Avi, a Philadelphia resident who has been running his own venture for six years, admits he doesn’t even know if his business is making money or how much he’s paid in taxes over the past two years.
On an episode of “The Ramsay Show,” he told host Dave Ramsay that he made a grave mistake of mixing up work and personal spending for several years, which left his finances in a state of disarray. I explained what happened.
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“Dude, you’re a mess,” Dave Ramsey laughed.
Avi’s situation highlights the challenges faced by solopreneurs who lack the necessary financial skills to succeed.
Risk of tax implications
According to research from Quickbooks Live Bookkeeper, about one-third of small business owners try to manage their own bookkeeping.
Unfortunately, without professional accounting, some of these executives are exposed to regulatory scrutiny. Confusing personal and business expenses can send red flags to the Internal Revenue Service, and discrepancies in your filings can result in an audit.
The fact that Avi has failed to file tax returns for the past two years increases the risk of serious repercussions for Avi. Ramsay was shocked by the negligence.
“Failure to file a federal income tax return is a crime. You need to clean up that part of your life immediately,” he argued.
His tax liability isn’t the only mystery. Avi is also unsure whether his business is profitable and generates enough income to support his family.
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Mix business and personal life
Avi thinks his business might be in the red. However, we don’t know if that’s the case because he tends to pay himself from the company whenever he needs cash, and until recently he hasn’t been able to differentiate between his business and personal accounts.
Nevertheless, he is convinced that his business income is insufficient due to the mounting debt piles in both his business and personal accounts.
“I’m getting more debt. That’s my problem,” he said.
Avi estimates she has $50,000 in credit card debt and about $80,000 in business loans. If it is discovered that you have not paid taxes after filing your tax return, your debt burden may increase.
Ramsay believes that Avi is in financial crisis.
“It’s really amazing that it survived this long,” he said.
According to the Federal Reserve’s Small Business Credit Survey, 34% of small businesses are concerned about making debt payments in 2023.
To avoid bankruptcy, Ramsey advised Avi to go into “panic mode” and file missing tax returns as soon as possible, and to separate expenses between personal and business accounts.
“Never pay anything personal from there again.” [business] Think about the rest of your life,” Ramsey said.
Now that the profitability of the business is clearer, Avi is wondering whether the best option is to expand the business or to abandon the business altogether and take on a more profitable full-time job. You will be able to judge.
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