Year End Business Question???

[MS TreeMonkey]

Well, the year is nearly up and I'm trying to get a better handle on the business end of my tree service. This is the first year I've worked full - time for myself in my own tree service. I've been keeping track throughout the year and after all the receipts are tallied and checks written to uncle SAM and employees I'm only showing a 45% net from my gross (ex. $100,000 gross returns $45,000 net) Is this pretty common for everyone else or am I being too generous on the work I'm performing?

 

[MS TreeMonkey]

One other thing - those receipts don't include any type of payments - other than taxes. All of my equipment is paid for. My largest expenses have included fuel and labor. Also, that $45,000 net does not include a paycheck to myself, therefore i would have to write myself a paycheck for around $36,000 and put $9,000 back into the business. I don't know!!!!!!!! That's why I am asking! Oh, and yes i do all of the climbing for my tree service - my 2 employees are groundworkers. I'm not a strawboss!!!

 

[John Paul Sanborn]

Also, that $45,000 net does not include a paycheck to myself, therefore i would have to write myself a paycheck for around $36,000 and put $9,000 back into the business.

There in lies the rub, you've not expensed yourself, so the 45k is not a true net profit.

You are big enough to be a C corp and pay yourself a salary.

If you have not been paying quarterly estimated taxes, you will have a huge liability with next year.

Did you separate your chipper and saw gas (offroad fuel) from truck fuel so you can get the road tax back?

Talk to your tax man about C Corp and SocSec payments on yourself.

 

[teamtree]

Hold off on the C Corp....not a wise decision....do an S instead...more tax benefits.

On that 45,000 you will pay 15% self-employment tax then your regular tax on top of that. Did you pay quaterly estimates? You may have an estimated tax penalty depending on your 07 return.

If you set up an S corp you can take half as a salary and the other half would be ordinary income and not subject to self-employment tax.

 

[Mitchell]

Im reading your mail

Well, the year is nearly up and I'm trying to get a better handle on the business end of my tree service. This is the first year I've worked full - time for myself in my own tree service. I've been keeping track throughout the year and after all the receipts are tallied and checks written to uncle SAM and employees I'm only showing a 45% net from my gross (ex. $100,000 gross returns $45,000 net) Is this pretty common for everyone else or am I being too generous on the work I'm performing?

Sounds like we have similar numbers; except I have made little to no profite ha ha. However, I am only 2 years in and trying to pay off the capital expense. Doing my numbers this year made me realize I have to charge more, or at least not talk myself into low paying jobs. I could have turned the same "profit" with a lot less work. Perhaps that might work for you as well.

 

[BC WetCoast]

Sounds like we have similar numbers; except I have made little to no profite ha ha. However I am only 2 years in and trying to pay off the capital expense. Doing my numbers this year made me realize I have to charge more, or at least note talk myself into low paying jobs. I could have truned the same "profit" with a lot less work. Perhaps that might work for you as well

As a Canadian company, you may want to pay yourself less, give the company more profit and take some money out as a dividend. The tax rates are usually lower for small companies and dividend tax rates are lower than tax rates on wages. You accountant can advise you better on this.

 

[mckeetree]

One other thing - those receipts don't include any type of payments - other than taxes. All of my equipment is paid for. My largest expenses have included fuel and labor. Also, that $45,000 net does not include a paycheck to myself, therefore i would have to write myself a paycheck for around $36,000 and put $9,000 back into the business. I don't know!!!!!!!! That's why I am asking! Oh, and yes i do all of the climbing for my tree service - my 2 employees are groundworkers. I'm not a strawboss!!!

Paid for equipment often means you don't have anything to expense out. Sometimes that ain't good.

 

[John464]

Paid for equipment often means you don't have anything to expense out. Sometimes that ain't good.

you got that right! sometimes it can cost you more in taxes than it would to get a new truck. having a good accountant watching your numbers is real important

 

[Mitchell]

true

As a Canadian company, you may want to pay yourself less, give the company more profit and take some money out as a dividend. The tax rates are usually lower for small companies and dividend tax rates are lower than tax rates on wages. You accountant can advise you better on this.

I have incorporated this year, I was not going to pay myself much as an employee of the company. Not that I could ha ha, my steady climber helper will make more then me. I pay well and reasoned [after a few situations] I would rather pay good guys then pay for broken windows, wcb claims, etc. I will check into the dividend... Thanks for that tip. I wonder what the implication for WCB coverage will be however.

Sticking with the origional post; considering the risks, tree work does not pay very well [around here anyways]; good thing we love doing it!

MS tree, one thing I am mindfull of that I suspect you should be is; you always have capital expenses. If your not putting the money away to replace your owned truck or chipper, you will be out of business [or starting from scratch] when they reach the end of there life. Not that I have mind you!

 

[jefflovstrom]

Maybe I am wrong, but I did not see where anyone replied from the west coast. WC is 50%,and $75,000 net is lower middle class here. I think if you are happy, you are doing good!
Jeff Lovstrom
urbantreecare.com

 

[TimberMcPherson]

First year your doing fine, just keep at it. I paid myself about 7,000 in my first year. Single, flatting with 5 others, life can be very cheap.

 

[MS TreeMonkey]

Thanks for all the input on this thread - and to answer some of the tax questions - Yes!! I have been paying qurterly taxes this year. I knew i would need to be doing it because i've been doing this part time for the last two years. My accountant said that it would be much wiser to pay quarterly than get hit with a hammer at the end of the year. Thankfully, i'll have some tax cushion since i'm married with a child ....and just bought our first home (there's a $7500 tax credit for first time homebuyers this year).

As far as having equipment payments - i personally will not do it. I see too many around here that are sweating bullets and doing some extreme lowballing to get jobs during this slow economic time (it's pretty tight down here in Mississippi). They bid low and work themselves to death just to make the payment on that new chip truck or chipper. I don't envy them one bit! I do have money tucked back to cover repairs on equipment and i'm very big on preventative maintenance.

Taxes really suck - they get you for every kind imaginable. Road-tax, excise tax, employment security tax, income tax, self-employment tax, property tax. Then you watch the news and see them giving it to AIG or Ford, Chevy, or Chrysler and really makes you :censored: :bang:

 

[John Paul Sanborn]

or every kind imaginable. Road-tax, excise tax, employment security tax, income tax, self-employment tax, property tax.

But it is still the best country to live in.

I would encourage you to talk to your accountant about maybe some small new equipment, like a loader or stumper or something that will have a relatively small monthly payment. Many financing companies will structure payment plans so you pay less during slower months.

I have seen many small companies that pride themselves in being paid off, but run sorta "Sanford&Sons" missing jobs because equipment is broke down.

The aversion to having everything on debt is healty, but the aversion to having nothing can be equally limiting.

 

[OLD CHIPMONK]

Maybe it's time to incorporate & reap some further benefits . If you have some x-tra time, meet with an accountant.

I hate to see you rob yourself or future growth prospects.

Good luck !