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Figuring Out Net Income for Owning A Business

freelancer123

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I think he’s asking, how much revenue do you need to generate to profit (before taxes) of $86k after business deductions.

Are you selling products? Pm me and I can help you figure out why you’re netting so little.


Thank you! Yeah, I'm selling services...I'd greatly appreciate it. I can't figure out how to PM on here, could you possibly PM me and I'll respond?
 
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biophase

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Dude, you were asking impossible questions for us to answer. We have no idea what type of business you are in.

What are you selling your service for? And what does it cost you to provide this service? Those are your main numbers.

Then you have other expenses such as paperwork, Internet, general business expenses and miscellaneous stuff that should be generally pretty low compared to your income.

As for taxes, A very easy rule of thumb that I follow is that if I make $100K I put $33,000 away for taxes, about 33%. You should probably be putting away about 25% for taxes each year.

Since you underpaid by $3000, this means that you actually made more money this year than last year. Your CPA has no way of knowing that you are actually making more money this year compared to last year unless you tell them this during the year.
 

freelancer123

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Dude, you were asking impossible questions for us to answer. We have no idea what type of business you are in.

As I said in the first post...teacher/performer.

What are you selling your service for? And what does it cost you to provide this service? Those are your main numbers.

I honestly would prefer to talk about the details of my job and livelihood in PMs. I have been looking for general information relating to the topic, not a diagnosis.

Then you have other expenses such as paperwork, Internet, general business expenses and miscellaneous stuff that should be generally pretty low compared to your income.

It should be low if you want to generate more profit? Or just in general should be low? Is it common to have a goal to generate profit with minimal expenses?

As for taxes, A very easy rule of thumb that I follow is that if I make $100K I put $33,000 away for taxes, about 33%. You should probably be putting away about 25% for taxes each year.

Thank you, this is very helpful! This is what I've been looking for.
 
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freelancer123

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I think he’s asking, how much revenue do you need to generate to profit (before taxes) of $86k after business deductions.

Are you selling products? Pm me and I can help you figure out why you’re netting so little.

I have to figure it out. I honestly am going to go through this years return with a CPA and figure that out.

It took reading and re-reading...but I am pretty certain I understand. So if I generate a profit (before taxes) of 86k, take the taxes out and it should land around 60k (approximately, there are a lot of factors as you've said). I would need to figure out how much revenue I would need to generate that 86k profit if I didn't already know that. Correct?
 

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You can do your own 1099s. I do mine. You can order the forms from IRS and fill them out in January.

And you could off set a whole bunch of income taxes with real estate depreciation.

I have lived very comfortably on very little net income out of my businesses. By owning small businesses and real estate, those factors shelter a lot of my income.

It sounds like you need to get your arms around your business life. You have a bunch of loose ends that are driving you crazy. Take a deep breath. Make a plan.

Set up a few minutes per day to start educating yourself on how to make your life easier and more organized. Even if that time is 15 minutes during your lunch, it will really pay off for you. OR, try some audio books and coursework. You can listen while you drive or do mindless tasks. However you do it, it has to be a consist, daily learning program...
 

Real Deal Denver

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HERE is your answer.

I have my entire business plan - and that's what he/she is really looking for here - on a tiny half page spreadsheet.

You can easily do the same thing. In only an hour or two. Here's how:

Get an excel spreadsheet. Excel is the "original" one that most people are familiar with, and so I use that terminology here so you can speak the "lingo" to your accountant, or whoever. Excel is the name of the program that Microsoft developed. Google has spreadsheets for free, if that's easier. They are called Google Docs. There are many others, as well. They are easy to find on the internet. You will need a spreadsheet to build the business plan I am going to walk you through in the rest of this post. You will be ecstatic when you are done. This is the key that will open doors for you. Are you ready? Here we go.

Start a "new worksheet" in your spreadsheet program (or workbook, as Excel calls it).

List your monthly income "outline." This is how much you COULD make. For example, you sell three performing packages - one for $300, one for $400, and one for $600. List each one in a column - one per line - by the package name. Add another column next to that, with the price of whatever each package is. Then add another column, next to this column, for how many of these you might sell. Add a fourth column for what those totals may be. You now have four columns next to each other. (1) Package Name, (2) Package Price, (3) Package Quantity, and (4) Total Sales for the Package. You will have one line with all four of these columns for each separate "package" you might sell. Multiply these out for each package. For example: Four of package 1, Four of package 2, and One of package 3. You should now be able to see how much monthly income you can make from EACH package. In this example, you will have three totals - one for each package that you might sell.

Total the end result "total sales" of all of these three packages. That will give you a grand total. You will now have one number, which is your total POTENTIAL monthly income, that is from the sales of ALL of your different packages.

This is what you can produce every month. This is your TOTAL potential income. If there are other sources of income, list those also - each on their own line.

We are DONE with income. Be sure every "potential" source - and every "real" (a paycheck from a regular job?) source - is listed. Every one!

Your total income - all by itself, with no expenses deducted - is what is termed your "gross income" which is the question you posed in your original post. But that is only a starting point, that means nothing by itself. This will make sense very shortly. So, we continue on...

List every expense for the month. Estimate ones, like food, and entertainment, that can't be exact. I list mine one line at a time, and then total them into one number. Once again, you have ONE number - a grand total of ALL your expenses.

You now have two numbers we are going to work with. Total income - and total expenses.

Subtract your monthly expenses from your monthly income.

This is your net income. This is the number you really need to know.

Take any of the methods already presented here to estimate your taxes.
Subtract that from your net income. Taking 1/3 of your net income is a quick and easy estimate.

