Scrap You Later

Handling Taxes As A Scrapper

June 11, 2021 iScrap App Episode 34
Scrap You Later
Handling Taxes As A Scrapper
Chapters
Scrap You Later
Handling Taxes As A Scrapper
Jun 11, 2021 Episode 34
iScrap App

You probably have questioned whether you should report your scrap earnings in your taxes. It's the least favorite topic! In this episode, Tom discusses how scrappers can handle taxes and what some of our own iScrappers have suggested. It's important to know what is legally required of you and how you should approach the topic for your scrap metal earnings.

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Show Notes Transcript

You probably have questioned whether you should report your scrap earnings in your taxes. It's the least favorite topic! In this episode, Tom discusses how scrappers can handle taxes and what some of our own iScrappers have suggested. It's important to know what is legally required of you and how you should approach the topic for your scrap metal earnings.

📲Download The App

✌️
Become A Patron

🎥Support the show 

Support the show (https://www.patreon.com/iscrapapp)

Tom Buechel:

Hey, scrappers Tom from the iScrap App. And today we want to talk about everyone's least favorite topic. But unfortunately, death and taxes are the two things that you can always bank on in life. And today, we're not going to talk about death. Because we're optimists. We want to talk about taxes. And let me just start off by saying, just because I have an accounting degree, in no way, shape, or form, am I an accountant, a tax expert, a lawyer, or am I giving you advice, I'm just talking about what we've heard other people doing so you can hear things that they do. And maybe that can help you in your own while you're filing your taxes. Or maybe you're doing scrap on the side and you're just trying to figure out the right thing to do, because inevitably, the taxman always comes a knocking. And if you don't have answers to the questions that they're going to ask you, it's going to make it really, really difficult for you to do it. So we're going to give you a couple of ideas. Now in the years passed, before scrap yards, were really run by computer systems, you were really going to be the one that was going to be in charge of all of your receipts. Now, most of you probably go to scrap yards that give you a printed receipt, all of the items are tracked, they have computer systems. And if you ever want you could always go to the scrapyard and ask them for a summary of your receipts from the last three months, 12 months or whatever it is, we generally recommend putting this into an email form and emailing it to the office inside of the scrapyard. If you're just asking someone that's at the scale, they'll probably forget or they won't tell someone or they won't have access to the account. So by asking people at in the office where you can get your full reports from it's going to give you the ability to just know all the material that you sold. If you sell to a few scrap yards a year, you can ask multiple scrap yards. I know that our yard in Rockaway, New Jersey at Rockaway Recycling, we have scrappers that are full time scrappers and, and we've let them know that if they lose a receipt, or if they want a summary of their transactions, there's no problem, we just print them out into a PDF, we email them over, and then they can file their taxes. Now, again, we are not giving you tax advice. We're just answering questions that people have asked us online and through emails about the different types of taxes. Now, if you're working for someone doing this and you're getting a paycheck, you should be in good shape. But if you're self employed, and you're kind of scrapping on your own, what should you be doing because you have to pay taxes at some point. So here's a couple of ideas for what you can do. Right off the bat, you should always be making either quarterly or yearly reports, if not monthly reports and payments. This way, at the end of the year, when April 15 rolls around and your taxes are due. You've already put money into the system to cover Medicare, Social Security, local taxes, state taxes, government taxes, you know, all of these different things this way you get ahead of it. So you don't have a big surprise. I remember a few years ago, I was talking to a guy who didn't scrap part time, but he made $10,000-$12,000 a year doing it part time. And he just didn't save his receipts. And it was right at the point where we had a computer system, were able to get it and when he was able to file his taxes and he listed an additional $10,000 in income. Well, he had to make an additional tax payment of over $2,000 that was completely unexpected. And no one likes surprises, especially if you don't just have that $2,000 in your back pocket ready to send Uncle Sam because they don't really care what your excuse is. So if you're a small business if you're a sole proprietor, if you're doing this on your own, you want to save all of your receipts. And on that note talking about receipts from the scrapyard. You also want to save all of your receipts for things like your mileage, your vehicle expenses, internet at your house, equipment, supplies, tools, saws, all blades, we always recommend getting a credit card that is only for your scrapping operations, not one that you use for personal that you have to go through your line items and say okay, you know the payment for Buffalo Wild Wings is not the same as a one at Home Depot. Now you got to start highlighting, that creates problems, you can probably get a slew of different credit cards that offer you no annual fee. So by having a credit card that's just for the business, it's going to make your life a little easier. Things we recommend doing with that credit card charging things like gas going when you go for tool runs when you go free equipment runs if you have vehicle expenses, you know every year