How to Start a Veterinary Relief Business Part 4

STEP 7 (1 hr):

Pay yourself!

• Take a “draw” or a withdrawal from your business account to your personal account to use for whatever you want - this is considered your equity and as long as your tax bills have been paid it is yours to spend as you choose!
  • You will have paid taxes on the earned income through the business already (see step 8, taxes)
  • Record your withdrawal in your bookkeeping
• Work with your accountant to figure out how much you should pay yourself as a “salary” from your business account (which is subject to income tax) if you have incorporated your LLC (S corp)
  • You can take out money above and beyond your salary in the form of dividends if desired, which are exempt from income tax
  • The IRS does expect you to pay yourself a reasonable salary so they collect their income tax from that
  • The goal is to take the lowest possible salary, pay taxes on that, and take out any remaining income as dividends, which are legally untaxed. An accountant can help balance this.
  • To figure out average earnings for your position check out this resource

At the end of the day, the money is yours as long as you account for it appropriately (leave a paper trail) and pay all your required taxes on time.

Retirement savings vehicles

Even if you have another full-time job and are contributing to retirement accounts, one great feature of owning your own business are the retirement options available to owners.

Investment groups such as Vanguard, Schwab, or others can help you set up and manage contributions to your investment accounts

• Individual 401k - this is an option similar to traditional 401k options offered by employers, but since you are self-employed you can contribute both as an “employer” and an “employee,” allowing you to save much more per year pre-tax for your retirement (also lowers your tax burden)

• Simplified Employed Pension.) (SEP) - allows you to contribute up to 25% of your net earnings from your self-employment business

• SIMPLE IRA plan.) - you can contribute all your net earnings from self-employment up to defined contribution limits

• See this summary of retirement plan options for self-employed individuals

STEP 8 (2 hrs every 3 months):

The worst part - managing taxes

The “scariest” part of running your own business - managing taxes is a recurring time commitment that does ultimately pay off

• The biggest perceived benefit to remaining a W-2 employee is that the employer will pay the FICA tax for you and withhold it from your paycheck automatically - that can deeply cut into your potential bottom line if you are running your own business (even if only working 2-3 shifts per month)

• The goal of starting your own business and going through the process of organizing things yourself is the legal way to redistribute your earnings in tax-sheltered ways

Use this online calculator to estimate the amount you should be withholding for your self-employment tax bill so you aren’t surprised

• Check if you are supposed to make annual payments or quarterly payments and quickly pay online using the EFTPS dashboard

• Paying this tax is DEDUCTIBLE, which lowers your total income tax burden

• Save a little more than the anticipated taxes (ex: 20% for 2022) and pay in recommended installments (quarterly vs annually) for your state from your business checking account

Common deductions

• Mileage to/from clinics you are providing work for (the business miles are tax deductible, the personal miles you put on the same car are not)

• Health insurance (if you are not also working full-time and getting it from there or from a spouse/partner)

• Business meals at restaurants (within reason)

• Equipment purchased to facilitate your job (laptop to write charts on, internet services, stethoscope, open)

• Continuing education costs, VIN membership, etc.

• Liability insurance costs

• Business start-up costs (permits, licenses)

• Taxes paid to state/county/city entities

When to pay taxes

• Once a year pay your state business taxes (even if you don’t pay personal income tax in your state): WA state DOR online payment portal
  • Generally this is about 10% of your gross revenue generated for that year
• Once a quarter pay your federal business taxes through the online EFTPS portal
  • The IRS will set the dates each year, it is found here
    • Note they are not exactly every 3 months
  • If you are working with an accountant, they will often provide you with a voucher to do estimated quarterly payments

Sound Vet Med and other apps such as Stride Health can help you calculate your estimated taxes based on the revenue you generate

If you are trying to maximize your tax efficiency, it is not a bad idea to consult with a small business accountant for the first couple of years to ensure your system is streamlined, effective and legal.

If you are running a sole proprietorship or single-member LLC, you can easily manage taxes on your with with basic bookkeeping software (like Quickbooks) and online tax aids like Turbotax (or equivalent).

That’s it! Ensure your taxes get filed and paid appropriately and that you are maximizing your deductions to keep as much of your earnings as possible to fund your life.

Now . . . what are you going to do with that $$?

This material is intended for educational purposes only, please seek professional advice for recommendations specific to your situation.