Subtract your taxes from your net income.

What is left is what your profit (or your loss). This could be called your discretionary income. Or your leftover mad money. Whatever you want to call it - it's your "buffer" that pays for the "extra" things in life, like a car - a vacation - an electric toothbrush.

NOW you can see what you have - in plain black and white, in neatly organized columns. And now you can make decisions on what you might want to change. Now the power of being in charge is at your fingertips!

ALL of your information is right there - in front of you. So what? Here's what:

You can now decide to: work your business to charge more per job - or do more jobs - or lower your expenses. But this will only work if your spreadsheet is set up to properly do this - automatically.

That's what spreadsheets are designed to do.

For guidance on how this works in a spreadsheet, look to YouTube. I am basically telling you HOW to drive a car - not HOW a car works. Big difference. You will need to know HOW a spreadsheet works, and why you would use one, instead of just something printed out on a piece of paper. Printed out information is "static" - it is what it is: 2 + 2 = 4. A spreadsheet is "alive" - like a formula in algebra. You did like algebra, right? Now, the "formula" is I - E = P. You "plug in" the values. I = income. E = expenses. P = profit. Change any of them, and everything else will automatically "reset" to whatever the "answer" now becomes. Using our "static example", if you change the first "2" in the static equation to "5" the answer will automatically change to what it should be: 7. You don't have to calculate it - that's why you use a spreadsheet - it does it for you.

Now you can tweak things, and the end results will adjust themselves according to whatever you changed. Add a car payment - pay a bill off - buy less food - budget $200 a month for a vacation - whatever. It all will automatically recalculate and adjust your totals. Track these results month by month, and you can really have some powerful "insight" so you know what you need to change to achieve the results you want (make $60,000 a year after taxes - or whatever). Your business is your ship - the spreadsheet is your map that will allow you to guide your ship.

It's not complicated. In fact, it's simple, and very powerful. You can learn as much about this as you want. Or, you can set this up, and spend your time making money doing what you like to do. Don't let this become complicated. It is a tool for you to use - not another "task" you have to add to your "job."

This is your business plan on ONE page. You can tweak and play with this to your heart's content. No fancy accounting. Nothing hidden or mysterious. It's all right there in front of you to see clearly.

If this is hard for you - don't worry about it. Find a high school math whiz or college business kid - give them $30, and have them build this for you. They should be able to do that AND instruct you on how to use it, all in under an hour. If you read a "Dummies how to book" first, you can do it yourself, but that may take a couple of days, or even a week or more. You don't need to know that much - you only need this ONE sheet for your business plan.

You HAVE to be able to use this and understand it. If you don't, you will be chasing CPAs and others, trying to find an answer, forever. Every time something changes, you will have to go running back to your CPA. Don't do that. Do it yourself. It's very easy, once you know how. I wasn't born knowing how to do this, and neither was anyone else. Don't feel bad if you don't know it. But DO feel bad if you don't follow through on this. This is as necessary in business as being able to read is in everyday life.

There is your path. Once you see this and understand it, a light will come on in your mind, and you will never be in the darkness again!
 
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Real Deal Denver

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I think there's a disconnect here. People on this forum can't help you, because we don't know anything about your business structure, expenses, etc.
I run a service business. If I bill out $90k, I'm probably looking at $80k in profit.
If you run an eCommerce business, you may be looking at $10k in profit.
If you run a grocery store, you may be looking at $2k in profit.

There is no one-size-fits-all answer as to how much you need to gross in order to get $60k after taxes. It will be highly dependent on what type of business you are running.

As you can see in my example above, this doesn't have to be complicated. I do not let my CPA, attorney, or anyone else, lead me into things that I don't understand. Nothing personal, but you should be TEACHING your clients WHY they need to do the things they need to do - and why it matters.

I understand your post perfectly, as many here do. But for someone new to business, it would go completely over their head. We know that - so don't do it.

Einstein said that if you can't explain something in a simple way, you don't understand it well enough.

I point all of this out to you because I noticed you jumped on the band wagon on another thread yesterday, from a delusional poster here that felt the need to lash out and attack me. I don't care about what the delusional ones here think. I can't help that. ("Book em Danno" might trigger your memory.) But I do take exception to ones that are supposed to be educated and professional. I hold the professional people I work with to high standards, and they do the same to me. As you will see in my post above, I have laid out the pathway to take a novice person that might know almost nothing about business, into the realm of understanding, and being in charge of a business - in a basic way - but still able to at least see and work with the fundamental principals. It's super simple, of course, but it gets them to a point of understanding that is actually productive. Your examples, on the other hand, amplify the confusion someone already has. I know. I was once there myself. Feel free to copy my instructions for all of your clients that are new - or better yet, build the spreadsheet for them. Exceed their expectations. I have not seen a tremendous amount of that here, but I have seen a gang up mentality that just has a bad smell to it... we've all been there, right?
 

CareCPA

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Nothing personal, but you should be TEACHING your clients WHY they need to do the things they need to do - and why it matters.

I understand your post perfectly, as many here do. But for someone new to business, it would go completely over their head. We know that - so don't do it.

Einstein said that if you can't explain something in a simple way, you don't understand it well enough.
I'm not sure that you know enough about me or my business to be able to make this determination. I think there are several people on this forum who would speak to my knowledge and proactive thinking. And this is even after they sought me out, since I don't solicit business on the forum.

HERE is your answer.
[...]
List every expense for the month. Estimate ones, like food, and entertainment, that can't be exact. I list mine one line at a time, and then total them into one number. Once again, you have ONE number - a grand total of ALL your expenses.

