What have you deducted to come up with net income?

Discussion in 'Business Operations' started by DLS1, Jul 17, 2005.

  1. DLS1

    DLS1 LawnSite Bronze Member
    Posts: 1,619

    My question is what do you normally deduct to get your net pay. I am sure everyone has a different definition of net depending what stage they are in life.

    Is net after you have also deducted
    1. medical insurance costs monthly premiums. (does your wifes/husbands job have the medical benefits and could you afford it if they quit their job?)
    2. investment money set aside in an IRA for retirement.
    3. set aside money for unexpected expenses related to the business.
    4. do you pay social security tax to the government so you will have social security benefits when you retire? Where will your income come from when you retire.

    My guess is most young LCO here don't set aside some or all of the above to get net. Maybe half the posters on this site are teenagers living at home and still don't pay for rent or food and think they will make it okay in the lawn business on their own when they get their own house. Not bashing the teenagers but that is were you are in life right now with little real world expenses. Then you run into marriage and kids which is another big expense.

    So what all you do you deduct to get your net?

    This is not a slam of being a LCO but I suspect very few on this site can make it as a full-time LCO if their wife/husband didn't work to at least cover the medical insurance premiums.

    Am I right or wrong?
  2. lqmustang

    lqmustang LawnSite Senior Member
    Posts: 620

    I consider net everything left over after ALL expenses are paid. This would include all business expenses, state and federal taxes, IRA contributions up to $1800/yr, and so forth. If you are running as a sole prop., that money set aside for a business cushion would still be part of the net. If you file taxes properly, you should be paying Social Security taxes as part of your filing.

    As far as having a working spouse, that is surely an added plus. My wife has excellent benefits, and it would be an extra burden if I had to pay medical insurance premiums every month. I do think tho that a well organized and motivated LCO can surely make enough money to cover everything as a single income family.
  3. mtdman

    mtdman LawnSite Gold Member
    Posts: 3,137

    Yup, what he said. Net income is what's left after all the bills are paid. Any cash left over, if you are solo, that you set aside for expenses can be considered income. If you are self employed, you pay ss taxes via the self employment taxes.
  4. topsites

    topsites LawnSite Fanatic
    Posts: 21,653

    ALL the bills?... I doubt the house's electric bill goes under that, and what about cable tv, water, rent, personal car insurance, groceries, clothes, etc? I can see the cell-phone and the truck's part of the insurance plus every expense directly related to equipment, but keeping it at my home doesn't automatically include everything related to the house, not in my book that is personal and not business.
  5. Howard Roark

    Howard Roark LawnSite Senior Member
    from Texas
    Posts: 806

    Making it just fine as a sole prop LCO this year, after quiting my job in late May. There are many deductions as a home based biz, however you need to be prepared for an audit at all times. My best recommendation is to get a great accountant, as well as learning tax law for small businesses yourself. This way you can get a better understanding of if you can truly make a living at this in your area or not.

    Best wishes.
  6. lqmustang

    lqmustang LawnSite Senior Member
    Posts: 620

    I'm sure he meant all bills related to the business. BTW, a percentage of all the house bills, water, gas, electric, etc. can be deducted if you work out of your home. A good accountant will help you take all the deductions you can. I stay away from the home office deduction tho, I hear that is a big audit flag.
  7. topsites

    topsites LawnSite Fanatic
    Posts: 21,653

    sorry i am sure you are right, I over reacted there.

    but yes on the home office thing, I don't fool with it: My home is just that, I figure I'm saving money by not having to pay for storage or a shop so I don't deduct anything for the use of my home even thou I do keep the equipment here. Maybe if I can't cut cost anyplace else, but even then it's not worth the few dollars to me - A thousand dollar deduction is still only maybe 200 bucks in the end, almost as bad as deducting meals.
  8. Howard Roark

    Howard Roark LawnSite Senior Member
    from Texas
    Posts: 806

    I would highly advise itemizing and taking all the deductions you can! If you read books like Rich Dad or Millionaire next Door, you'll learn that the richest business people also take advantage of every tax loophole there is.
    Who cares about an audit if you do everything legally, keep perfect records, all while lowering your taxable income? Again, a good accountant will help you through this.
    You can strive to be a successful business owner operator, or just be a landscaper. In which case you merely have a job. I plan on studying taxes quite a bit this winter just to stay up to speed.

    "A thousand dollar deduction is still only maybe 200 bucks in the end, almost as bad as deducting meals."

    I'll take that 200 bucks thank you very much!

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