New vending route business, not sure how to determine taxes
You're not paying taxes three times but you are paying three different taxes (or more). Sales tax is a business expense, just like costs of goods sold or interest on a loan.  Then, depending on how you structure the business, the net income of the business just hits you personally and you pay income taxes.  You can work with a tax person to lend some efficiency to this on a long term basis, but it's not like you pay all the taxes against your gross receipts. Whether or not you can make this profitable is a whole different issue. "Actually, calculating taxes isn't that difficult.  You will pay a percentage of your gross sales to state and local sales tax, and as a single-owner LLC your profits (after sales taxes) should pass through to your individual tax tax return (according to this IRS article. They are not cumulative since they have different bases (gross sales versus net profit). That said, when determining if your future business is profitable, you need to ask ""what aspects of the business can I control""? Can you control how much each item sells for? Increasing your prices will increase your gross margins, which should be higher than your fixed and variable costs.  If your margins do not exceed your costs, then you will note be profitable. Note that as a vendor you are at a slight disadvantage to a retailer, since tax has to be baked in to your prices.  A retailer can advertise the pre-tax price, and pass-through sales tax at the point of sale.  However, people expect to pay more at a vending machine, so the disadvantage is very small (you aren't directly competing with retailers anyways)."
First, you should probably have a proper consultation with a licensed tax adviser (EA/CPA licensed in your State). In fact you should have had it before you started, but that ship has sailed. You're talking about start-up expenses. You can generally deduct up to $5000 in the year your business starts, and the expenses in excess will be amortized over 180 months (15 years). This is per the IRC Sec. 195. The amortization starts when your business is active (i.e.: you can buy the property, but not actually open the restaurant - you cannot start the depreciation). I have a couple questions about accounting - should all the money I   spent be a part of capital spending? Or is it just a part of it? If it qualifies as start-up/organizational expenses - it should be capitalized. If it is spent on capital assets - then it should also be capitalized, but for different reasons and differently. For example, costs of filing paperwork for permits is a start-up expense. Buying a commercial oven is a capital asset purchase which should be depreciated separately, as buying the tables and silverware. If it is a salary expense to your employees - then it is a current expense and shouldn't be capitalized. Our company is LLC if this matters.  It matters to how it affects your personal tax return. It's income. It's almost certainly subject to income tax. As miscellaneous income, if nothing else. (That's what hobby income usually falls under.) If you kept careful records of the cost of developing the app, you might be able to offset those against the income... again, as with hobby income. "These kinds of questions can be rather tricky. I've struggled with this sort of thing in the past when I had income from a hobby, and I wanted to ensure that it was indeed ""hobby income"" and I didn't need to call it ""self-employment"". Here are a few resources from the IRS: There's a lot of overlap among these resources, of course. Here's the relevant portion of Publication 535, which I think is reasonable guidance on how the IRS looks at things: In determining whether you are carrying on an activity for profit, several factors are taken into account. No one factor alone is decisive. Among the factors to consider are whether: Most of the guidance looks to be centered around what one would need to do to convince the IRS that an activity actually is a business, because then one can deduct the ""business expenses"", even if that brings the total ""business income"" negative (and I'm guessing that's a fraud problem the IRS needs to deal with more often). There's not nearly as much about how to convince the IRS that an activity isn't a business and thus can be thrown into ""Other Income"" instead of needing to pay self-employment tax. Presumably the same principles should apply going either way, though. If after reading through the information they provide, you decide in good faith that your activity is really just ""Other income"" and not ""a business you're in on the side"", I would find it likely that the IRS would agree with you if they ever questioned you on it and you provided your reasoning, assuming your reasoning is reasonable. (Though it's always possible that reasonable people could end up disagreeing on some things even given the same set of facts.) Just keep good records about what you did and why, and don't get too panicked about it once you've done your due diligence. Just file based on all the information you know." If this is something you plan to continue doing it would make sense to create it as it's own business entity and then to get non-profit status eg: 501c3.   Otherwise I'm pretty sure you have to think of it as YOU receiving the money as a sole proprietor - and file a couple more tax forms at the end of the year. I think it's a Schedule C.  