You now have two numbers we are going to work with. Total income - and total expenses.

Subtract your monthly expenses from your monthly income.

This is your net income. This is the number you really need to know.

Take any of the methods already presented here to estimate your taxes.
Subtract that from your net income. Taking 1/3 of your net income is a quick and easy estimate.

Subtract your taxes from your net income.

What is left is what your profit (or your loss). This could be called your discretionary income. Or your leftover mad money. Whatever you want to call it - it's your "buffer" that pays for the "extra" things in life, like a car - a vacation - an electric toothbrush.
[...]
(Trimmed for relevance)
You have now combined a business Income Statement with a personal budget, and tried to calculate taxes after accounting for required personal expenses. I think it's a good thing you have a good CPA, so they can sort out what are actual business expenses, and what are non-deductible personal expenses. Otherwise, you probably would have found yourself in front of the IRS by now.

I point all of this out to you because I noticed you jumped on the band wagon on another thread yesterday, from a delusional poster here that felt the need to lash out and attack me. I don't care about what the delusional ones here think. I can't help that. ("Book em Danno" might trigger your memory.)
This was the post I "liked" by @eliquid that was apparently me ganging up on you:
You've been no help to the forum. Let it go and stop being an arrogant prick overall in all your posts.

I'm not the one that got bent out of shape over an ebook, like you. Just remember that.
.
I liked it because it's true. Even your post to me drips with condescension and "better-than-thou" attitude
Example 1:
Nothing personal, but you should be TEACHING your clients WHY they need to do the things they need to do - and why it matters.
You jump to assumptions on how I deal with my clients based on one post. Apparently you can track down the one Like I have on a post "against" you, but not the AMA thread I did on taxes.
Similarly, you think @eliquid is delusional, but I can't even imagine the millions of dollars in revenue he's helped people generate with his (again, FREE) thread on here about advertising.

Example 2:
Feel free to copy my instructions for all of your clients that are new - or better yet, build the spreadsheet for them. Exceed their expectations. I have not seen a tremendous amount of that here, but I have seen a gang up mentality that just has a bad smell to it... we've all been there, right?
If you haven't found that people here "exceed their expectations," then I'm not sure what your expectations are. There is an incredible amount of knowledge on this forum, freely given. Are you sure you're in the right place?

Maybe @MJ DeMarco @Vigilante @Andy Black and the other mods see value in your posts, but to me, you seem to turn every thread into personal attacks and arguments, completely derailing the original thread and forcing all of the rest of us to waste time defending ourselves. Is this your idea of productive discussion?
If you're going to make comments about the professionalism of others, I think you may want to keep a closer eye on the assumptions and insinuations you're making.
I won't waste time in the future, but I also won't allow my name and reputation to be called into question by those who have nothing better to do than to attack established forum members on every thread.

PS:
("Book em Danno" might trigger your memory.)
Before my time.
 

freelancer123

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HERE is your answer.

I have my entire business plan - and that's what he/she is really looking for here - on a tiny half page spreadsheet.

You can easily do the same thing. In only an hour or two. Here's how:

Get an excel spreadsheet. Excel is the "original" one that most people are familiar with, and so I use that terminology here so you can speak the "lingo" to your accountant, or whoever. Excel is the name of the program that Microsoft developed. Google has spreadsheets for free, if that's easier. They are called Google Docs. There are many others, as well. They are easy to find on the internet. You will need a spreadsheet to build the business plan I am going to walk you through in the rest of this post. You will be ecstatic when you are done. This is the key that will open doors for you. Are you ready? Here we go.

Start a "new worksheet" in your spreadsheet program (or workbook, as Excel calls it).

List your monthly income "outline." This is how much you COULD make. For example, you sell three performing packages - one for $300, one for $400, and one for $600. List each one in a column - one per line - by the package name. Add another column next to that, with the price of whatever each package is. Then add another column, next to this column, for how many of these you might sell. Add a fourth column for what those totals may be. You now have four columns next to each other. (1) Package Name, (2) Package Price, (3) Package Quantity, and (4) Total Sales for the Package. You will have one line with all four of these columns for each separate "package" you might sell. Multiply these out for each package. For example: Four of package 1, Four of package 2, and One of package 3. You should now be able to see how much monthly income you can make from EACH package. In this example, you will have three totals - one for each package that you might sell.

Total the end result "total sales" of all of these three packages. That will give you a grand total. You will now have one number, which is your total POTENTIAL monthly income, that is from the sales of ALL of your different packages.

This is what you can produce every month. This is your TOTAL potential income. If there are other sources of income, list those also - each on their own line.

We are DONE with income. Be sure every "potential" source - and every "real" (a paycheck from a regular job?) source - is listed. Every one!

Your total income - all by itself, with no expenses deducted - is what is termed your "gross income" which is the question you posed in your original post. But that is only a starting point, that means nothing by itself. This will make sense very shortly. So, we continue on...

List every expense for the month. Estimate ones, like food, and entertainment, that can't be exact. I list mine one line at a time, and then total them into one number. Once again, you have ONE number - a grand total of ALL your expenses.

You now have two numbers we are going to work with. Total income - and total expenses.

Subtract your monthly expenses from your monthly income.

This is your net income. This is the number you really need to know.

Take any of the methods already presented here to estimate your taxes.
Subtract that from your net income. Taking 1/3 of your net income is a quick and easy estimate.

Subtract your taxes from your net income.

