Stephani Stephenson on fri 6 dec 02
John Jensen hits it on the head when he says bringing in $ 50,000 is
more like bringing in $25,000.
Over the years I have seen and experienced so many scenarios. the first
thing that happens is that you don't make much money, or that you have a
regular job in which taxes are withheld. Your part time self employment
income is either quite small , or not reported or you record a loss....
ie it doesn't have much effect on your overall income and in fact is
kind of nice, ranging from 'mad money' to a nice bonus. to the 'studio
fund'...
then you begin to make more sales and take in more money.. and you
decide to go full time......Great!!!!! then comes tax time
I have seen people who have decided to try and stay completely under
the tax radar but there are consequences to this down the line for many
of them if this is their sole source of income...How do you finance a
purchase of real estate or expansion when you show a record of no or
low income? this way seems attractive in that you keep all the cash,
but I have seen it limit how people can grow, let alone legal
consequences..... anyway, these are personal choices which many potters
face and I think most find a balance based on their circumstances ,
their personality and their goals.
If you are above board there is a also big ouch! when you figure the
federal income tax, the self employment tax, the state income tax etc..
local business, sales and use taxes, collection and payment of sales
taxes, etc.... if you took in $50,000, spent 20, 000 on the cost of
materials and other business expenses, that leaves you with $ 30.000
right?
wrong! ...Some of that will be earmarked for the state when you ssend in
your sales taxes next month, in 6 months or next year...You also need to
understand that some taxes are based on gross receipts , or gross profit
, not net..... so take 20- 25% off of that 30,000(or 50,000) at minimum,
and you are at 18.000 - 24,000, before personal living expenses.....
This is all part of the cost of doing business, and it is usually a
pretty rude eye opener to the person who is making the initital
transition .
I just mention this to concur with John that $50,000 makes your eyes
pop, till you do the math.... in examples I have seen, you need to take
in $80,000 to $150, 000 to realize a profit of 50, 000.
stephani Stephenson
steph@alchemiestudio.com
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