3 Money-Saving Tax Tips for Small Businesses
Here’s what a tax strategist recommends.
Photo: Ivan Samkov from Pexels
If you were to ask anyone who just launched a business, start-up, or product in January of 2020 where they’d be in a year, I’m sure most would have had an optimistic answer and replied with an answer along the lines of “hoping my business will take off.” Unfortunately, that was in a time before COVID. Now, an estimated 60% of small businesses have closed in the past year, and the impact the pandemic has had on small businesses is absolutely heartbreaking. I myself launched a small business right before the pandemic hit and completely understand the challenges that most founders face. I am one of the fortunate ones who has been able to maintain my business through an online presence and very dedicated clients.
Most of my clients are also small business owners who faced the same challenges as me in 2020, and as a tax strategist and owner of Your Tax Coach, it’s my goal to help them navigate PPP loans, EIDL grants and loans, the COVID relief bill, a change of presidential administration, and now, tax season. You’re probably wondering “what is a tax strategist” and “what exactly makes you any different from an accountant?” Simple, my goal is to save business owners like you tens of thousands of dollars on your tax returns, while also relieving your tax-related stress and anxiety through consistent, easy-to-understand communication.
An accountant will keep records of your finances throughout the year and keep your tax returns compliant. They don’t look for different strategies to apply when filing your taxes and their goal isn’t to save you money, especially if you are a small business owner. For example, did you know that you can claim your cell phone bill, internet, business coaches, courses, conferences, books, magazines, coworking spaces, website design, and even those holiday cards you sent to clients on your tax returns? Some tax strategies also include paying your children and paying yourself rent through your business. Accountants aren’t going to include claims like these because it takes time and documentation to implement.
Now, this is how I saved my clients over $4.5 million in 2020 on their tax returns, and what I recommend you should do. Here are my top three tips for all small business owners filing their taxes this year.
1. If you profit over $40,000 a year in your business, you should probably be an S Corporation, not a sole proprietorship or LLC.
It’s easy to assume just because you are a one-woman show running a small business that you don’t necessarily qualify to be considered an S corporation. Although S Corporations require an application and documentation, this is an easy way to save up to $22,000 in taxes each year.
2. Know your numbers, and update your bookkeeping monthly.
Track, track, track! Staying on top of your bookkeeping each month (or, better yet, each week) makes it so much easier to know how much you are profiting. Waiting for your accountant to figure it out a few weeks before taxes are due will not only be a pain but will also likely result in you overpaying in taxes.
3. Have a tax strategy session with a tax strategist (you’ll be surprised to know that you’ve been overpaying for years).
Again, a tax strategist is entirely different from your accountant, and meeting with me or another tax strategist, you’ll quickly realize you’ve been overpaying taxes for years.
Bonus tip: Have a home office? Make sure you’re getting the maximum home office deduction. (There are multiple ways of calculating it.)
Most small business owners and entrepreneurs don’t have a traditional office space that they’re renting. We all know that you're really working in some small makeshift office, which, technically speaking, is still considered a home office. If there is a desk, computer, and chair present, you got yourself an office. Make sure you know to deduct this when you are filing your taxes.
Overall, a tax strategist is going to go above and beyond to save you as much as possible in taxes. My biggest recommendation is to invest in yourself and your business and hire someone who is going to ensure that filing your taxes is a fun and easy process, instead of dreading it. Your tax strategy should be seen as a MUST, not a plus.
"Invest in yourself and your business and hire someone who is going to ensure that filing your taxes is a fun and easy process, instead of dreading it."
—Barbara Schreihan, Founder of Your Tax Coach
About the author: Barbara Schreihan started her career journey working at many different accounting firms, and she quickly noticed that her firms were lacking in customer service and tax strategies. She decided to take a risk of her own and start her own accounting business with the main goal of implementing strategies for clients to reduce the tax impact on themselves and their businesses. She now provides clients her services through tax strategy, tax preparation, and business intensives. Her goal is to customize either of these three services and implement strategies for clients to reduce tax impact for their business. For more information, be sure to follow her on Instagram or visit her website.
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Set Aside 30 Minutes This Week to Do *This* and Keep Your Small Biz On Track
Money talks.
Photo: Christina Morillo for Pexels
Most people we know move gradually make the move from side-hustle to full-time gig. It’s a great plan to be sure that you’re able to support yourself financially while you’re laying the groundwork for your new business, but it can often lead to a bit of a messy overlap between your personal and business funds. (Trust us, we’ve been there.)
