Start-up Costs Should Include Credit Card Charges and Taxes

What are start-up costs?

When one thinks about start-up costs, the typical definition that comes to mind are those expenses before the business owner opens her doors and shortly thereafter. Start-up expenses are usually the cost of rent, office supplies, equipment, phone/ internet / fax, etc.

Well another start-up expense, so to speak, is the charges that we put on our credit cards, because some of us are operating mostly on credit at the beginning. You can pay just the minimum monthly payment, if you wish, but with monthly interest charges, you will find that this is the amount that you are basically paying off. So when I saw my latest credit card bill today, I made up my mind that when it's paid up, I am going to get rid of it.

An additional start-up cost is estimated quarterly income tax payments. If you are in business for yourself, the IRS would like for you to pay your taxes quarterly based on your estimated earnings for that year. Then divide by 4 (for the 4 quarters) and mail them in every few months. You do this for state and federal, I believe. If you fail to do this, then when you go to do your taxes the following year, you will be penalized several hundred dollars for this failure (estimated). If you are not earning enough money through your business to make these payments, then you might as well forgo them and just pay the penalty in the next tax season. However, this is more frustrating debt. By the following year, you will have to pay all of your taxes from your earnings from the previous year. If you think about all of the tax that is taken out of your paychecks (back when you were working for someone else) and add it all together, plus throw in a few extra hundred dollars penalty for not paying it throughout the previous year, you are going to owe a hefty amount and will likely have to work out a payment plan with the IRS. Then by the following year, when you are in your third year of practice but still paying taxes from the previous year, you are going to owe taxes again.

My point is that credit card debt and taxes should be included in your "planning" for your business when you sit down to determine your list of start-up expenses. It doesn't mean because you don't have all that money up front you shouldn't go in business for yourself. It is just something to keep in mind as you monitor and plan your budget, and it may be a factor, when you determine how many clients you need to earn X amount per month. You know what I mean because you have all done it ("if I get X number of clients, multiplied by my average legal fees Y, then that is $Z per month"). Just something to keep in mind.