you can deduct up to $25,000 in vehicle expenses and that does not include the travel distance. That you can do as well. And when we're talking about traveling, we know that scrappers whole a lot of miles on their trucks, cars, trailers, whatever it is. And there are mileage tracking apps that you can download for free. That's going to give you the ability to track your miles and have them logged, you know, if this morning, you start at your house, and you don't have an office, because you travel, wherever you are, well, maybe all day long, all of those miles are tracked. But what if you forget, and you do a personal trip, and it's a 20 mile personal trip, things you don't want to do is get into problems, especially when it comes to taxes, the IRS or any things like that. So track your miles this week and take a deduction at the end of the year. And when you start to cash in your scrap tickets, you couldn't even have a separate checking account. Again, it's almost the separation of church and state the way you want to think about it, you do not want to have your personal expenses mixed in with your business expenses, because that's when you start to get into gray areas, gray areas cause more problems, problems cause more problems and headaches. And these are things that you don't want to do. So we asked in our scrap metal recycling talk group on Facebook, how different people do their taxes in here some of the answers that we get. Now listen, no one wants to really talk about this. But it is something that's out there. As the government gets smarter and smarter over the years, you will have more problems. So make sure you cover your butt when it comes to everything tax related. So here's some of the answers. We had one person Frieda, who is one of our great scrappers says that the file a 1040, Schedule C profit or loss from the business, they do a scheduled self employment tax, as well as a form 4562, which is a depreciation and amortization form. And as those forms are filled out, if you don't understand them, the internet is a great tool to be able to Google them or use YouTube, and have someone explain those different things. And on top of that, there are so many different tax companies. And a good one to think about would be like H&R block, where you can establish a rapport with a local office, if you ended up moving or going somewhere else in the country. They have your history wherever you go. So it makes it a little easier for you. But one of the things that free to talk about was things that he was able to deduct gas, gloves, oxygen tanks, if you're hiring people, make sure you record what you pay them. If you need to rent a tool by a wire stripper, any of those costs should be recorded. And inevitably, you're going to miss some of them. But thinking about them in advance, and using tracking software on your phones is going to make it easier. I know that a lot of my friends that travel for business, they have two different apps. One is a mileage tracker when they're driving. A second is an expense tracker that takes pictures of the receipts. So if you have a receipt from Home Depot, and you throw it in your pocket with change, or whatever other buttons you have floating around in there, before you put it in your pocket or before you take it and throw it onto your desk, take a picture of it with any one of the convenient tracking tools that are out there. And many of these apps are free. You know, you might get a couple of ads thrown at you. But what do you care? The point of it is to track your different expenses. So you always can show Hey, listen, these are all the things that we do. So here, here's what another person did. Seth recorded. He said that he records his earnings on a spreadsheet for the year. He's a one person LLC and it basically becomes basic income. He hasn't done his totals, but it's not going to be crazy because he has everything tracked. Another guy Colby, he uses QuickBooks. By using QuickBooks, you can download free and convenient ones. It makes it easier to be able to look at reconciliations, your quarterly deductions, your quarterly tax payments are you investing, it takes time to do these things. But if you have a tablet, a computer or just a smartphone, a lot of these can be done on your own. Now things that you want to think about when you're going to do your taxes, what state you live in a state like Florida that doesn't have income tax while you're still going to have to track all of your things. But you're going to be not filing state income taxes, you're going to be filing your federal income taxes. We're state like New Jersey has both federal and state. So you have to know what your local state laws are, what bracket you fall into. And then you have other things that become more complicated your deductions from family members, and all these different things. Assume that you're wrong. And always try to get a third party's opinion. So you can make sure that you protect yourself. Now, we have accountants for iScrap and for Rockaway Recycling because of the nature's of the businesses. And what the accountant always tells us is track more, even if we don't need it. If there's an expense that you think needs to be tracked, they would rather ignore it than ask you for it because it was supposed to be tracked over tracking is always going to be more productive than under tracking, because there's no reason to put yourself your family at risk, especially when the IRS says, you know, we saw that you were making money for years, and then you stopped paying taxes. Well, we know a lot of people that used to have a full time job, that full time job laid them off, they quit, they moved, whatever happened. They started scrapping full time. Well, these are called patterns, if you pay your taxes through a paycheck for 15 years, and then you stop paying it because you're not receiving a paycheck from your company anymore. And