Self-Employment and Gross vs. Net Income

[kathy4530050]

Can anyone tell me how income is calculated for the means test for the self-employed? I do training and consulting and once a payment from a client comes in, there are always some serious expenses buried in it: training materials, airfare, rental car or cab, hotel, per diem, in addition to my state and federal income taxes and self-employment taxes. If the trustee just looks at the checks that have come in, the picture looks much, much rosier than the reality. Does anyone know how they look at self-employment?

Thanks!

[okiemom2008]

Can anyone tell me how income is calculated for the means test for the self-employed? I do training and consulting and once a payment from a client comes in, there are always some serious expenses buried in it: training materials, airfare, rental car or cab, hotel, per diem, in addition to my state and federal income taxes and self-employment taxes. If the trustee just looks at the checks that have come in, the picture looks much, much rosier than the reality. Does anyone know how they look at self-employment?

Thanks!

We were also self-employed and for us, they wanted our gross income listed minus expenses that we have proof of. If they would have wanted only income and no expenses it would have looked like we had plenty of money when in reality we dont have any!!
Hope this helps

[kathy4530050]

Thank you. Yes, this helps. So I guess I just copy receipts, right, and include those with the rest of my paperwork? But what about the taxes--did you just estimate? Were you allowed to include taxes?

[okiemom2008]

Thank you. Yes, this helps. So I guess I just copy receipts, right, and include those with the rest of my paperwork? But what about the taxes--did you just estimate? Were you allowed to include taxes?

On the sales tax I did include it. It was a huge chunk of money. I did not copy the receipts--I just used my bank account as receipts since it was all debited from my checking account. I am hoping I did it right..just going off what my lawyer told me..
Good Luck.

[Tromploi]

I am self employed and so is my husband. We listed our gross, then all applicable expenses to get net. Phone, gas, ink, paper, advertising etc. ANYTHING business related. Thing is, when we filed they showed our monthly income at 21K! Yeah right, based on deposits, but I make payroll out of that. So our expenses were $20,003 a month, leaving +$97. At our 341 the trustee said you make $13K a month as a petsitter? I told him that was including all my independant contractors. OH, he said. Whew. Thinking about it now, that is not how it should have been filed. That puts us WAY over median, and I am hoping the UST won't take notice.

We also included what we SHOULD have been deducting for quarterlies, which in our case is close to 2K a month. It was a legitimate expense, we HAVE quarterly tax payments to make. BIG ones.

Anyway, hope that helps.

[dogbone33]

I did the same as above. They wanted my gross income and a list of all of my expenses. Kind of like you would do when you get your taxes done.

[kathy4530050]

Thanks everyone. That DOES help. I just don't understand why I have gotten so little direction from my lawyer on this. I'm guessing now that he doesn't do many bankruptcies for small business owners. I have an LLC, and because I file a 1040, I think this bankruptcy falls into some murky area between a personal bankruptcy and a business bankruptcy. I know what I have to do now. I'll create monthly P & L statements (which I would otherwise only do at the end of the year), copy my receipts, and track every dime of expenses. AND I will make absolutely certain that my lawyer does his job right and lists my NET. Big, big difference between my gross and net.

SO, just to make sure I get this right, I calculate my net exactly as I would for income taxes, right?

Thanks a bunch!

[StartingOver08]

Thanks everyone. That DOES help. I just don't understand why I have gotten so little direction from my lawyer on this. I'm guessing now that he doesn't do many bankruptcies for small business owners. I have an LLC, and because I file a 1040, I think this bankruptcy falls into some murky area between a personal bankruptcy and a business bankruptcy. I know what I have to do now. I'll create monthly P & L statements (which I would otherwise only do at the end of the year), copy my receipts, and track every dime of expenses. AND I will make absolutely certain that my lawyer does his job right and lists my NET. Big, big difference between my gross and net.

SO, just to make sure I get this right, I calculate my net exactly as I would for income taxes, right?

Thanks a bunch!

Kathy, your LLC is an S-Corp. When you file personally, your LLC is a personal asset of yours. You do need to show your gross income and every expense, including taxes. Your lawyer can not start off with your NET!

There are many of us that had the same issue - you have to start with the Gross income so all of the money can be tracked by the Trustee. You are right though about the attorney - if he is not experienced in working with small businesses - get another one. If you have debt in the LLC name, you many need to close the business after you file and re-open as another LLC.

I only say this if you have debt that was incurred by your LLC and personally guaranteed by you. Once you file and get discharged from a personal Ch 7, the debt is eliminated against you personally, but still remains against the LLC. So, the creditor can get a judgment against the LLC and when you deposit funds into the LLC account, sieze the funds.

[kathy4530050]

hmmmmm

Aside from one or two credit cards that had both my business name and my name on them, all of my debt is personal. What about these credit cards? I had not given this any thought at all before . . .

[Tromploi]

I have an LLC. I had one credit card with by business name on it that I included in the BK. It was taken out with my SS# though, not my TIN#. Not sure if that makes a difference. So far it's been fine. Other than that the business has no debt, it's a service based business. There are no assets except the client list, and the trustee can't really auction people off! Or can he???

[kathy4530050]

Good to know. I used my SS # for these cards too. And my business doesn't have any debt either. I do training consulting an so, like you, don't really have any assets. I have training manuals, but I think it would be tough to establish their value and who would want them??? The IRS couldn't give them away!

[Tromploi]

Now my husband owns 2 businesses, neither is an LLC. One is consulting, no assets, the other is beekeeping. The Trustee did question him quite a bit at the 341 about how we came to value the bee equipment. Seemed like the trustee knew something about bees. We put $6K, mainly because we were out of exemptions so we put what we had left. The trustee's last comment at the 341 before asking if any creditors were present was "well, the only question I would have is whether or not the bee equipment is worth more but...". He filed a report of no distribution the next AM. So I guess he was okay with it. Still hoping to hear NOTHING from the UST.

[bigcat12159]

Invest in Quikbooks. It would make your life a lot easier

[CatsInTrouble]

I have an LLC that will likely sail thru the BK, as it has no debt associated with it. I was asked to turn in a P & L statement, as you indicated Kathy. We are likely filing March 15th-ish, so I will let ya know...

[kathy4530050]

Please do! I'll be watching . . .