If you make money at writing

I’m doing a workshop for my local writers group titled

The Business of Writing: What to Do if You Ever Make Money with Your Writing.

I’ll be discussing the difference between writing as a hobby, as a ministry to help others or as a business. I’ll also talk about taxes, special deductions for authors and what business structure a writer should have for  a writing business.

Here’s a handout that I prepared for the workshop.

The Business Of Writing

If you live in the Cincinnati area, come attend the workshop live!

Wednesday, June 23 at 7:00 p.m. at Faith Church in Milford

Teen jobs and tax issues

I was interviewed by Kay Bell of Bankrate.com for her article “Teen jobs and tax issues”
Kay did a great job explaining taxes for teenagers.

Teen jobs and tax issues

By Kay Bell • Bankrate.com

Highlights

* Teens who earn less than $5,700 may not have to withhold tax money.
* But self-employed teens or contractors likely have to pay SE taxes.
* Some teen jobs are exempt from SE taxes, like babysitting, lawn mowing.

A summer job is a classic rite of passage for teenagers. But teen jobs can be a source of aggravation for young workers and their parents who aren’t prepared to deal with the potential taxes.

When it comes to income, the IRS generally wants its cut regardless of the earner’s age. But some special tax rules apply to young workers, based not only on age, but also on amount of money earned and even the type of job.

First, the good news: The teen worker might not owe the IRS a dime.

A youngster who is a dependent of another taxpayer generally doesn’t have to file an income tax return unless the youth makes more than the standard deduction amount for a single filer. For 2010 returns, that’s $5,700.

If a young person doesn’t expect to earn more than the threshold amount, he or she needs to note line 7 when filling out a W-4 at the summer workplace. That’s where the teen might be able to claim exemption from federal income tax withholding.

In fact, novice workers should pay close attention to all employment paperwork. It could dramatically affect their tax responsibilities.

“Sometimes teens go out and work as technical employees, but are paid as contractors,” says Sharon Lechter, a CPA in Paradise Valley, Ariz., and member of the President’s Advisory Council on Financial Literacy. “So make sure the employer classifies you correctly.”

Pushing the worker categorization boundaries is appealing to some companies who then don’t have to deal with various tax withholdings and potential employee benefit payments. And young workers looking to pocket as much cash as possible each payday might think such an arrangement advantageous, too.

But being a contractor poses new, and costly, tax concerns.

Contactor tax complications

If paid as a contractor, which means earnings are reported to the worker and the IRS on a Form 1099-MISC rather than a W-2, the youth is for tax purposes self-employed.

That designation means that even if the young worker doesn’t earn enough to owe federal income taxes, he or she could owe Uncle Sam self-employment, or SE, taxes.

This is the 15.3 percent tax on earnings that is the self-employed equivalent to Social Security and Medicare payroll taxes withheld from employees’ checks and usually noted as FICA on pay stubs. That tax is required when any self-employed worker’s net earnings exceed $400.

“There is no special tax treatment for teenagers running their own business,” says Carol Topp, a Cincinnati CPA who is also the founder of TeensAndTaxes.com. “If you make a profit of more than $400, you must pay self-employment.”

The rest of the article continues here.

iPhone Apps as a micro business

My name is Jonah. I am 13 years old and I met you last year at the Cincinnati Homeschool Convention. My mom and I attended your talk. You mentioned that I could get in touch with you if I any questions. Here’s my question:

I am looking to start up a micro business by creating iPhone Apps for people. In order to do so, Apple requires one of the following:

• Articles of incorporation
• Business license
• Certificate of Formation
• Charter documents
• Operating Agreement
• Partnership papers
• Reseller or vendor license

I was wondering how I would be able to get one of those since I’m just starting up a micro business.

Teens and Taxes

If you started a micro business in 2009, you are going to have some extra tax issues in 2010.

I have just launched a new website, TeensandTaxes.com to help teenage business owners understand when and if they owe any taxes on their business income.

Taxes can be confusing, so grab a copy of my new ebook, Teens and Taxes: A Guide for Parents and Teenagers.  It will clear the confusion for you.

A 40 page ebook with chapters on

• employees
• independent contractors
• household employees
• kiddie tax on investment income
• business income

Read more about the ebook here

Read a sample chapter here

View the Table of Contents here

Available for immediate download. $14.95 or bundle with an audio for $19.95

Read more HERE

What to Charge

Micro business owners struggle with what to charge for their services or products. If they charge to much they may never attract customers, but if they charge too little they may not cover their costs or make a decent profit.

Here are some tips for setting a price that you and your customer can live with.

