Does anyone know how much money I have to be making with my hosting business before I have to worry about taxes? I just started up a little while ago with a reseller place, and I'm already making over $150 a month in profit. It has grown waaaaaaaaay faster than I expected. I would like to become incorporated or something sometime soon...

Calling a local tax preparation service will answer your question quickly however I think it would be wise for you to start pulling out the calculator. I believe you do need to report your earnings... especially if you have earned more than $400. This may not mean that you owe... a lot depends on your deductions etc but if you don't report your earnings the IRS may send Guido to your door step.

Also, don't be afraid to contact the IRS directly. They have a whole team of support reps ready and waiting to ummm help you pay :P

You have to start worrying about Self Employment taxes at $400. Typically though, you don't have to pay any income taxes until you get to $7400 (??). Of course, that's based on your total income from all sources of income - your real job, plus and side businesses. Until you get to about $30,000K profit / year, you will likely end up paying more in Self Employment taxes than you will income taxes on the income from your hosting business.

If things are growing faster than expected, I would recommend sitting down with an accountant and talking about how to go about keeping track of your expenses. You'll be amazed at the amount of things that can legally be deducted.

10% of your first 7000$ :)

talk to a pro for sure.

So, say you have $600 in "made" money, but then reinvest that into the company and buy a new $400 server. Now, you have $200 in your account. What then?

Don't forget to depreciate the server over three years ($400/3=$133.33) therefore you get to deduct $133.33 this year, and $133.33 next year, and $133.33 the year after. So it's $600 - $133.33 leaving you $466.67 in the account. Got Kids? hehehehe

Seriously, everyone concerned should contact some localized help in this area. You just don't want to mess with Uncle Sam. Anyone in the USA that hasn't reported yet this year has already picked up a fine for being late.

Also remember, taxes are not a once a year thing when you are self-employed or employing others. Quarterly taxes are vital!

Originally posted by Deb
Don't forget to depreciate the server over three years ($400/3=$133.33) therefore you get to deduct $133.33 this year, and $133.33 next year, and $133.33 the year after. So it's $600 - $133.33 leaving you $466.67 in the account. Got Kids? hehehehe

Seriously, everyone concerned should contact some localized help in this area. You just don't want to mess with Uncle Sam. Anyone in the USA that hasn't reported yet this year has already picked up a fine for being late.

Also remember, taxes are not a once a year thing when you are self-employed or employing others. Quarterly taxes are vital!

Which is why I buy parts and build the servers myself :) that way I'm not buying "servers" I'm buying "computer parts".

Also (and this is an area my accountant said could go either way likely depending on the auditor) buying used servers especially under $1000 ones you are probably safe just taking the whole thing at once as long as the total spent isn't more than $10-20K and they were done onesie twosie.

And yes good god man get an accountant, make quarterly payments!! (as I go cry in the corner lamenting the $12K I had to pay due to not being smart and doing this myself last year).

Originally posted by Deb
Don't forget to depreciate the server over three years ($400/3=$133.33) therefore you get to deduct $133.33 this year, and $133.33 next year, and $133.33 the year after. So it's $600 - $133.33 leaving you $466.67 in the account. Got Kids? hehehehe

Seriously, everyone concerned should contact some localized help in this area. You just don't want to mess with Uncle Sam. Anyone in the USA that hasn't reported yet this year has already picked up a fine for being late.Hey now, we have a lawyer and an accountant, but I haven't been home to meet with them yet. Message boards online are easier than lawyers and accountants over the phone. :)

speaking of which.. dont forget 941's are due tom! :)

Message boards online are easier than lawyers and accountants over the phone. It's just hard to dump your shoebox of receipts out on the forums.... ;)

I'll -never- forget my first meeting with our accountant!!! I was sooooooooooo stressed out as the books had finally become overwhelming for me and sooooooooooo scared that he would be more than we could afford or that he wouldn't be able to understand "our business" etc...

He came - we chatted - I relaxed - I tossed him my "shoeboxes" and the next thing I remember was rainbows and butterflies.

Stress had gone far far away and he has kept it that way ever since.

It is so very important for you to continue doing what you do best while allowing someone else to handle what they do best.

I -NEVER- complain about paying our accountant outside of wishing we could pay him MORE! He earns it and what he does for us is priceless!

Have you hugged your accountant today? :D

Unless you are microsoft, you should never make a profit till at least the 3rd year. ;) Expense EVERYTHING you legally can.

heh True... very true! :D

As Rack Planet said - talk to an accountant. Tax laws vary from place to place, and by type of business. If you don't want to pay an accountant, sometimes free information can be had by asking questions of the business department at a local college. Don't deluge them with too much though, as often they have their own accounting businesses and are only willing to give away so much advice for free. The same college library likely has info on small business and tax regulations.

Yeah.. Also remember that profit isn't just by your bank account. A profit also included the non-depreciated portion of hardware you bought. I got nailed on my sched. k-1 last year because of that crap.

So will I be able to deduct my house payment...as this is a home based business? :D

Not likely, but if you set aside a room or defined area as distinct as a home office, a certain percentage may be deductable.

Usually it's a percentage of your mortgage or rent. But also a percentage of your electric charges too. And if you have a internet connection(you must), you take a percentage of that.

Last year I got about $500/month in deductions between mortage, electric and my cable modem bill.

Well, this is sort of off topic and I do plan on meeting with an accountant soon however I've got a question for you all. I've always been payed for webdev with cheques totalling over a grand atleast. I'm going to soon be offering payment thru paysystems, what should i do? Am I in any sort of trouble?

Originally posted by jic
speaking of which.. dont forget 941's are due tom! :)

What are 941's?

.Originally posted by TheFish
What are 941's?

Payroll taxes. http://www.irs.gov/taxtopics/page/0,,id%3D16280,00.html

Yes, that's right - employers have to pay the goverment a tax simply for employing people and paying them wages. And how does George Bush want to stimule job growth? By eliminating the tax on dividends, not by reducing payroll taxes.

Regarding depreciating hardware - simply elect to take your Section 179 deduction, which allow sfor the immediate deduction of assets purchased during the year, up to $25K per year.

No employees. No employee tax. :-)

Thanks for explaining. I was already scared I missed something.