Links:

➡️ Training registration: https://getlegit.lpages.co/tax10124/

➡️ Get Legit Toolkit wait list:  https://getlegit.lpages.co/getlegitwaitlist/

Transcript:

Hey there, Janet LeBlanc here from Paper + Spark. Welcome to day 2 of the PSA tax series for e-commerce sellers. So yesterday we chatted all about sales tax, which is actually a tax that your customers should be paying you. And it's governed by your state's department of revenue. Before we dive into today's tax. I'm reminding you that this Thursday, March 28th, you are invited to my masterclass, which is called wind to worry about taxes for your online shop at either 12pm or 8pm EST. If you received the email link for this podcast series, then you should already be registered. So stay tuned to your inbox for the link to Thursday's class. I'll also be opening doors to my signature financial program to get legit toolkit this Thursday, if you need any help getting your financial ducks in a row, I can't wait to share more about the course with you later this week.

So let's go today. We're discussing the second of three types of taxes that every online sellers should know about and understand, and that is. Income taxes.

So there's federal income tax, which is what we're sending off to the IRS. Usually every April 15th. And there are also state income taxes, all but nine states in the us have income tax and it works very similarly to federal income taxes. So I'm really going to focus on that for our discussion today.

I briefly mentioned this yesterday, but income tax is usually a tax. You pay on your net income. And by that, I mean, your sales minus your expenses. So this is in contrast to sales taxes from yesterday, which are usually calculated based on your gross or total sales. With income tax, we get to take all our sales and subtract out all our business expenses. And we're only going to owe tax on the result of that. Otherwise known as our profit.

Also unlike sales tax income tax is a tax that we have to pay out of our own pockets. Remember if you're doing sales tax, right? Your customers are actually paying it to you. You're holding onto it and remitting it when it's due. But income tax is different. It's a bill that you want to be saving up for hopefully throughout the year so that you can pay it when it's due come April 15th.

If you're a sole proprietor or a single member, LLC, those are usually taxed as a sole proprietor. Income tax for your business is most often due with your personal income taxes. On April 15th, it's not a separate thing. So you will calculate your business's net profit on a form called the schedule C, which goes alongside your personal form, 1040, where you report all your personal income stuff and figure out how much you're going to owe for income tax.

If you haven't already, I highly recommend going Google the schedule C and checking it out. It's a relatively simple two page form where you'll be asked to report your businesses sales for the year. You'll get to subtract out all your business expenses or deductions, and you'll calculate your business's net profit or loss.

Seeing that form seeing what you'll be expected to report often makes keeping your books throughout the year, a lot easier. Because you already know what to anticipate for tax time. The income tax that you owe will be based on your entire personal plus business situation together. This is something that I see a lot of confusion about your business. Isn't taxed in a vacuum. It's not taxed by itself. If you're a sole proprietor, it's considered one in the same with your personal income situation, your business net profit will get added to your personal income, like your day job wages, your spouse's wages. If you're filing together, your investment stuff, all that stuff. And it will also be reduced by your personal deductions and your personal tax credits.

So you have to take that entire big picture into account when figuring out how much you're going to owe in income taxes at tax time, or whether you may get a refund that depends on so much more than just what's happening in your business.

That means. I also, unfortunately, can't tell you what your income tax rate on your business's net profit will be, because it depends on your overall personal financial situation. You have to add all these things together to see what tax bracket you're going to end up falling into at tax time. Now a few more important concepts to note when it comes to income taxes.

First, keeping track of your business expenses is key. These are the deductions that you get to claim at tax time that are going to lower your net profit for the year, and thus help you lower your tax bill. You want to know all of the deductions that you're entitled to, so you don't forget to claim them come April 15th. That's one of the key reasons why keeping up with your shop's books is so vital.

Second. It's always smart to save throughout the year in preparation for your tax bill. It's hard to give like one set rule of thumb for everyone since, like I said so much. Depends on your personal income situation. But usually setting aside anywhere from 15 to 30% of your business's profit for taxes is a good place to start.

Third, some of us should actually be paying estimated quarterly taxes. You may have heard this phrase being bounced around before. It's like prepaying your April 15th tax bill in like portions throughout the year. So if your business is doing well financially, Then you're more likely to owe come April 15th and making an estimated quarterly tax payments may make sense for you. That's a really complicated topic and I have more information on it inside the get legit toolkit course.

So talking about income taxes often leads to this question. When do I have to do this? Maybe I'm a newer shop, or maybe I'm not turning a profit yet. Or maybe I only made a thousand dollars this year. Is there some sort of threshold for when I have to start finally in this schedule C thing you're talking about. Or owing income tax on my sales, or maybe I don't need to report it yet because I'm not making enough money. Maybe I'm considering myself a hobby right now. Do hobbies have to deal with income taxes? Or do I wait until I quote unquote become a real business? So sorry for the cliffhanger. I'm not going to answer any of those.

This is a key topic that I will be addressing in detail, giving you all the clear answers, getting rid of the internet, rumors and misinformation. In the live masterclass on Thursday. So I really hope to see you there at noon or 8pm Eastern. So you can tune in and get the answers to those questions.

📍 That is income tax in a nutshell tune in tomorrow for our third type of tax, which is the most overlooked type of tax that I want to make sure you know about.