• Market survey-Ask your potential clients what they are willing to pay. You may be surprised at what some people will pay for your unique service or product.
• Competitor price-Learn what your competitors charge. You can ask them directly or ask customers what they have paid in the past. A teenager giving piano lessons asked several other teenagers and parents about the going rate for beginning piano lessons to help her set her price.
• Cover your costs-You must know what your costs are and then add more to cover taxes and your desired profit. One unlucky micro business owner only charged enough to cover her costs and forgot about taxes and making a profit to grow the business, let alone paying herself.
• Don’t forget taxes- Work with an accountant to calculate what you will owe in federal, state and local income taxes. As a micro business owner you will also be paying self employment tax to cover social security and medicare. CPAs frequently tell small business owners to allow for 25-35% of their profit to pay for taxes.
• Value your time-Some micro owners charge by the hour they are with a customer (such as tutoring by the hour), but fail to realize that they spend many hours outside of customer time. Travel time and preparation time should be considered when you set an hourly rate.
• Adjust when needed-Adjust your prices if your costs increase, or if you find you are seriously under priced compared to your competitors. Also increase your prices if you find your product or service is in demand.
• Adjust as you gain experience-An experienced worker is more valuable than a new one. After a few years of doing bookkeeping, a micro business owner made a plan to increase her rates for current clients over a three year period, but she charged new clients the higher rates from the start.

Questions to Ask Your Accountant

The relationship between a micro business owner and accountant is very important. As a new business owner, you have a lot to learn so seek out an accountant with the heart of a teacher. Interview several accountants looking for someone that you understand. If you leave an interview more confused than you entered, keep looking. You should leave the meeting saying, “I learned a lot.”

Grill your CPA

Ask an accountant these questions:

• Tell me about your small business clients? Are the similar in size and industry? Any teenagers for client?

• Could you share 2-3 names as referrals

• How much do you charge?

• How often an I billed?

• What is included in your services?

• What is NOT included?

• How often will we meet? Where?

• What do I need to bring to our meetings?

• Why is bookkeeping important?

• Explain the reports that I will receive from you

Test your CPA

A good accountant will explain difficult subjects in a clear, understandable way. Use a few test questions to see if your accountant communicates well.

• What is depreciation? Why can’t I deduct the cost of equipment I the year I purchased it? (you can and the accountant should explain something called a section 179 deduction)

• What are the advantages of Limited Liability Incorporation? What does limited liability mean? When should I consider forming an LLC?

Carol Topp, CPA

Finance a Micro Business Without Debt

Most micro businesses do not require a lot of start up funds, making them an attractive way to launch a business. Some entrepreneurs even start micro businesses as a means to fund another, larger business. Try to start your micro business without any debt. Then all your profits can go back into the business or better yet, your pocket!

Save the money first

If you could pay back a loan, then you should be able to save up some money beforehand. Don’t believe that the business will pay for itself. Most businesses fail and frequently because the owner had too much debt.

Start small as a hobby

Aim to break even by covering your expenses at first. You will learn a lot about marketing, pricing and customer service.

Find an investor

Investors are willing to take a risk on a new business and may not expect to be repaid for a long period, if ever.Ask your parents or grandparents to be your first investors.

Sell something

If you have an asset such electronics, books, toys or games, raise cash by selling it. Or have a garage sale and advertise it as a fund raiser to launch a new business. Advertise your business and raise money at the same time.

Work a temporary job

Work retail over Christmas, deliver pizzas for a few months, mow some grass or babysit like crazy to earn some cash. You’ll practice the time management skills you’ll need when you start your micro business.

Carol Topp, CPA

The Best Software for Record Keeping

Record keeping is vital to the success of a micro business, but what software can help the busy micro owner keep good records? The best system is the simplest one that business can get by with. Sometimes a simple paper system will suffice, but some micro businesses need a computer spreadsheet or software.

Start with a simple spreadsheet

Microsoft Excel or the free Open Office Calculate programs work well for keeping the records for  thousands of micro businesses. Business expenses can be categorized in columns to make tax preparation easier. Totaling income by month, by customer or by product is quickly accomplished. You can get a little more sophisticated and use multiple worksheets for each month that flow into an annual summary sheet. The spreadsheet is a powerful tool because of its simplicity and flexibility.

Personal money management software

Some micro owners find that personal money management software like Quicken can work well for record keeping. Although these programs were not designed for business use, they have may already be familiar software from your personal life, are very intuitive because they look just like a checkbook register and they will generate simple reports showing income and expenses.

But personal finance software cannot create invoices or bill customers, record payroll, record sales tax or track inventory. For those business-like functions you’ll need accounting software.

Small business accounting software

Accounting software such as Quickbooks works better that personal financial software if you send your customers forms such as invoices, receipts or statements for progress billing, or if you manage inventory. Accounting software can:

• Print checks, pay bills, track sales & expenses

• Reconcile bank accounts
• Create estimates, invoices & reports
• Track employee time and calculate payroll withholding
• Generate reports
• Download credit card & bank transactions
• Track inventory and set reorder points
• Create business plans, budgets & forecasts

Start with the simplest method you can for keeping your micro business records and graduate to more sophisticated systems as needed. A good CPA can help you set up an easy to use system whether on a spreadsheet or using software.

The important thing to do is to keep good records.

Carol Topp, CPA