New Entrepreneur's Tax Guide!
Did you know that the self-employed rate skyrocketed in 2017? In 2017, there was a 150% increase in self-employed workers! Although that is excellent news for the economy, it may not be so great for new entrepreneurs during tax season. New entrepreneurs are taxed quite differently from employees, and sometimes that is not evident until tax season. Taxes can be a headache for new entrepreneurs, but they don't have to be. With the right preparation and a little end of year know how you can be on your way to making it through tax season like a breeze. Let's dive into the New Entrepreneurs Tax Guide!:
1. Get Your Receipts Together
The beautiful thing about credit cards for business owners is that it tracks all of your expenses. If you're a millennial, most likely all of your receipts are on a credit card. If you have a business credit card, even better. If you don't, get one immediately. It will save you the headache of having to sift through your expenses from the entire year and could also prevent you from getting audited. You need to compile all of your costs so you can take advantage of tax deductions such as but not limited to travel, insurance, advertising, legal fees, and even a home office!
2. Expect to Pay Self-Employment Tax
Some new solopreneurs and entrepreneurs are shocked when they have to pay self-employment tax. When you are working for a corporation taxes like medicare and social security tax are already deducted from your paycheck. As an entrepreneur, you have to account for those on your own which is roughly 15.3% (12.4% for social security and 2.9% for medicare). If you owe over $1,000 in self-employment tax, you are expected to start paying in quarterly and estimating your next year's earnings. (read: a headache) You don't want to get into a fight with the IRS, understand what you have to pay before you get into a problem.
3. What's Your Business Structure?
What type of structure is your business? LLC? S-corp? C-corp? Sole proprietor? The legal structure of your company doesn't just affect how protected your assets are, but it also decides how much you may owe in taxes. A sole proprietor is a great option, but your assets could be in jeopardy if a lawsuit ever comes your way. A corporation is much more complex and require additional setup fees but protect your assets. If you don't have a tax professional, starting a business is undoubtedly the time to start seeing one!
4. Utilize contractors!
Employees are just plain expensive. You may not have the funds at the beginning to pay someone to work for you full time. You most likely started your business to regain some of your freedom and you may have friends and other solopreneurs that are looking to do just that too! Take advantage of their services but make sure you draw up an IRS 1099 form so that they can claim income tax instead of you worrying about payroll taxes.
5. Find someone STAT
As a business owner, you cannot do everything on your own. Outsourcing and delegation are the keys to keeping your business running smoothly and efficiently. Enlisting the help of a tax professional should be at the top of your list. Tax firms or individual CPA's are definitely worth their time and fee. They can save you from legal regulations and ramifications with the IRS that you may not be prepared to handle on your own.
As a new entrepreneur, freelancer, or business owner, figuring out your taxes can be soul-crushing, but it doesn't have to be. If you are in the market for a tax professional, start with asking your network! Getting recommendations for professional services is a great way to hire someone trustworthy. If you are looking to go it alone, make sure you have invested in software to make tax season a little easier.
What are your tax tips?