What is left is what your profit (or your loss). This could be called your discretionary income. Or your leftover mad money. Whatever you want to call it - it's your "buffer" that pays for the "extra" things in life, like a car - a vacation - an electric toothbrush.

NOW you can see what you have - in plain black and white, in neatly organized columns. And now you can make decisions on what you might want to change. Now the power of being in charge is at your fingertips!

ALL of your information is right there - in front of you. So what? Here's what:

You can now decide to: work your business to charge more per job - or do more jobs - or lower your expenses. But this will only work if your spreadsheet is set up to properly do this - automatically.

That's what spreadsheets are designed to do.

For guidance on how this works in a spreadsheet, look to YouTube. I am basically telling you HOW to drive a car - not HOW a car works. Big difference. You will need to know HOW a spreadsheet works, and why you would use one, instead of just something printed out on a piece of paper. Printed out information is "static" - it is what it is: 2 + 2 = 4. A spreadsheet is "alive" - like a formula in algebra. You did like algebra, right? Now, the "formula" is I - E = P. You "plug in" the values. I = income. E = expenses. P = profit. Change any of them, and everything else will automatically "reset" to whatever the "answer" now becomes. Using our "static example", if you change the first "2" in the static equation to "5" the answer will automatically change to what it should be: 7. You don't have to calculate it - that's why you use a spreadsheet - it does it for you.

Now you can tweak things, and the end results will adjust themselves according to whatever you changed. Add a car payment - pay a bill off - buy less food - budget $200 a month for a vacation - whatever. It all will automatically recalculate and adjust your totals. Track these results month by month, and you can really have some powerful "insight" so you know what you need to change to achieve the results you want (make $60,000 a year after taxes - or whatever). Your business is your ship - the spreadsheet is your map that will allow you to guide your ship.

It's not complicated. In fact, it's simple, and very powerful. You can learn as much about this as you want. Or, you can set this up, and spend your time making money doing what you like to do. Don't let this become complicated. It is a tool for you to use - not another "task" you have to add to your "job."

This is your business plan on ONE page. You can tweak and play with this to your heart's content. No fancy accounting. Nothing hidden or mysterious. It's all right there in front of you to see clearly.

If this is hard for you - don't worry about it. Find a high school math whiz or college business kid - give them $30, and have them build this for you. They should be able to do that AND instruct you on how to use it, all in under an hour. If you read a "Dummies how to book" first, you can do it yourself, but that may take a couple of days, or even a week or more. You don't need to know that much - you only need this ONE sheet for your business plan.

You HAVE to be able to use this and understand it. If you don't, you will be chasing CPAs and others, trying to find an answer, forever. Every time something changes, you will have to go running back to your CPA. Don't do that. Do it yourself. It's very easy, once you know how. I wasn't born knowing how to do this, and neither was anyone else. Don't feel bad if you don't know it. But DO feel bad if you don't follow through on this. This is as necessary in business as being able to read is in everyday life.

There is your path. Once you see this and understand it, a light will come on in your mind, and you will never be in the darkness again!


THIS.

Thank you thank you thank you

The thing I really am trying to also learn about is how things like rent on apartment, dental bills, car payment, etc. are technically expenses to me, but are actually going to be taken from my “discretionary” funds. that is part of the reason i’ve been poking around on this forum...to see if I can understand it all better.
 
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WJK

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HERE is your answer.

I have my entire business plan - and that's what he/she is really looking for here - on a tiny half page spreadsheet.

You can easily do the same thing. In only an hour or two. Here's how:

Get an excel spreadsheet. Excel is the "original" one that most people are familiar with, and so I use that terminology here so you can speak the "lingo" to your accountant, or whoever. Excel is the name of the program that Microsoft developed. Google has spreadsheets for free, if that's easier. They are called Google Docs. There are many others, as well. They are easy to find on the internet. You will need a spreadsheet to build the business plan I am going to walk you through in the rest of this post. You will be ecstatic when you are done. This is the key that will open doors for you. Are you ready? Here we go.

Start a "new worksheet" in your spreadsheet program (or workbook, as Excel calls it).

List your monthly income "outline." This is how much you COULD make. For example, you sell three performing packages - one for $300, one for $400, and one for $600. List each one in a column - one per line - by the package name. Add another column next to that, with the price of whatever each package is. Then add another column, next to this column, for how many of these you might sell. Add a fourth column for what those totals may be. You now have four columns next to each other. (1) Package Name, (2) Package Price, (3) Package Quantity, and (4) Total Sales for the Package. You will have one line with all four of these columns for each separate "package" you might sell. Multiply these out for each package. For example: Four of package 1, Four of package 2, and One of package 3. You should now be able to see how much monthly income you can make from EACH package. In this example, you will have three totals - one for each package that you might sell.

Total the end result "total sales" of all of these three packages. That will give you a grand total. You will now have one number, which is your total POTENTIAL monthly income, that is from the sales of ALL of your different packages.

This is what you can produce every month. This is your TOTAL potential income. If there are other sources of income, list those also - each on their own line.

We are DONE with income. Be sure every "potential" source - and every "real" (a paycheck from a regular job?) source - is listed. Every one!

Your total income - all by itself, with no expenses deducted - is what is termed your "gross income" which is the question you posed in your original post. But that is only a starting point, that means nothing by itself. This will make sense very shortly. So, we continue on...

List every expense for the month. Estimate ones, like food, and entertainment, that can't be exact. I list mine one line at a time, and then total them into one number. Once again, you have ONE number - a grand total of ALL your expenses.

You now have two numbers we are going to work with. Total income - and total expenses.

