The Blog Of TL Wall Accounting

Archive for September, 2016

Spending Money To Make Money; How Much Should You Spend On Marketing And Education?

We often hear from some of our clients who are willing to spend inordinate amounts of money to try to make their businesses run better. We also hear from clients who are risk averse. Although there’s not really a wrong way or right way of doing things, we thought we could offer some advice on how to determine whether you should or shouldn’t spend the money, and why or why not.

business education
ElasticComputeFarm via Pixabay

Let’s talk about education. Training is something every business should spend money on. All sorts of training; sales, marketing, budgeting, education on what your business is geared towards… no matter what it is, education should always be a part of your business expenses.
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Paying Estimated Tax When Your Income Is Low

Many small businesses ponder the question of whether they should, or are supposed to, pay estimated tax quarterly when their income is low. It’s an interesting question, so let’s take a look at it.

When you look at the tax code, there’s a line that states: “Those who have income from their own business will need to make estimated tax payments if their tax liability is expected to be more than $1,000 for the year.”

This highlighted part begins the whole show, along with this one: “If you owed taxes at the end of last year, it probably means that too little was withheld from your paychecks, or you had other income that increased your tax liability”.

Let’s take the first one. The reason tax liability is highlighted is because it indicates what you might have to pay, not how much you’ve earned. This is an interesting distinction because, although you have to file taxes if you make more than $400 in a calendar year, the odds are that if you didn’t make a lot of money for the year that your tax liability won’t come close to owing $1,000.

Many small businesses have seasons where they might make a lot more money as opposed to making it all year round. If that’s the case, then making estimated payments when that time period comes up can make a lot of sense. However, paying every single quarter might not be feasible for you if you have to stretch your money out, so it can be a tough decision.

The best thing in this case is to at least pay something, even if it’s only $50, because you not only have to deal with the federal government but in some states they’re going to want a piece of you as well.

A caveat to this is if your spouse is earning a full time income and has taxes being taken out by their employer. In this case, if you’re filing jointly, you can probably get away with not paying anything because the bulk of the tax liability will be coming from them. It doesn’t hurt to hedge your bet though; you could end up getting your entire payment back.

Now let’s look at the second one. This one is a bit different because when you owe money and they don’t see estimated payments, and you don’t have a spouses income to offset your own, the IRS starts expecting you to pay quarterly, especially if you go on a payment plan.

If you can pay your balance within 3 months or so they’ll usually leave you alone; the IRS isn’t as scary as they’ve been made out to be. If you can’t, then you might have to deal with them at some time. Just remember that you can make small quarterly payments; at long as they get something they’ll leave you alone.

Our advice would be to try to make some kind of quarterly tax payments just to be safe. Obviously if you make a lot of money it’s the smart thing to do. If you don’t, and you can’t, don’t immediately worry about it because you’ll always have both time and payment options to catch up when you can.