You may keep pushing off getting organized until the proverbial “tomorrow” and let the task of figuring it out fall to the bottom of your to-do list. You end up losing money because of missing receipts and not planning for tax deadlines. Follow the four steps below to make getting organized easier, painless, and maybe even a little fun, all in just 30 minutes.
Step 1: Open a separate bank account for your business ASAP
Is this something that you legally need to do for your business? Maybe. Is this something that you financially need to do for your business? Absolutely.
Even if you’re starting out as a sole proprietor, which is the default structure for anyone who earns income from self-employment, you should set up a separate bank account. Why? Because even if that’s the only thing that you do to get your money organized, you’ll be miles ahead of everyone else in the organization game. You won’t need to sift through a bunch of personal transactions to find business deductions and you won’t lose precious time looking through all of those same personal transactions to see if your client has paid you.
Don’t overcomplicate your business or waste any more time looking at a hodgepodge of transactions, hoping that you’re not missing something. Take 15 minutes to set up a separate account and you’ll be one big step closer to organized money management (congratulations!).
Step 2: Create a list of deductions you can take
There are so many deductions you can take, but it's hard to catch everything. Create a list of things you can deduct to ensure you're not missing anything. Tape the list to a folder and store your receipts in there until you can get them entered into whatever bookkeeping system you use.
Everyone will have different expenses, but a good list to get started with is:
• Web hosting
• Vehicle mileage
• Work travel
• Courses, seminars, licensing, and business-related books
• Shipping and packaging
• Office supplies and equipment
• Health insurance premiums
Step 3: Know what tax forms you need to file, and when
The first few months of starting a business will fly by and you’ll be left scrambling the night before filing deadlines if you don’t pay attention to some key forms and dates.
To get this started here is some basic information for sole proprietors:
Who has to file? Generally, anyone who has net earnings from self-employment of $400 or more needs to report this income at the end of the year. And anyone who is expected to owe more than $1,000 in taxes at the end of the year needs to make quarterly estimated income tax payments.
What form do I file? Most people start their business as a sole proprietor, and the forms that you need to file at the end of the year are Schedule C or Schedule C-EZ (profit and loss from business) and Schedule SE (self-employment tax).
When do I file quarterly estimated tax payments? Keep track of estimated payment deadlines or you’ll face a penalty come tax time. Deadlines for taxes on income received each quarter are April 15, June 15, September 15, and January 15 (of the following year).
Step 4: Set a weekly money date
This won’t be your most fun date, but it’ll probably your most profitable. Set a time to check in every week and make sure that your money is on track. If you do this weekly, it’ll become so easy and quick. Once you have this done, you've earned a glass of wine and a great stress-free weekend. Some things to do weekly are:
• Send any invoices that are due
• Look at who hasn’t paid and send reminders (+ cash any checks!)
• Pay any outstanding bills
• Pay yourself weekly salary/stipend
Bonus step: Set up a bookkeeping system
Look at you, you overachiever. You’ve got this organization thing down and you want a bonus step? You can feel even more legit and in control of your money by setting up an easy bookkeeping system. This doesn’t have to take a long time and it doesn’t need to cost a lot. There is a range of easy to use programs out there (some are even free!) that are better than that excel sheet you’re using.
Remember—better to get organized now than to create problems for yourself and your business in the future.
This post was originally published on February 7, 2018, and has since been updated.
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13 Things You Didn't Know You Can Write Off
It’s all about those deductions.
Photo: Smith House Photo
The world may be turned upside-down right now (thanks, COVID-19) and Tax Day has been moved to July 15, but we suggest you make the most of your quaran-time and get those taxes done!
We’re here to help ease some of the stress before you start scrambling to collect receipts and scour all your bank statements from the past year. Sure, taxes can be a drag (or something to look forward to if you know you’re bound to get a tax refund), but if you’re like most independent contractors or freelancers, you might owe a hefty amount of money to your state and the IRS.
However, there are so many things taxpayers fail to claim on their yearly taxes that could definitely help ease the fees that you owe back. To help you get a tax break, we’ve made a list of tax write-offs that many of us fail to claim and you may be overlooking, too.
Out-of-Pocket Charitable Deductions
If you contribute to your community and help with charitable work, or give charitable donations that include out-of-pocket costs, your good deeds may be rewarded with a tax write-off. If you’ve donated food to a soup kitchen, bought clothes for a women’s shelter, or even driven your car for charity, make sure to keep those receipts as they can work as a great tax deduction.