Subtract your monthly expenses from your monthly income.

This is your net income. This is the number you really need to know.

Take any of the methods already presented here to estimate your taxes.
Subtract that from your net income. Taking 1/3 of your net income is a quick and easy estimate.

Subtract your taxes from your net income.

What is left is what your profit (or your loss). This could be called your discretionary income. Or your leftover mad money. Whatever you want to call it - it's your "buffer" that pays for the "extra" things in life, like a car - a vacation - an electric toothbrush.

NOW you can see what you have - in plain black and white, in neatly organized columns. And now you can make decisions on what you might want to change. Now the power of being in charge is at your fingertips!

ALL of your information is right there - in front of you. So what? Here's what:

You can now decide to: work your business to charge more per job - or do more jobs - or lower your expenses. But this will only work if your spreadsheet is set up to properly do this - automatically.

That's what spreadsheets are designed to do.

For guidance on how this works in a spreadsheet, look to YouTube. I am basically telling you HOW to drive a car - not HOW a car works. Big difference. You will need to know HOW a spreadsheet works, and why you would use one, instead of just something printed out on a piece of paper. Printed out information is "static" - it is what it is: 2 + 2 = 4. A spreadsheet is "alive" - like a formula in algebra. You did like algebra, right? Now, the "formula" is I - E = P. You "plug in" the values. I = income. E = expenses. P = profit. Change any of them, and everything else will automatically "reset" to whatever the "answer" now becomes. Using our "static example", if you change the first "2" in the static equation to "5" the answer will automatically change to what it should be: 7. You don't have to calculate it - that's why you use a spreadsheet - it does it for you.

Now you can tweak things, and the end results will adjust themselves according to whatever you changed. Add a car payment - pay a bill off - buy less food - budget $200 a month for a vacation - whatever. It all will automatically recalculate and adjust your totals. Track these results month by month, and you can really have some powerful "insight" so you know what you need to change to achieve the results you want (make $60,000 a year after taxes - or whatever). Your business is your ship - the spreadsheet is your map that will allow you to guide your ship.

It's not complicated. In fact, it's simple, and very powerful. You can learn as much about this as you want. Or, you can set this up, and spend your time making money doing what you like to do. Don't let this become complicated. It is a tool for you to use - not another "task" you have to add to your "job."

This is your business plan on ONE page. You can tweak and play with this to your heart's content. No fancy accounting. Nothing hidden or mysterious. It's all right there in front of you to see clearly.

If this is hard for you - don't worry about it. Find a high school math whiz or college business kid - give them $30, and have them build this for you. They should be able to do that AND instruct you on how to use it, all in under an hour. If you read a "Dummies how to book" first, you can do it yourself, but that may take a couple of days, or even a week or more. You don't need to know that much - you only need this ONE sheet for your business plan.

You HAVE to be able to use this and understand it. If you don't, you will be chasing CPAs and others, trying to find an answer, forever. Every time something changes, you will have to go running back to your CPA. Don't do that. Do it yourself. It's very easy, once you know how. I wasn't born knowing how to do this, and neither was anyone else. Don't feel bad if you don't know it. But DO feel bad if you don't follow through on this. This is as necessary in business as being able to read is in everyday life.

There is your path. Once you see this and understand it, a light will come on in your mind, and you will never be in the darkness again!
Good post. Back to the basics. This man doesn't know where he's going!
 

eliquid

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HERE is your answer.

I have my entire business plan - and that's what he/she is really looking for here - on a tiny half page spreadsheet.

You can easily do the same thing. In only an hour or two. Here's how:

Get an excel spreadsheet. Excel is the "original" one that most people are familiar with, and so I use that terminology here so you can speak the "lingo" to your accountant, or whoever. Excel is the name of the program that Microsoft developed. Google has spreadsheets for free, if that's easier. They are called Google Docs. There are many others, as well. They are easy to find on the internet. You will need a spreadsheet to build the business plan I am going to walk you through in the rest of this post. You will be ecstatic when you are done. This is the key that will open doors for you. Are you ready? Here we go.

Start a "new worksheet" in your spreadsheet program (or workbook, as Excel calls it).

List your monthly income "outline." This is how much you COULD make. For example, you sell three performing packages - one for $300, one for $400, and one for $600. List each one in a column - one per line - by the package name. Add another column next to that, with the price of whatever each package is. Then add another column, next to this column, for how many of these you might sell. Add a fourth column for what those totals may be. You now have four columns next to each other. (1) Package Name, (2) Package Price, (3) Package Quantity, and (4) Total Sales for the Package. You will have one line with all four of these columns for each separate "package" you might sell. Multiply these out for each package. For example: Four of package 1, Four of package 2, and One of package 3. You should now be able to see how much monthly income you can make from EACH package. In this example, you will have three totals - one for each package that you might sell.

Total the end result "total sales" of all of these three packages. That will give you a grand total. You will now have one number, which is your total POTENTIAL monthly income, that is from the sales of ALL of your different packages.

This is what you can produce every month. This is your TOTAL potential income. If there are other sources of income, list those also - each on their own line.

We are DONE with income. Be sure every "potential" source - and every "real" (a paycheck from a regular job?) source - is listed. Every one!

Your total income - all by itself, with no expenses deducted - is what is termed your "gross income" which is the question you posed in your original post. But that is only a starting point, that means nothing by itself. This will make sense very shortly. So, we continue on...

List every expense for the month. Estimate ones, like food, and entertainment, that can't be exact. I list mine one line at a time, and then total them into one number. Once again, you have ONE number - a grand total of ALL your expenses.

