Small business getting pounded by taxes

Dear Dave,

I am 21-years-old and I’ve had my own small business for about a year now and within the last two months I quit my full-time job and went out on my own with this business. I am just getting really frustrated because it seems like every month something’s coming up. It’s either taxes, insurance or something else every time. I was wondering if converting to an LLC or an S Corp would help me out and make things cheaper for me. What do you think?


Huntsville, Ala.

Dear Josh,

Moving to an LLC or S Corp status will help you very, very little, if at all. It wouldn’t be enough to make it worth your while, and I don’t think that is your problem. I think the problem here is that you are not planning for upcoming expenses and you are not doing a budget for your business.

You should be able to anticipate taxes and insurance each month because those are not surprises, you know those are coming. You need to be able to plan ahead and to figure out what you need to make in August, September and October to be able to break even on these things. Emergencies will pop up, and you need to be ready for those, but these things such as taxes and insurance will always be there and you should start doing some future planning.

You should sit down and lay out a budget, just like you would at home, and see what expenses you can anticipate for the upcoming months in the business. Accountants teach us that there are two types of expenses: Fixed expenses are those reoccurring expenses such as rent, office supplies or the phone bill. They are usually the same each month. Variable expenses are the costs associated with producing your goods or service. If you are in construction, the more homes you build, the more you will have to spend on building materials. That cost will vary according to how much business you are doing. The good thing about variable expenses is that as they go up, that usually means your income is going up as well. After you have covered your fixed and variable expenses, everything above that is called ‘profit’.

LLCs and S Corps are not magic tax-erasers. In fact, they really don’t save you anything except for the fact that you can write off half of your social security as an expense. What you need to do is to lay out a game plan where you are projecting your income and your expenses a little better so these things don’t sneak up on you.


Should I buy a new car for my kid?

Dear Dave,

Should I buy a new car for my son? He’s getting his license next month and I want him to have something safe and reliable. Would you recommend this?


Charlotte, N.C.

Dear Daniel,

I’ve got three kids myself. My wife and I will never let our kids borrow money for cars. What’s even worse is that we won’t buy cars for our kids either. Call us mean, call us hateful… but I think that people who buy their kids brand new BMWs are brain-damaged! They’re setting their kids up for a life of ridiculous expectations. It sews into their spirits and minds a set of values that will cause them to lose with money for the rest of their lives.

As for my family, my wife and I told our oldest daughter when she was very young that if she wanted a car she’d have to save and pay for it herself. In our situation, we were financially able to run what I call the “401(Dave),” where we will match whatever she saves. She got her license last year and was able to buy a great, used vehicle that she absolutely loves. There is nothing inherently unsafe or unreliable about purchasing a used car. The truth is that buying used is financially the smartest thing to do because you beat the depreciation of the vehicle and you pay cash, avoiding debt.

No, I don’t suggest buying a new car for your kids, nor would I recommend that anyone buy a brand new car. Buy used and let your son chip in.



In a very special, limited-time offer for WorldNetDaily readers only, you can receive two of Dave Ramsey’s highly acclaimed, straight-talk, motivational videos in one special package, plus a free book – well over $60 worth of Dave Ramsey’s best products for less than half price! Order, or learn more about, Dave Ramsey’s Special WND ‘Financial Peace’ Package at ShopNetDaily!

Note: Read our discussion guidelines before commenting.