" - you have received the money, you get to deduct the expenses, and whatever's left, whether it's sitting in PayPal or a checking or savings account or stuffed in your mattress - is net profit you're going to be paying taxes on.

 

If you have not paid taxes on it thus far, it's because you've been showing a loss (not uncommon, as there are many expenses that can be taken legitimately to reduce profit, and many people don't actually make much if anything on this kind of side business because they're bad at math. :-)

 

Edited to add: And, while using a CPA or an EA for tax preparation is a good idea, it's not a magic wand to receiving a refund. All they can legally do is plug in the numbers and give you the results. Some people do indeed legitimately owe tax regardless of using a CPA.

 

Lol I am regretting being good at math. I am seeing I was making way more money than I first figured. Not a bad thing - but the tax bill is gonna be worse. lol.

 

Frog - are you set up as an LLC? My tax person seemed to indicate it would be easier for me to just go straight with Schedule C and add it to my normal income through my job, but I was worried they just didn't know as much about it. I know yours is different because you actually do this for a living (unless you have another job I haven't seen you mention, lol) but I am just interested in what some others I have respect for do.

 

Obviously up to you if you really want to go on with it.

 

I also have an issue with trusting one professional when I do anything. Problem is, it gets really expensive if you go to 10 different people on everything. I like to hear other people's direct experiences.

[justafrog]

We just do the schedule C. Our accountant says, and I agree, that it's a needless expense to go S-Corp or LLC at least at this point.

 

LLCs are handy if you need to do what they're called: limit your liability. Since in spite of the eBay Crazy Lady rash problem experienced by one of our members this week ;-) I am not worried about the potential liability issues of Lego (or book) selling. If I were selling guns or attack dogs, I'd start an LLC.

[DoNotInsertIntoMouth]

We just do the schedule C. Our accountant says, and I agree, that it's a needless expense to go S-Corp or LLC at least at this point.

 

LLCs are handy if you need to do what they're called: limit your liability. Since in spite of the eBay Crazy Lady rash problem experienced by one of our members this week ;-) I am not worried about the potential liability issues of Lego (or book) selling. If I were selling guns or attack dogs, I'd start an LLC.

 

Ok sweet - I thought I was seeing it correctly by thinking it wasn't going to really get me anything.

 

You never know though - someone steps on a brick hard enough.

[matrosov]

We just do the schedule C. Our accountant says, and I agree, that it's a needless expense to go S-Corp or LLC at least at this point.

 

LLCs are handy if you need to do what they're called: limit your liability. Since in spite of the eBay Crazy Lady rash problem experienced by one of our members this week ;-) I am not worried about the potential liability issues of Lego (or book) selling. If I were selling guns or attack dogs, I'd start an LLC

McDonalds and hot coffee and big lawsuit comes to mind.    I bet that clown was really glad he incorporated. Lego=Chocking hazard.   Never underestimate the power of greed in American society just saying...  I paid about 300 to incorporate last time around maybe 70 a year after that was really nominal cost. I'm finance by trade so I couldn't get my head around my books being business books I had to keep them totally separated or I would have a meltdown. So incorporating was just an extension of that, separate tax returns, W2 all straightforward and normal.  Didn't really get that huge of a hit on taxes vs keeping it all on my 1040.  But it was nice and easy and logical so it was worth the price.