So essentially if you bring in $10,000, then you spend that $10,000 as legit business expenses for your venture your schedule C would show no profit and wouldn't pay taxes on it. BUT, you do have to file that form. Operating this way could have legal implications should something happen and you get sued. Having the proper business entity setup could help in that situation. "Be careful here: If ACME were in California, I would pay taxes on USD 17,000 because I   had revenue of 20,000 and expenses of 3,000. To CALIFORNIA. And California taxes S-Corps. And, in addition, you'd pay $800 for the right of doing business in the State. All that in addition to the regular Federal and State taxes to the State where you're resident. Suppose that ACME is in Britain (or anywhere else for that matter). My   revenue and expenses are the same, but now my money has been earned   and my expenses incurred in a foreign country. Same thing exactly. Except that you'll have to pay taxes to the UK. There may be some provision in the tax treaty to help you though, so you may end up paying less taxes when working in the UK than in California. Check with a licensed tax adviser (EA/CPA licensed in your State) who won't run away from you after you say the words ""Tax Treaty"". Does it even make sense to use my S-Corporation to do business in a   foreign country? That should be a business decision, don't let the tax considerations drive your business." You actually don't need an accountant. They'll be expensive and at this early a stage unnecessary - what you need is a good bookkeeper who can keep track of what comes in and what goes out. You'll need that to know if you're making money or not and to show the government at the end of the year. Get a copy of QuickBooks and pick up Bookkeeping for Dummies to at least get a sense for what's going on.  Have you registered as a sole proprietorship? Make sure you have a vendor's permit so you can legally sell your services in Ontario. You may need to collect HST, in which case you'll need to register for an HST # and submit it on a quarterly basis.   Whatever you do, don't fuck with the government - they can freeze your bank accounts to get money they're owed. You need to keep money on hand to pay for any taxes you might owe on the business, ESPECIALLY if it's a sole proprietorship where you'll be tempted to treat profit as income. You don't want to end up with nothing in the bank at the end of the year and $40k owing to the CRA.  Get a separate bank account - don't mix personal and business, it's messy.  Expense everything you reasonably can. To me this is a tax structure that is working as it should. The tax code is providing strong incentives for Starbucks to expand. During the initial breakthrough period they are incurring significant expenses. These huge costs are being offset somewhat by the provisions in the tax code. The government in this case has provided a system by which Starbucks is encouraged to grow their volume of future taxable revenue.   Simple :-)   Edit:  After further review of the article, it's not quite as simple as I made it out to be in my above comment. I think the point is still valid however. "One way to do these sorts of calculations is to use the spreadsheet version of IRS form 1040 available here.  This is provided by a private individual and is not an official IRS tool, but in practice it is usually accurate enough for these purposes.  You may have to spend some time figuring out where to enter the info.  However, if you enter your self-employment income on Schedule C, this spreadsheet will calculate the self-employment tax as well as the income tax.  An advantage is that it is the full 1040, so you can also select the standard deduction and the number of exemptions you are entitled to, enter ordinary W-2 income, even capital gains, etc. Of course you can also make use of other tax software to do this, but in my experience the ""Excel 1040"" is more convenient, as most websites and tax-prep software tend to be structured in a linear fashion and are more cumbersome to update in an ad-hoc way for purposes like tax estimation.  You can do whatever works for you, but I would recommend taking a look at the Excel 1040.  It is a surprisingly useful tool." "This may be closed as not quite PF, but really ""startup"" as it's a business question.  In general, you should talk to a professional if you have this type of question, specifics like this regarding your tax code. I would expect that as a business, you will use a proper paper trail to show that money, say 1000 units of currency, came in and 900 went out. This is a service, no goods involved. The transaction nets you 100, and you track all of this. In the end you have the gross profit, and then business expenses. The gross amount, 1000, should not be the amount taxed, only the final profit." "If you receive a 1099-MISC from YouTube, that tells you what they stated to the IRS and leads into most tax preparation software guided interviews or wizards as a topic for you to enter.  Whether or not you have a 1099-MISC, this discussion from the IRS is pertinent to your question. You could probably elect to report the income as a royalty on your copyrighted work of art on Schedule E, but see this note: ""In most cases you report royalties in Part I of Schedule E (Form 1040). However, if you ... are in business as a self-employed writer, inventor, artist, etc., report your income and expenses on Schedule C or Schedule C-EZ (Form 1040)."" Whether reporting on Schedule E or C is more correct or better for your specific circumstances is beyond the advice you should take from strangers on the internet based on a general question - however, know that there are potentially several paths for you.   