New vending route business, not sure how to determine taxes
I have started a new LLC business in Ohio for which I have acquired multiple amusement vending machines (these are prize redemption machines e.g. claw machines) with the plan to lease space and start a route. I have been trying to estimate potential income per machine as well as future taxes, however, I am unable to determine the tax portion. I don't have very much experience with business taxes, owning an LLC, etc so please bear with me.
I am trying to negotiate a new account with a mall in my area. They would like me to pay 0 per month per machine in rent as well as a 40% break point percentage. There are also other fees that would be included with placing machines such as prizes, monthly insurance, replacing bill acceptors yearly, and general maintenance. These costs add up quickly.
So if I am to pay sales tax on the gross income of each machine, as I believe I am required to in my state, and I also pay tax on the net gains of the business and income tax on the money the LLC pays to me, I may never actually turn a profit. Is my understanding of the number of times I pay taxes incorrect?
And are those taxes cumulative?
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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).
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