Comment by 1auralynn
3 years ago
I own a two-person educational software company. We have a CPA that we engage once a year to do our business taxes and can't afford anything fancier than that. It's an LLC taxed as an S-Corp so all of the "profit" goes directly to me on my Schedule K. For 2022, if this is not reversed, I will owe around $100K in taxes. For reference, my salary was around $100k. I'll have to take out a payment plan with the IRS, and probably shut down the company if nothing changes because I can't do that again for 2023 and beyond.
We aren't making huge profits to absorb the costs and give me a fat bonus to cover my taxes. In fact in 2022, I WAS expecting a nice $30k loss and a refund. Do we deserve to survive? Probably not in some peoples' minds, but we've been scrapping together a living so far. It sucks because we were actually growing and gaining some momentum: any further growth would now be pretty impossible because I can't afford to pay my personal taxes to cover additional dev salaries.
Hey, fellow business owner here, but I am just getting started; haven't made a sale yet and haven't "paid" myself anything yet.
I am a single-man business. Would your situation be better if it had just been you? In other words, was it the fact that you had that other employee that is going to cause you to shut down? Or would it have happened with just you?
I'm no expert, but my understanding is that any expense related to software development would have to be amortized regardless of company structure or employees.
So, two scenarios: a) If you were a sole-proprietorship, you made $100K revenue, paid $10k in AWS fees, you would pay personal taxes on $98k (100 - 10/5) that year. b) If you paid a contractor $50k that year, you would pay taxes on $88k. (100 - 10/5 - 50/5).
In the past taxes base would be a) $90k (100 - 10) and b) $40k (100 - 10 - 50). So yeah larger tax implications for having employees, but the same would be the case with any expense.
Thank you so much.
It looks like I may have to shut down my business before I even get started.
Good luck with your situation!