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I've been writing up a business plan for a startup mastering studio. This will help when/if I pursue some financing for startup costs, and has been a really helpful way take a detailed look at expenses and revenue needed to go into business.
Anyone care to share their accumulated wisdom on how to approach tax filing in the U.S.?
Let's start with business type: I had assumed that forming an LLC was most appropriate. But, a friend in a different line of work told me that an S Corporation worked better for him. Advantages (this is hearsay) being that you only pay tax on the money you pay yourself out of the overall business. However, setting it up and keeping it running seems a bit more complicated.
This (S-Corp) approach seems attractive to me, because I wouldn't expect to pay myself anything for some time. Paying off some debt, keeping the lights on, and saving up for gear would be all I would hope to accomplish initially. (Quitting my day job comes later, hopefully). In theory, if your S Corp charged a customer $100 for something, you could pay yourself $10 of it (and pay about $2 income tax on that), and put all of the remaining $90 back into operating expenses. Or, another way of saying it is that until you actually pay yourself some money, you can put 100% of your hourly rate back into the business. I believe that with an LLC, you would be taking out 20-30% in taxes off the top before counting how much you have left to pay expenses. No?
And on a similar topic, what has proved the best way to set aside money for taxes? Setting aside a share of each invoice paid? Trying to set aside a targeted percentage of income each quarter/year? Or just trying to keep some money around for taxes when the time comes? I suppose you can always use the Willie Nelson method (aka, worry about it later)...
Thanks for reading.