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Help With How to Handle Website Earning 4 figures Per Day

     
10:17 pm on Mar 11, 2010 (gmt 0)

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Within the last 6 months one of my websites has really taken off. It's a simple affiliate and Adsense based website. I don't have a LLC or any type of corporation.

I owed a lot of money when I filed taxes for this website because my cost is not very high. I'm trying to figure out the most cost effective way for me to run this website without getting creamed in taxes.

Besides some SEO and content I don't really have any other expenses for this website. My question is what steps can I take to keep more money in my pocket when tax time comes? I looking for advice outside the normal itemized business expenses.

Thanks
10:24 pm on Mar 11, 2010 (gmt 0)

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Talk to a tax advisor for the specifics.

Among other things, incorporate/form a LLC. Then you can:
1) Pay yourself a salary/dividends.
2) Hire your spouse/children as employees.
3) Have the company pay health insurance for you and your employees.
4) Open retirement funds (401K, SEP-IRA, etc.) for your employees and have the company make contributions to them.
10:42 pm on Mar 11, 2010 (gmt 0)

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Make an appointment with a good accountant, pronto. You need tax planning advice from a knowledgeable professional, not just from posters on a forum.

Even though we're very nice people! :)

Get some investment planning advice while you're at it. The income sounds great, but do not be seduced into thinking that you're richer than you really are. A website that rises quickly can fall just as quickly, so you'll need to move carefully. Treat yourself to a few luxuries, but be disciplined about it. Plan your affairs so that the majority of your increased income is invested in ways that will benefit you for the long term.

Some savvy self-discipline during a boom time could ensure your financial security for a long time.
11:20 pm on Mar 11, 2010 (gmt 0)

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Thanks for the advice.

I was going to seek professional advice but I still wanted some feedback from those with experience. I'm living as I always have my main goal is grow this money rather than spend it. I'm in my late twenties and I know this could come to an end at any time.
3:56 am on Mar 12, 2010 (gmt 0)

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Congratulations on the site. That is an impressive amount of income for someone your age.

With that kind of income, besides a CPA I would talk to a pension consultant about setting up your own pension plan. You can set aside some pretty amazing amounts of money that way, if you live in the U.S. You probably also want to have your business set up as a limited liability entity, like an LLC or corporation.

I would be careful about the investment advice. Check out fee only certified financial planners and the free advice from the reps at places like Fidelity. The commission based financial planners are going to get dollar signs in their eyes and may steer you to what is best for them, not you. When I started making a decent income from my sites I wasn't really impressed with any of the financial planners I talked to, so I spent several hundred dollars on investment, tax, asset protection, and business entity books from Amazon and read them all. The books themselves were a great investment, especially the Nolo Press books.

I use a CPA and pension person but the knowledge gained from the books helped me to find the best ones to hire.
5:01 am on Mar 12, 2010 (gmt 0)

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Thanks Jane_Doe that's good advice about the commission based financial planners.
6:31 am on Mar 12, 2010 (gmt 0)

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Why pay to get your taxes done when you can get free advice on a web board?
7:42 am on Mar 12, 2010 (gmt 0)

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That is one problem I would love to have. I'm amazed AdSense is still that strong. Good to know.
4:26 pm on Mar 12, 2010 (gmt 0)

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Why pay to get your taxes done when you can get free advice on a web board?


For the same reason I don't perform my own colonoscopies with free advice from a web board.
8:06 pm on Mar 12, 2010 (gmt 0)

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Now that I think about it... 5 figures a day? That seems kind of high.
8:32 pm on Mar 12, 2010 (gmt 0)

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Not quite believing this story, high money + high traffic = high server costs...and usually a topic that doesn't have a skyrocketing eCPM. If you're really making 10,000+ a day though then congrats to you.
10:58 pm on Mar 12, 2010 (gmt 0)

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Just realized I typed 5 it's 4 figures per day, my fault. Anyway it wasn't a discussion about how much I'm making but how to keep more in my pocket. Only reason I gave an estimate of what the site is making is so I can get some feedback from people with experience making that amount.
12:06 am on Mar 13, 2010 (gmt 0)

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i have a very good accountant that no doubt is creative and will not share all of them, never know when the NSA is sniffing. But, from a high level there are first things to consider:

1. your state you live in
2. number of owners or partners

once that is decided then you can determine if you do a C corp, S corp or LLC.