You now have two numbers we are going to work with. Total income - and total expenses.

Subtract your monthly expenses from your monthly income.

This is your net income. This is the number you really need to know.

Take any of the methods already presented here to estimate your taxes.
Subtract that from your net income. Taking 1/3 of your net income is a quick and easy estimate.

Subtract your taxes from your net income.

What is left is what your profit (or your loss). This could be called your discretionary income. Or your leftover mad money. Whatever you want to call it - it's your "buffer" that pays for the "extra" things in life, like a car - a vacation - an electric toothbrush.

NOW you can see what you have - in plain black and white, in neatly organized columns. And now you can make decisions on what you might want to change. Now the power of being in charge is at your fingertips!

ALL of your information is right there - in front of you. So what? Here's what:

You can now decide to: work your business to charge more per job - or do more jobs - or lower your expenses. But this will only work if your spreadsheet is set up to properly do this - automatically.

That's what spreadsheets are designed to do.

For guidance on how this works in a spreadsheet, look to YouTube. I am basically telling you HOW to drive a car - not HOW a car works. Big difference. You will need to know HOW a spreadsheet works, and why you would use one, instead of just something printed out on a piece of paper. Printed out information is "static" - it is what it is: 2 + 2 = 4. A spreadsheet is "alive" - like a formula in algebra. You did like algebra, right? Now, the "formula" is I - E = P. You "plug in" the values. I = income. E = expenses. P = profit. Change any of them, and everything else will automatically "reset" to whatever the "answer" now becomes. Using our "static example", if you change the first "2" in the static equation to "5" the answer will automatically change to what it should be: 7. You don't have to calculate it - that's why you use a spreadsheet - it does it for you.

Now you can tweak things, and the end results will adjust themselves according to whatever you changed. Add a car payment - pay a bill off - buy less food - budget $200 a month for a vacation - whatever. It all will automatically recalculate and adjust your totals. Track these results month by month, and you can really have some powerful "insight" so you know what you need to change to achieve the results you want (make $60,000 a year after taxes - or whatever). Your business is your ship - the spreadsheet is your map that will allow you to guide your ship.

It's not complicated. In fact, it's simple, and very powerful. You can learn as much about this as you want. Or, you can set this up, and spend your time making money doing what you like to do. Don't let this become complicated. It is a tool for you to use - not another "task" you have to add to your "job."

This is your business plan on ONE page. You can tweak and play with this to your heart's content. No fancy accounting. Nothing hidden or mysterious. It's all right there in front of you to see clearly.

If this is hard for you - don't worry about it. Find a high school math whiz or college business kid - give them $30, and have them build this for you. They should be able to do that AND instruct you on how to use it, all in under an hour. If you read a "Dummies how to book" first, you can do it yourself, but that may take a couple of days, or even a week or more. You don't need to know that much - you only need this ONE sheet for your business plan.

You HAVE to be able to use this and understand it. If you don't, you will be chasing CPAs and others, trying to find an answer, forever. Every time something changes, you will have to go running back to your CPA. Don't do that. Do it yourself. It's very easy, once you know how. I wasn't born knowing how to do this, and neither was anyone else. Don't feel bad if you don't know it. But DO feel bad if you don't follow through on this. This is as necessary in business as being able to read is in everyday life.

There is your path. Once you see this and understand it, a light will come on in your mind, and you will never be in the darkness again!

I hate to be the bearer of bad news, but listing your personal expenses on a spreadsheet is not a business plan ( your words here ).

Eat less food? Pay a bill off? LOL.

You're mixing personal and business and putting it on a spreadsheet and calling it a "business plan". Oh wow.

I think the delusional one is "the real deal". This is prob the worst piece of advice ever on this forum.

I'd love to be the IRS agent that ends up reviewing your bank accounts so I could "pierce the veil" on any business structure you have.

I do not let my CPA, attorney, or anyone else, lead me into things that I don't understand

This is why you are in the mess you are in. You don't "hire" smart people to tell them what to do, you "hire" smart people so they tell you what you need to do. The things you don't know or understand is the reason you hire them in the first place.

The arrogance is all over the place with this guy.

.
 

ZCP

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Threads like this are why a) we offer business consulting services to small businesses and b) we sometimes wish we didn't. :)

Please keep business and personal separate!

For business, learn how to put a P&L, Balance Sheet, and Statement of Cashflows together.
For personal, learn how to setup a Budget and complete a Personal Financial Statement.

Then learn how to complete your own 1040. (if in US)
learn Sch C or Sch E income and where it comes from.
what affects your AGI. AGI vs taxable income and what is the difference.
what triggers the next 'tax bracket'.
study and run scenarios.
most tax prep softwares will let you do planning / scenarios now. use that to answer your questions!

good luck!
 
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pwilliams84

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what the hell is happening here?
i see an audit in your future..

god bless you for running a business and taking action, but man oh man this seems so much like a cart, scratch that, 10 carts were put before their horses here.

this is exactly why in my intro i said i wanted to target small businesses to provide marketing/consulting. for fear that this is going on.

freelancer - can you maybe explain a little about what you do? i mean im pretty positive nobody here is going to solve your tax problem, but maybe we can intervene so that next year you still have one..
 

eliquid

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You want to talk business plan with an expert - here I am. But that's not what we're doing here, is it? Or did you miss that part? Read my earlier replies above. I don't have time to explain it again.

Why didn't you use your "business plan" to get an idea of pricing on an app before you asked me in my thread. You know, since you're the business plan expert and all.

