You started your business while still working a full time job.
Now you are starting to question about taxes. How do taxes work while you are still working a full time job?
Well, the short answer, nothing changes.
Let's look at this a little bit more.
At your job, they automatically take the money out for your taxes on every paycheck. Your job then submits this money on your behalf to the state, local and federal government.
Don’t make any changes. Let them keep taking money out of your check like you always have.
Your income from your job is separate from your business. So you should be paying taxes like normal in your business.
Your income in your business is also not deductible, you are taxed on the gross income you make in your job.
Your Business Taxes
In your business, you are taxed on the net profit, i.e. the money that remains after the money you bring in pays your business expenses.
Essentially, this means you could owe zero in taxes in your business because you spend all the money you make.
Side note: I don’t recommend this approach! You always want to have a net profit in your business. Paying taxes is a requirement of owning your own business.
But when you do your bookkeeping on a regular basis in your business, you know an estimated number for how much you owe in taxes.
This estimated number is usually 20-30% of either your revenue brought in or your net profit.
You should be at least setting aside this money in a separate savings account every week or month, if you aren’t at least paying your estimated taxes.
I Don’t Really Make a Lot in My Business
Okay, even if you don’t make a lot of money in your business, you should still be at least setting aside the money for estimated taxes.
Wouldn’t you rather have the extra money set aside when you file your tax return to easily make the payment that is due?
Or would you rather have to hustle to make the money to make that payment by April 15? (Then you also owe taxes on that money for next year.)
If you make any money in your business, yes including just $1, then you need to report that as income on your tax return.
Pay Your Taxes
When you work both a job and your business, let your job take out taxes of your paycheck like they normally would. Your employer then also pay your taxes on your behalf.
In your business, regularly do your bookkeeping so you always know what your net profit is. This way you will know an estimated tax amount that is due each month.
Then set aside the money for taxes into a savings account and pay it quarterly.
Even if you don’t end up owing the amount of money you’ve set aside, you now have a small emergency fund set aside for your business in case you need it in the future.
Any questions? Anything confusing?