It starts: "I received this letter a few weeks ago. Having a minor heart event and scraping myself up off the pavement after blacking out, I tried to wrap my head around what went wrong. I owe the IRS $36K"
He has a lot of good advice for keeping records. It really is essential that you keep records of everything.
A couple additional notes:
- It is also good to get a tax ID for your business so you do not have to give out your SS# to every client.
- One thing not covered in the article is sales tax. You really need to look at the laws in whatever state you live in and they are always changing. In Ohio, some types of graphic design are also sales taxable as well as any art you sell to someone in the state. With so many artists showing and selling work at art and craft shows, a vendor's license is essential.
- The state you live in has information on doing business there. It is a good place to start when you are freelancing so that you are filing all the correct paperwork.
- Here is the website about doing business in Ohio: http://business.ohio.gov/
- Get an accountant that knows what he/she is doing.
Darcy from Flaming Medusa Studios gave me this additional information from her husband David Van Horn. He is a CPA and does accounting etc for small businesses.
You can email him at firstname.lastname@example.org or call him at (513) 429-5058.
Some more notes about doing business in Ohio:
"There are many taxes a small business must pay. Those without employees must pay, depending on their legal structure, taxes on their earning to various government entities (Federal, State, City and sometimes even townships in Ohio).
Once you add employees the burden really takes off. In addition to the earnings tax for profit from the company you will be responsible for:
- Trust taxes for employee withholding's (Federal/state/local withholding, Social Security, Medicare)
- Also you will be responsible for the matching portion of Social Security and Medicare, State Unemployment taxes, Federal Unemployment taxes and any Workers Compensation premiums due.
The due dates vary and depending on the amount of payroll could be as frequent as weekly or as long as quarterly.
Ohio also has a unique "privilege" tax called the Ohio Commercial Activities Tax. This only applies to companies with over $150,000/year in revenues. This tax replaced the Personal Property tax that Ohio used to charge."
Thanks Dave! I hope to do a future post about sales tax.