I learned a little something about taxes this month. I learned that ignorance does not excuse you from paying what you owe.
Six years ago when I started Mongo, Angry! Mongo Smash! I had little hope of ever turning any kind of profit. I mean, after all, it’s an Internet business with hardly any overhead, manpower, or buzz. Three years later, I went from zero profits to needing a 1099 and the meager empire was just taking its first breaths. 2010 was first year I had to do any kind of real tax consideration for my shirt sites. I worked it all out with my tax guy and unfortunately, my return was cut in half that year.
This past year saw an increase of about 20% in revenue, while maintaining less than $500 of actual cost of ownership. Seems great right? It was until I saw my tax forms.
I owed as much as I had coming back to me last year.
So, where did I go wrong?
I turned a profit.
That sounds a little ridiculous but it’s the truth. Well, that and I forgot to pay the quarterly 1040 payments on the business. Seeing as how my family’s income and my self-employment income all fall into the same bucket, I thought I was already paying on it. Apparently not. There’s a little thing called a 1040-ES that needs paid every quarter.
See, when you have a regular job with regular deductions from your paycheck, you don’t think about those things. When you are the business owner and are only getting a 1099 from the sites you do business with, the responsibility falls on you to pay those taxes.
Unfortunately, Phase 2 is Pay Your Taxes.
So, I have to pay last years, plus a penalty, and the first quarter of 2012’s putting me in the red from the starting gate.
I plan to meet with my tax guy after the end of the busy season and discuss deductions. For one, I use a room in my house as an office. That’s a total year of my electrical bill divided by the number of rooms in my house. Then I can claim that. I can also probably do that with my Internet connection since more than 75% of my Internet is devoted to shirt work. I pay $60 a year to CafePress for a premium shop, $10 a year to Zazzle for free ground shipping, and I spend around $200 to do giveaways throughout the year. Granted, I should be able to deduct my cable bill, my Entertainment Weekly subscription and my car since I will be making it an advertisement tool. But, let’s not go from making t-shirts to making license plates, just yet. Slow steps. That’s how it works in my business.
Well, that’s your newest tip for success. As always, I serve as an example of what not to do for your benefit.