you're on your own. Well, where are those taxes coming from? Are they being paid out? Did you forget to pay them. And the last thing you want is more headaches, you want to focus on finding more scrap, you want to focus on locating more material, gaining more customers, and worrying about tracking your receipts should be something that is very easy, it might take a little while to get used to it. But I know that at Rockaway Recycling, if I have to drive, I track my miles, we're able to report them. If we're buying tools, we have a credit card that's just dedicated to all of our equipment purchases. And while we're a company that have multiple layers, these layers can help you especially like we talked about, get a separate credit card, that's going to give you the ability to just have your business expenses, like fuel, tools, equipment, repairs, equipment rentals, all on one credit card. And by having an all on one credit card, that's going to make it easier to track easier to report. And at the end of the day, it's just going to make your tax reporting a lot easier, maybe not fun, because I don't think taxes or I may have ever talked to anyone that says, Oh, I can't wait to pay my taxes this month, but generally has never been a phrase it's been said. But when you inevitably do have to pony up to Uncle Sam, by having everything tracked ahead of time, it's going to make it easier. Other things, if you're buying a trailer, let's say you we've seen so many people on Facebook that have bought us trailers, they could have been a trailer that was perfect that was previously used for I don't know what trailer park home, they rip the trailer park home off the top, they have the bed. Well, that bed you're now going to have to build into a trailer. How much was the material that you had to buy? That you welded on there? How long did it take you? Did you have to pay someone to do some work? If you pay that person $300-400 cash to help you well, then well, you want to be able to have some type of a trace for that. So when you say that your trailer is now worth $8,000. They're gonna say, Well, can you prove that it's worth $8,000? Where'd it come from? How much did you pay for? Is there a title involved? And now you're probably rolling your eyes at me saying, Tom, this isn't going to really ever affect us. We're never going to do this. It isn't until it is because we have a lot of scrappers that come to Rockaway Recycling that make enough money doing this as a part time job, where they have to file it because they have a paycheck from another company. And all of a sudden you have $5000, $10,000, $3,000 in additional income. If you're not claiming that, think about what happens year after year, the government might not see in one year. But if you do that for five or six years, and you're making $5,000 that could be $25,000-$30,000 that the government has not collected taxes on. And these are things that are going to cause you problems and as a scrapyard owner and as someone that scraps on the side and as someone who buys from people that scrap full time, part time. And then of course, just the nature of the iScrap App that dealing with so many different scrappers. We say it all the time. Our job is to help you make more money with your scrap and sometimes saving money or tracking money will help you make more money. You know, let's say you have healthcare, maybe you're paying those out of your own pocket. Well, if you have something like Obamacare or a third party health care system, you might be able to deduct those from your taxes. If you buy a computer that you're going to use to track your QuickBooks, or your taxes that can be deducted. equipment like wire strippers, safety gloves, classes, rubber gloves, nose plugs, you plugs, hard hats, boots, pants, shirts, welding equipment, welding uniforms, overalls, a plow, anything that could be related to your job can become a deductible piece of equipment. And if you don't track these things, then you can't amortize it over time. If you buy a truck that's only for scrapping, and then you have a personal vehicle that you drive, well, then your truck should only be used for scrapping. So you're going to be able to track those miles. And all these different things are really easy to do. Once you go over them, once you slow down and do the initial setup, I mean, the hardest part is getting set up. After you get set up. It's really just kind of following the system. Oh, I drove 25 miles today, let me track those miles. At the end of the month, you can ask your scrap yard for receipts for the end of the quarter. And again, things we recommend, don't do it in person, email them and then maybe do a follow up phone call, because it will only take a scrap yard five minutes or less. But if they're really busy, and they kind of get pushed down the list or someone gives them a post it note they will forget. So you might have to be a little more aggressive, especially if you're working with different scrap yards. Now listen, talking about taxes is one of the lower priority things in my mind that I want to talk about when it comes to helping you make more money with your scrap. But when you look at how important taxes are, it really is a very important thing to talk about. Because while we might not be doing your taxes or giving you advice on how to do them, what we are doing is giving you a different idea, a different concept and something to look at. So you're able to save money and save headaches. Now scrappers, this is Tom from th iScrap App. We are so happy hat you listen to this episode f scrap you later. If you want s to talk about anything from axes to equipment, to different ays that you can make more oney with your scrap. You can lways message us we'd love to ear from you. We'd love to hear ome positive five star ratings f the podcast and share it with nyone you know, the next time crappers on Tom and I'll scrap ou later.