Hmm... guess that's just example of how actions speak louder than words. Keep diggin your own hole here.

It's almost as entertaining as stand up at the Apollo.

.
 

eliquid

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Fine. I don't expect you to know about something not in your field. Nobody would.



Am I supposed to qualify that I am not an expert in a topic that I ask a question about? Sorry I asked - really, I am - very very sorry I found you.



Yeah - real sorry that I found you.

Now, STFU and get lost. You're nothing close to a professional. Don't waste your time trying to communicate with anyone that is. You ARE a waste of time.

Get it now?

Sadly, you will get what's coming to you in time for sure.

Just remember, you're the one that got bent out of shape over an ebook you couldn't get access to for free.

.
 
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MJ DeMarco

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Thread has been cleaned up with several posts deleted from several folks.

Real Deal Denver has been banned from thread.
 

eliquid

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Sorry for derailing the thread.

Things got out of hand. I can admit my mistakes.

I need to realize I don't have to fight every battle.

.
 

biophase

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As I said in the first post...teacher/performer.

I honestly would prefer to talk about the details of my job and livelihood in PMs. I have been looking for general information relating to the topic, not a diagnosis.

You can't get general advice on how to figure out your taxes. It's not a general topic. We can't help you because you don't understand your own business in terms of income and expenses. We can't give you any rule of thumbs here.

You provide a service so you should know if your service is going to make money or not. You should know this for each service. Why take a gig if it's not profitable?
 
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biophase

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List every expense for the month. Estimate ones, like food, and entertainment, that can't be exact. I list mine one line at a time, and then total them into one number. Once again, you have ONE number - a grand total of ALL your expenses.

You now have two numbers we are going to work with. Total income - and total expenses.

Subtract your monthly expenses from your monthly income.

This is your net income. This is the number you really need to know.

Take any of the methods already presented here to estimate your taxes.
Subtract that from your net income. Taking 1/3 of your net income is a quick and easy estimate.

Subtract your taxes from your net income.

What is left is what your profit (or your loss). This could be called your discretionary income. Or your leftover mad money. Whatever you want to call it - it's your "buffer" that pays for the "extra" things in life, like a car - a vacation - an electric toothbrush.

NOW you can see what you have - in plain black and white, in neatly organized columns. And now you can make decisions on what you might want to change. Now the power of being in charge is at your fingertips!

What you have outlined here is his personal budget. This is not his net income that he pays taxes on.

You can't subtract your food and entertainment as expenses. None of those items will have any bearing on how much he pays in taxes.

Definitely do NOT listen to his advice!!!
 
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biophase

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THIS.

Thank you thank you thank you

The thing I really am trying to also learn about is how things like rent on apartment, dental bills, car payment, etc. are technically expenses to me, but are actually going to be taken from my “discretionary” funds. that is part of the reason i’ve been poking around on this forum...to see if I can understand it all better.

Ok, so again generalizing... You run a business, your business has income and expenses. Those are separate. Business expenses are expenses you incur while running your business.

You also run a personal life, it has its own set of expenses that aren't related to business. You cannot say that a dental bill is a business expense, etc... (unless you might be a tooth or mouth model, then ask a CPA)

Business and Personal Life are separate... generally
 

pwilliams84

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I honestly would prefer to talk about the details of my job and livelihood in PMs. I have been looking for general information relating to the topic, not a diagnosis.

Just as an FYI, this comes across a bit snide, IMO. If you’re gonna generalize this as a “general question” then you need to accept the general answers given (CPA)which you didn’t - you wanted specific answers. That’s not how it works.

The question you are asking is at best elementary for someone running a business. This question should be asked before launching and it goes more like this:

I need to make X net income. My expenses and taxes account for Y% of my revenue. What should my should my minimum sales target be?

It’s also mathematically impossible for you to lose money by earning one extra dollar because of taxes, unless you’ve found a way to get taxed over 100%. This means expenses are likely the issue here, or, you’re taking the money you make off of a client, not putting anything aside for taxes nor paying them quarterly, and then being hit with a tax bill and thinking the business is “costing” you money. So yes indeed a full diagnosis would be needed.

So the general answer is go sit with your CPA. Find a business strategist or consultant. Educate yourself on irs.gov, read free information online, take a course on Udemy for $10 (MJ has some referral links on the site) and get yourself organized.


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CareCPA

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Here is how I would recommend looking at it (with an example below)...

1. Separate your business from your personal life. Set up a business entity. Keep separate bank accounts, use a separate credit card, potentially use a separate computer, etc for everything you do with your business. Track all of your business income and expenses completely separate from your other income and personal expenses.

2. Create a "Profit & Loss" statement (also known as a P&L) for your business. A P&L basically lists all of your income, subtracts out all of your expenses, and leaves you with a final number, which is your net income before taxes. You would build a P&L that accounts for all your income and expenses over the course of an entire year. Once you subtract expenses from income, you get your "Net Income." The Net Income number at the bottom is the big one we care about.

3. Because that net income was generated in a business you own, you are required to pay self-employment taxes (the 15.3% discussed earlier) on that income. Keep in mind that this 15.3% is just an estimate. Depending on how you structure your business, you may be able to eliminate this tax on part of your income; and, if you make more than a certain amount ($128,700 this year), that 15.3% gets reduced to about 9.1% (2.9%) for everything over that amount. But, 15.3% is a general rule of thumb.