Unless you are raising VC money don't do a C since its double taxation.

If you ever want to qualify for a house loan or car loan in the short term you need to pay yourself a w2. The current financial crisis has done away with stated income for the self employed. But, don't over pay yourself.

Then make a board resolution that the following personal expenses are covered by the company for business use: car payment, gas, life insurance, gym membership, golf membership, boat payment, etc. Depending on how aggressive you want to be and how good a defense you have if you ever get audited. Never ever deduct your house or part of it for business, big red flag for an audit. Use a lot of cash transactions, if possible. If you declare on your taxes that you have a offshore account your odds of being audited are almost guaranteed.

Don't work directly with CPA. They have strict guidelines they must follow. Interview accountants that can keep your books and have the ability to be very creative and when ready to file taxes they normally pass your quickbook files to a cpa to file your taxes.

A good and creative accountant is worth gold. They are hard to find and generally for them to be more comfortable to be more creative is the length of time of the relationship. They will not be creative in the beginning of the relationship until they get to know you better.

Also, if say you need to invest in something for the business, make a promissory note to the company, transfer funds to the company, have company spend money and when you pay yourself back the promissory note the principle is tax free. Document the note, terms and interest in a board resolution. Its a balancing act in terms of what shows up on the balance sheet and what is on the P&L.
12:10 am on Mar 13, 2010 (gmt 0)

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My question is what steps can I take to keep more money in my pocket when tax time comes?


You can donate one of those figures care of rocknbil and this will reduce your net, so you'll be taxed less . . .

(couldn't resist . . . )

Honestly, with that kind of income, you need long conversations with an accountant and investment counselor, they have all kinds of ways of sheltering income to save you money. But I am sure, gifts and donations will be one of those shelters <nudge nudge wink wink>

:-P
12:15 am on Mar 13, 2010 (gmt 0)

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Awesome advice webfox007 I do appreciate it.

From your experience how would you suggest finding a good accountant? I assume word of mouth is one way but did you just search the yellow pages and start interviewing? I've never had to go through any of this so excuse my questions if they seem dumb.
12:19 am on Mar 13, 2010 (gmt 0)

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Unless you are raising VC money don't do a C since its double taxation.

That's a very simplistic view. There are certainly many other cases where a C corp makes sense, especially if you can't meet the restrictions for an S corp. And just because you don't need VC money now doesn't mean you won't need it in the future.

Then make a board resolution that the following personal expenses are covered by the company for business use: car payment, gas, life insurance, gym membership, golf membership, boat payment, etc.
Be very careful- some of those would be counted as income and subject to income & payroll taxes.

Never ever deduct your house or part of it for business, big red flag for an audit.

If you legitimately have a home office (subject to IRS rules), go ahead and deduct it.

If you declare on your taxes that you have a offshore account your odds of being audited are almost guaranteed.

Failing to declare an offshore bank account is almost a guarantee to be subjected to fines and penalties in the future when it's discovered.
1:07 am on Mar 13, 2010 (gmt 0)

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imbckagn, referral is the best way for an accountant. I have had several and usually can spot a conservative. Its a bit of a crap shoot....just like employees. The goal is to avoid red flags. Per a previous thread even if you have a home office, don't declare it, offset it with another less red flagging expense. Its all about, perception is reality. There is no reason to throw yourself under the bus if you don't have to.

There are 2 extremes: go by the book and maximize supporting our dysfunctional gov't that rewards "privatizing profits and socializing losses" or be creative and keep your share of your hard work and don't endorse a gov't that has been bankrupt since FDR confiscated gold in 1933....and per your personal taste anywhere in-between the 2 extremes, its all about risk/reward.
4:23 am on Mar 14, 2010 (gmt 0)

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its all about risk/reward


What? Paying taxes (if you owe them) is not optional unless you want to pay stiff fines and possibly spend time in jail like Wesley Snipes recently did. This much is obvious. There is no risk to take however, whatever the figures are... that's what they are.

