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