4. Once you subtract self employment tax from your Net Income, this final number is the amount of business income that flows over to your personal income tax return (likely Line 12 or 17, depending on the type of entity you chose for your business). This income gets added to all the other income you made from other sources (W2 income, other businesses, investments, etc.). From there, you subtract out all of your personal deductions (IRA contributions, health savings plans, moving expenses, etc. plus your standard deduction or itemized deductions) and that leaves you with your Taxable Income. (Self employment tax shows up on page 2 of the 1040, so the income from the business will flow to line 12 or 17 before subtracting the self-employment tax. One half of the self-employment tax will show up as a deduction on line 27)

5. You plug that Taxable Income number into a calculator and based on your marginal tax bracket, you will pay tax on that Taxable Income. For example, this year if you're single, up to about $10K would incur no tax; all income between about $10K and $39K would pay 12% tax; all income between $39K and $83K would pay 22% tax; etc. Subtract your tax liability from your Taxable Income, and this is the amount of money you'll walk away with at the end of the year.

Here's an example to clarify using the steps above...

1. Let's say I start a business cleaning houses. I start an LLC called "J Scott House Cleaning, LLC" and open up a bank account, get a credit card, cordon off some space in my house as an office (for bookkeeping and storing supplies, etc.), and get started on the business.

2. I create a P&L that I think will reflect the income I will generate and the costs I will incur for the year. Perhaps I work really, really hard and expect to clean 400 houses this year, earning $200 per house. Plus, I expect to earn another $30,000 offering additional services to those house cleaning customers.

My P&L might look like this:

INCOME:
House Cleaning: $80,000
Additional Services: $30,000
GROSS PROFIT $110,000
EXPENSES:
Business Setup: $200
Cleaning Supplies: $10,000
Marketing Costs: $10,000
Insurance: $800
Phone Line: $1,000
Legal/Tax Services: $1,000
TOTAL EXPENSES: $24,000

NET INCOME: $86,000 (Gross Profit Minus Total Expenses)​

Note that you will need to do some research on what can be taken as a deduction for your specific business. For example, people assume that things like meals and automobile can be taken as a deduction, but that isn't necessarily true (or there may be limitations). You'll want to do some research here.

3. My Net Income is $86,000 and I owe about 15.3% of that in self-employment taxes. So, my total self-employment tax is:

$86,000 * 15.3% = $13,158

4. Subtracting the self-employment taxes from our Net Income, we get about $72,842 which will carry over to our personal income tax return, Line 17 (since our business is an LLC). Let's say we didn't have any other income, so our total personal income for the year is just the $72,842 from the business. Let's assume we're single and we take the standard deduction against our income ($12,000 in 2018) -- that leaves our Taxable Income as $60,842. (The full 86,000 will flow to Line 12 if it is a single-member LLC and no entity elections have been made. Otherwise, it will all flow to line 17)

5. I plug the $60,842 into a tax calculator, and I find that my tax liability on that income is $8,372. I also owe state tax -- let's say our state tax for our state is 8%, so we owe an additional $4,867. Total taxes owed is $8,372 + $4,867 = $13,239. Subtract that from our Net Income of $72,842, and we see that we walked away with $59,603 in our pocket for the year.
(I'm not going to make all the changes, because I'm kind of taxed-out given that it's the day after the filing deadline, but the income tax would be calculated based on step 4, but add back the half of self-employment tax that is not a deduction)

Btw, note that the total tax we paid this year would be $26,397. On income of $86,000. So, about 31% of our income was spent on taxes (our "Effective Tax Rate" at about 31%). That gives us an idea of what percentage of our money we lost to taxes and what percentage we got to keep.

While our effective tax rate will likely go up as our income goes up, this 31% number gives us a general idea of how much we should expect to lose to taxes on our income. If we wanted to walk away with $100,000 at the end of the year, we'd need to earn about $100,000 / (1 - .31) = $145,000.

NOTE: I'm not a tax professional and I didn't double-check my work above...there could be mistakes... :)
Sorry @JScott, I just had to make the corrections. General idea is good though, I just had to make some minor corrections.
That being said, if anyone in this thread needs help running simulations, just let me know and I'll plug it into my software.
 

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I'm a bit confused by exactly what you are asking here.

Do you need to better understand accounting terms, how to do the arithmetic and ratios etc.?

Or do you already understand how to calculate where the money is going, the problem is that not enough is coming in, compared to what's going out?
 

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I'm a bit confused by exactly what you are asking here.

Do you need to better understand accounting terms, how to do the arithmetic and ratios etc.?

Yes. I think I am sorting that out now though...through all this information I know where to go and what to do...

Or do you already understand how to calculate where the money is going, the problem is that not enough is coming in, compared to what's going out?

To be honest, I was trying to dive in and get to know how taxes work on a deeper level. I honestly know more than I've let on, but have found saying I know a bunch hinders the information I get. Starting from knowing nothing always seems to paint a clearer picture. I know forums have a lot of contrasting views, I've just been looking for information.

One thing that I am seeking, not necessarily from this forum, but as a result of all the information here is to see what the numbers/calculations of several successful small businesses and several barely successful small businesses look like.

i.e.
AGI
Net Profit
Business Expenses
Personal Expenses
 
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Late Bloomer

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To be honest, I was trying to dive in and get to know how taxes work on a deeper level.
...
One thing that I am seeking, not necessarily from this forum, but as a result of all the information here is to see what the numbers/calculations of several successful small businesses and several barely successful small businesses look like.

i.e.
AGI
Net Profit
Business Expenses
Personal Expenses

Have you considered taking an intro to accounting class at a community college? It might be a good way to go through these categories and principles step by step, with some study buddies and the ability to ask the teacher to work through examples step by step?
 

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