Talk to an accountant. If you don't earn enough to pay an accountant and you have no employees the odds are you don't need to worry about this stuff yet and you can still just include your web income as your own personal income. Do nothing until you are 100% understanding of what you're about to do and why.
5:15 am on Mar 14, 2010 (gmt 0)

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Well I'm 100% certain I need an accountant I just need to find one. I know there has to be some tax benefits that I am missing, I got totally nailed this filing. I plan on paying what I owe but I want to make sure I put as much in my pocket as possible without over steeping the boundaries.
6:45 am on Mar 14, 2010 (gmt 0)

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Are you US? Makes a difference in suggestions. Regardless of venue you will need an accountant/CPA (not the same thing) who can advise you regarding tax liabilities in your locale.

You will also have to provide meticulous records of all expenses involved (for charge off) and operational costs (charge off/cost of doing business).

Without telling lies I had x business last year. My charge off was x-$1. Oddly, under current tax codes in USA I received x-plus in returns. Get that CPA as soon as possible! (one of several sites, some actually made income!)
5:36 pm on Mar 14, 2010 (gmt 0)

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I do my own taxes. The software out there today is pretty good at finding all the potential write-offs and tax breaks you might be missing. If anything, perhaps just pay for a consultation with a tax specialist to review your filings. Then take those learnings and apply them when you do your own taxes.

It also helps to get some good accounting software. I use Quickbooks.
6:35 pm on Mar 14, 2010 (gmt 0)

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Obama is changing the tax landscape with credits that don't appear in some tax software yet. A tax return specialist is a must. With your "I got totally nailed this filing" paperwork in hand have a CPA/accountant look it over to see where you can improve before the same happens next year.
11:45 pm on Mar 14, 2010 (gmt 0)

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I use TurboTax and I'm pretty happy with it but I think it's to generic for my needs. My main problem is that my website cost is such a small percentage of what it actually makes. I'm going to talk to someone but it sounds like creating a LLC may be the way to go.

Has anyone heard of any stimulus offers like the electric vehicle/golf cart stimulus that they ran last year? I found out about that at the last minute and couldn't jump on it.
11:56 pm on Mar 14, 2010 (gmt 0)

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Never ever deduct your house or part of it for business, big red flag for an audit

I've done it for years. Haven't been audited yet - knock wood.
12:17 am on Mar 15, 2010 (gmt 0)

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You're making over $4M per year, and based on your questions it's worth talking to both an attorney and an accountant - pronto. You should be trying to shelter as much money as possible and based on what you're stating (income versus expenses), you should be building funds for retirement.
1:43 am on Mar 15, 2010 (gmt 0)

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BillyS I made a mistake in the thread title it's only 4 figures per day, big difference. Either way I am setting up IRA's on my own and my goal is to build off this income.
3:52 am on Mar 15, 2010 (gmt 0)

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I do my own taxes. The software out there today is pretty good at finding all the potential write-offs and tax breaks you might be missing.


An accountant would probably cost imbckagn well under 2K since he doesn't seem to currently have any complex tax shelters or business structures set up. And even that would be a tax deductible business expense. It is a tiny fraction of what he is making so it would be an expense well worth the expert advice.

Either way I am setting up IRA's on my own and my goal is to build off this income.


It is good you are thinking about the IRAs but there are more complex options available to people with your kind of income, including defined benefit plans where you can contribute over 100K a year to your own retirement plan. With your kind of income it is something to consider. You would probably need an actuary at a pension firm to set this kind of plan up for you.

Nolo Press has a good book Tax Savvy for Small Businesses that has some good information on deductions as well as retirement plan options for small business owners.
9:08 pm on Mar 15, 2010 (gmt 0)

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Unless there are some seriously compelling reasons to reside in the US, assuming you are in the US, then there are some very favourable jurisdictions around the world that would welcome you with open arms...assuming you do everything from a laptop!
9:15 pm on Mar 15, 2010 (gmt 0)

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Unless there are some seriously compelling reasons to reside in the US, assuming you are in the US, then there are some very favourable jurisdictions around the world that would welcome you with open arms...assuming you do everything from a laptop!

Unless you give up your citizenship, you'd still be subject to U.S. taxes.