Note that this is revenue from a business, so if you paid for equipment or services that are 100% dedicated to your YouTubing (PC, webcam, upgraded broadband, video editing software, vehicle miles to a shoot, props, etc.) then these are a combination of depreciable capital investments and expenses you can report against the income, reducing the taxes you may owe.  If the equipment/services are used for business and personal use, there are further guidelines from the IRS as to estimating the split. These apply whether you report on Sch. E, Sch. C, or Sch C-EZ.    Quote: ""Self-Employment Income It is a common misconception that if a taxpayer does not receive a Form 1099-MISC or if the income is under $600 per payer, the income is not taxable. There is no minimum amount that a taxpayer may exclude from gross income. All income earned through the taxpayer’s business, as an independent contractor or from informal side jobs is self-employment income, which is fully taxable and must be reported on Form 1040. Use Form 1040, Schedule C, Profit or Loss from Business, or Form 1040, Schedule C-EZ, Net Profit from Business (Sole Proprietorship) to report income and expenses. Taxpayers will also need to prepare Form 1040 Schedule SE for self-employment taxes if the net profit exceeds $400 for a year. Do not report this income on Form 1040 Line 21 as Other Income. Independent contractors must report all income as taxable, even if it is less than $600. Even if the client does not issue a Form 1099-MISC, the income, whatever the amount, is still reportable by the taxpayer. Fees received for babysitting, housecleaning and lawn cutting are all examples of taxable income, even if each client paid less than $600 for the year. Someone who repairs computers in his or her spare time needs to report all monies earned as self-employment income even if no one person paid more than $600 for repairs.""" Its best you start this venture as a Business entity. Whatever the customer pays you is your income. Whatever you pay to the hotel will be your expenses. Apart from this there will be other expenses. So essentially difference between your income and expense will be the profit of the entity and tax will be on the profit. If you do not want to start an Business entity and pay as an individual then please add the country tag, depending on the country there may different ways to account for the funds. If the business activities are closely related you could combine them into a single Schedule C, but in your case it sounds like it should be two separate Schedule C's. The loss from one will offset profit from the other, and your self-employment and income taxes will be based on the net of the two businesses. Any business can generate losses, make sure your expenses are reasonable and documented, there are plenty of resources out there for helping you decide which expenses are proper for each business. There is some truth to the warning that not showing profit in 2/5 of years can raise flags at the IRS, and they may deem your business a hobby, which disallows losses. That is not a hard rule, legitimate businesses can lose money for years on end without issue, if you're trying to make money at it, you'll likely be fine. Hey there...You asked me earlier to take a look at this.I will send you later, when I get home a small plan that helped me a lot when I opened my bar, with a lot of nice things that you should be careful...And tbh I don't think a degree is that important.They will teach you how to manage a business in general, you will only use just a small percent from that knowledge...You can learn a lot of things strictly for managing a bar/restaurant by yourself, from books and internet...For me experience was very important (I was a bartender for 4 years, my brother was a waiter)...In 4 years we learned almost everything that we needed.The taxes should be made by an accountant (Here in Europe every company needs an accountant, this is the law.) Where do you live and what age are you ? "I don't know what you mean by ""claim for taxes,"" I think you mean pay taxes.   I'm not sure how corps function in Canada but in the US single owner limited liability entities typically pass the net income through to the owner to be included in their personal tax return.   So it seems all of this is more or less moot, because really you should probably already be including your income sourced from this project on your personal taxes and that's not really likely to change if you formed something more formal.  The formal business arrangements really exist to limit the liability of the business spilling over in to the owner's assets.  Or trouble in the owner's life spilling over to interrupt the business operation.  I don't know what kind of business this is, but it may make sense to set up one of the limited liability arrangements to ensure that business liability doesn't automatically mean personal liability. A sole proprietorship or in the US we have DBA (doing business as) paperwork will get you a separate tax id number, which may be beneficial if you ever have to provide a tax ID and don't want to use your individual ID; but this won't limit your liability the way incorporating does." Expenses are where the catch is found.  Not all expenditures are considered expenses for tax purposes.  Good CPAs make a comfortable living untangling this sort of thing.  Advice for both of your family members' businesses...consult with a CPA before making big purchases.  They may need to adjust the way they buy, or the timing of it, or simply to set aside capital to pay the taxes for the profit used to purchase those items.  CPA can help find the best path.  That 10k in unallocated income can be used to redecorate your office, but there's still 3k in taxes due on it. Bottom Line:  Can't label business income as profit until the taxes have been paid.