What's the simplest way to calculate my tax burden?
I'm looking at starting an online game, with revenue coming in through the purchase of in-game bonuses. I've got a team of four people, counting myself, working on setting it up, and it should be ready in a few months.
Sometime between now and then, I'll have to set up a company to manage the business aspects of it. I'm thinking of registering as an LLC in Washington State, because that's where I live.
One of the main responsibilities of the company will be to handle the finances. And of course, money flowing in and out means taxes. This is something I know very little about, but I'd really prefer not to have to hire an accountant until such time as things grow complicated enough to need one.
What I do need is a way of answering two fairly straightforward questions:
1.) If we make X dollars in sales, how much of that do we keep, and where do I send the rest of it to?
2.) If I have X dollars to pay out to one of the team members, how much of it do I send to them, and where do I send the rest of it to?
2a.) I'm the only one in Washington state. One of them is in another state, and the other two are in other countries. What are the effects and complications of this on 2?
It's hard not to be aware of a myriad of tax-preparation programs for doing your personal income tax return. But I don't see too many ads for the small business side of things. Ideally I'd like a program that makes it as simple as the questions above: I give it a number and get numbers and destinations back.
Can anyone recommend a reputable program for working this out?
-
taxalmanac is a good resource to check out – Henry The Hengineer 12 years ago
2 Answers
Based on the way you are asking your question, you clearly need to hire an accountant to set up your books and explain how taxes work.
You are not taxes of the sales or income you generate. You are taxed on the profits you make. (profit = income - expenses)
When you pay your team members, that is an expense. How you pay your team members is also important. Are they employees, independent contractors, part owners???
An accountant will help you figure all this out and explain what is best for you. You do not need to hire an accountant to work for you full time. Just someone to set things up and then possibly do the books quarterly. If your team members are employees, you will probably need to hire a payroll service to send them paychecks and do payroll tax withholding.
You also need to check with your state to see whether or not sales tax applies to your business sales. Note that sales tax is very different from income tax.
-
Actually it depends on jurisdiction. In California, LLC are taxed on the **sales** they make, not the profits. In Washington, IMHO, LLC's aren't taxed at all. – Littleadv 12 years ago
-
Are you talking about **sales** tax or **income** tax??? – Gary E 12 years ago
-
Income tax. LLC income tax in California is calculated based on gross receipts, not net income. – Littleadv 12 years ago
-
I can not believe that. What do you do in a business with slim margins? Where you pay 95USD in goods to make 100USD revenue? Stuff liek RAM chips have extremely tight margins - if you can not deduct expenses, that would simply not work. Where I live, food shops make maybe 3% to 5% margin. Cost goes from there. – Net Tecture 12 years ago
-
@NetTecture really, you cannot believe? Check. "*An LLC required to file Form 568 pays an annual tax of $800, and may be subject to an LLC fee based **on total income from all sources derived from or attributable to the state of California**.*" https://www.ftb.ca.gov/businesses/bus_structures/LLCompany.shtml?WT.mc_id=Business_Popular_LLCstructure – Littleadv 12 years ago
-
@littleadv Not income tax, sorry, that is basically a tax for running a business. – Net Tecture 12 years ago
-
@NetTecture you're confusing with the minimum franchise tax. LLC's pay minimum franchise tax, but then they also pay *income* tax (the aforementioned LLC fee) if their *gross receipts* are more than $250K. Corporations have the minimum franchise tax as well, income tax works differently though. California is an expensive place to do business. – Littleadv 12 years ago
The IRS has a pretty simple tax estimator that can help you. You can enter a few ranges of income and get your approximate federal tax burden. Using these ranges, you can quickly determine that your revenue range a-b has a x% tax burden, c-d bumps the burden to y%, etc. Take a few minutes to map these out and you'll have a pretty good chart to figure out what you'll owe the feds based on your business success. Finally, check your last year's state tax rate as a percentage of your income. This will be a pretty good starting point to match with the fed rates and scale accordingly.
At the end of year one you'll have actual revenue and can calculate an actual burden based on taxes owed. You can then base year two on these percentages. You can generally up the percentage about 2-3 percent for each 10% your revenue climbs.
