Are taxes based on profit or total sales?

[mrshowtime3]

Probably a stupid question but I want to be sure. Im in PA.

I planned on holding back 20% of each sale for taxes. If a product sells for $80 and I make $30 profit on the item.... Do I take 20% off 80 for taxes or 20% off my profit on 30?

[killer2021]

20% of the 30.

The costs associated with selling the product are deductible.

Check out schedule c to see what I am talking about: http://www.irs.gov/pub/irs-pdf/f1040sc.pdf

[KyleXY]

It's off the profit. However I would recommend holding more than 20%, at least 35%, until all deductions have been made.

[rogercbryan]

Yikes... what are you all talking about here? First off how is your company structured? Where are the sales taking place? What taxes are you talking about - Local, State, or Federal. Have you talked to a CPA? How are you doing your accounting books... are you using QB or something similar. Please do not take tax advice from an open public forum. If you are selling enough to need to worry about paying taxes they you have enough money to pay a CPA $250 to sit down and teach you what you need to do. Be very careful here... The wrong advice could kill your company!

[mrshowtime3]

thanks for the replies.

The company will probably end up making 10k-15k from the looks of it now this year. I really do not have $250 to spare. Its a sole proprietorship. I do all sales and expenses via quickbooks.

Theres another business im thinking of for the side. If I do that id like to make a corp as a parent company and all other companies under that. But thats a whole other tax nightmare, id really have to sit down with someone when that time comes.

[rogercbryan]

thanks for the replies.

The company will probably end up making 10k-15k from the looks of it now this year. I really do not have $250 to spare. Its a sole proprietorship. I do all sales and expenses via quickbooks.

Theres another business im thinking of for the side. If I do that id like to make a corp as a parent company and all other companies under that. But thats a whole other tax nightmare, id really have to sit down with someone when that time comes.

How can you not have $250 to spare? This is one of the single most important elements of your company... accounting.. without proper accounting you will fail.. without a doubt 100% of the time. Any responsible business owner knows it all starts with the money. If you do not have proper accounting controls you are dead before you begin with... If you are going to make $10k this year then you have $250... Don't even consider starting another venture until you have your books right and your taxes paid... I feel like I shouldn't need to be telling this to you... its basically common sense!

[KyleXY]

State or Federal, it shouldn't matter. He should be taxed on the profit. The only exception to that rule at this moment is for C Corps thanks to measure 67 that was passed a few months back which now states you are taxed on the gross in some cases. He's a sole proprietorship and therefore he is taxed on the profits he brings in regardless of how his tax is calculated. I agree that he should seek an accountant to do everything he needs done but that shouldn't change the fact that he's taxed base on profits, not on gross revenues.

[rogercbryan]

State or Federal, it shouldn't matter. He should be taxed on the profit. The only exception to that rule at this moment is for C Corps thanks to measure 67 that was passed a few months back which now states you are taxed on the gross in some cases. He's a sole proprietorship and therefore he is taxed on the profits he brings in regardless of how his tax is calculated. I agree that he should seek an accountant to do everything he needs done but that shouldn't change the fact that he's taxed base on profits, not on gross revenues.

The fact that he didn't know that you are taxed on net and not gross is one my main reasons for saying he needs a CPA.. that type of question raises a huge red flag... I feel that any high school student should know that. The tax on the gross C Corp has to do with double taxation on both the corporation and the distributions based on public shares being issued. The complex structure that would lead him to be taxed on gross ie. it being a public company with issued stock is a bit beyond this conversation. I'm not disagreeing with you... I think as you do that he needs to contact a tax advisor today.. before he eats lunch... I mean now!

[GDI RECRUITMENT]

Accountant and business co-ordinator!

[KyleXY]

I think as you do that he needs to contact a tax advisor today.. before he eats lunch... I mean now!

Haha That statement made me LOL. Yeah, I agree. he definitely should seek a CPA regardless. Every business no matter how well verse in tax you think you are, should use a CPA anyway. They keep up with tax trends more than any entrepreneur who focuses on their business would and it's just one of those things that is better to outsource than do yourself.

[mrshowtime3]

Thanks for the help guys. I actually made a appt. today with a CPA for later in the week. I dont claim to be a very smart, im just a guy who knows how to do a service people dont want to do so I started a business to try and make a little money.

BUt as far as the CPA goes, im guessing you guys all use them? They can be trusted 100% with all your information?

[KyleXY]

Yeah. 99.9999999% of all CPAs don't care about building whatever business you do. I've never had an issue with any CPA ever on this. However finding a good CPA is another matter. Hopefully you found a decent CPA

[rogercbryan]

Thanks for the help guys. I actually made a appt. today with a CPA for later in the week. I dont claim to be a very smart, im just a guy who knows how to do a service people dont want to do so I started a business to try and make a little money.

BUt as far as the CPA goes, im guessing you guys all use them? They can be trusted 100% with all your information?

This is exactly how I started my business in 2006... I now have 15 full time employees and revenues in the US$2M+... Doing for others what they chose not to for them selves is a very profitable industry... After you've talked to your CPA shoot me an email I'd love to see if I can help you grow your business... rogercbryan gmail com

[guidemesingapore]

Taxes are always based on profits. You could have turnover of millions of dollars but if there is no profit, you don't pay any taxes.

[rogercbryan]

Taxes are always based on profits. You could have turnover of millions of dollars but if there is no profit, you don't pay any taxes.

Not true... do a Google search for C Corp Taxes...