Virginia Bail Bondsman Tax Planning
Understand Your Tax Liability In Virginia
This information is old hat to many established bail bond companies, but I thought to put it out there for newer, upstart bail agents. If you are not aware of the tax implications, you can definitely be caught at the year end with a large liability.
Even the IRS takes note and provides auditing procedures for bail bond companies.
Tax planning is a critical and important part of your business!
The Basic Bail Agent Breakdown
Your total tax liability, when you have self-employment income, is a combination of primarily 3 taxes (There are also additional taxes for Net investment income, Additional Medicare, AMT, etc. when certain circumstances occur):
Federal Income Tax
Federal income tax based on regular taxable income determined after itemized deductions and personal exemptions (Different rates at different levels of income – See attached table.
Self Employment Tax
Self-Employment Tax (Social Security & Medicare) is based strictly on net self-employment income and is not affected by itemized deductions, personal exemptions, IRA’s, 401k’s. The tax is approximately 15% of net self-employment income.
State Income Tax
Virginia Income Tax is also has different rates at different income levels but all taxable income above $17,000 is taxed at 5.75%.
It doesn’t take rocket science to see that under generous conditions the bail bondsman’s tax liability after expenses is sitting at over 45%! Planning your tax liability is essential.
Create a Tax Plan
Needless to say, having to come up with 45% of your net yearly business for a tax bill is somewhat daunting if you are not prepared for it. Especially for surety agents, after expenses (2-2.6% of the bond amount for BUF and fees) the profits can be even tighter.
Our particular strategy is to not take income till year end. (That way we know the moneys in the bank!) This however is unreasonable and impractical for those who are full time. If you are thinking full-time for your profession, a plan such as saving 50% of every bail might be an option (taking into consideration your expenses). Whatever you decide, make a plan and stick with it.
Is Your Bail Bonds Business Worth It
It’s the end of the first year in business. We have been getting up in the middle of the night, fielding calls, following up with clients… you all know the deal. Throw in the book keeping, backed up jails, video conferencing head aches – It’s time intensive at times. Knowing we have a 45.75% tax rate makes me think a little more seriously about that 1 am bail for $1000!
If you have other responsibilities such as a spouse, children or a primary job, the premium on your time just went up. Every person has to ask the question, “Is it worth it? In the end, I hope detailing this information will be helpful as we all break into 2015!
Special thanks to our accountant for helping with this article!
Richard Hamilton Jones, Jr., CPA, www.rhjonescpa.com