Home Office Costs
Now that we all WFH this deduction may be more useful than ever. So, your bed may not count, but if you use part of your home regularly and exclusively for business-related activity, the IRS lets you write off associated rent, utilities, real estate taxes, repairs, maintenance, and other related expenses. So if you are one of the lucky few working in your pajamas in the luxury of a home office, this year is to make the most of this write off.
Moving Expenses for Your First Job
Once you’ve moved past the job hunting phase and have landed your dream job on the other side of the town, or even the other side of the country, you’ll need to move closer to your job. If you’re moving farther than 50 miles away, you can write-off your moving expenses this season, including transportation.
Child Care Credit
If you have to leave your child, who is filed as your dependent under 13 years of age, with a sitter or at daycare while you’re at work, your child care expenses can serve as a tax credit, up to $3,000.
"Smart" Tax
If you are going back to school to sharpen your skills, are taking special courses for work, or have bought literature (books or magazines) that are relevant to your field of work, make sure to mark these as your “smart taxes.” Which, goes to show that any money that you spend on your education is always an investment.
Baggage Fees
Did you know you can get those annoying baggage fees right back into your pocket? Save the airline receipts from any checked baggage that you had to pay for, and mark them as a deduction when you file.
Energy-Saving Home
If you’re eco-savvy and have turned your house into an eco-friendly home in the past year, you can be rewarded with a great tax credit for your improvements. We know you went for paperless last year, but in this case, you might want to keep those paper receipts.
Financial Advisor/Accounting
If you have a financial advisor, tax preparer, or even paid to use a program like Quickbooks or Intuit to manage your finances and taxes, you can deduct those fees for the year in which you paid for them. If you still have your receipts from paying your preparer or the programs that you bought, make sure to include those in on your deductions!
Healthcare for Self-Employed
If you’re a boss lady of your own and are paying your own bills, like your own healthcare, then make sure to include your medical and dental bills in your deductions, as well as those bills for your family and dependents.
Phone Bill
If you’re always using your phone for work and have not yet put your phone bill as a part of your deductions, you have been missing out on getting some money back! Make sure that you keep track of what calls are work and which calls are personal as those will be very important to differentiate when it’s time to file.
Fostering a Pet
Some people can’t commit to adopting a pet, but if you were able to foster a pet in the last year, you can include expenses from the pound, vet, and even food when you’re filing for taxes. A good tax deduction can come from your charitable work.
Jury Duty
Jury duty may be a drag, but the pay you get from the court is tax-deductible if it was turned over to your employer. It all comes full circle!
Bad Luck, Accidents, and Damages
There are things that are simply out of our control, like your car breaking down, your roof caving in after a storm, or even you actually breaking a leg after your colleagues told you to break a leg at your client meeting. If you don’t have insurance and you have to pay out of pocket for repairs and medical bills, you can include them when you’re filing for taxes as a tax deduction. It’s not all bad luck after all!
This post was originally published on February 11, 2019, and has since been updated.
15 Headache-Preventing Tax Tips You Can Use Right Now
Tackle tax season like a pro.
Photo: Smith House Photo
Overwhelm. Cold sweats. Glazed-over eyes.
Every year, these are the emotions felt by many of us come April 15, a.k.a when it’s time to file our tax returns. It seems like tax season sneaks up on us every year, and no matter how hard we try to be proactive, to plan and prepare, most of us are left doing everything at the last minute.
So to help you get a handle on your taxes this year—and better prepare for tax season next year—we asked Natalie Asghari, a CPA at NA Business Advisors and CPAs, Inc. (NABA), to share tax tips that we can all implement into our financial life. Whether you’re employed full-time, self-employed, or working several side hustles, scroll on to find out how to get your 2019 taxes in order.
Tips for Everyone
1. Gather all your records in advance.
Gather all documents or forms you’ll need when filing your taxes: receipts, canceled checks, and other documents that support income or deductions you’re claiming on your return.
Always keep originals. Make copies of all valid documents that you will provide for filing.
Group together documents regarding mortgage interest payments, property taxes, charitable gifts, medical bills, and any other items that may count as deductions.
2. Keep track of important records.
The best way to do this is by staying organized throughout the year. Don’t wait until the end of the year to consolidate your documents. Gathering information at the beginning of the year will save you time and reduce the chance of omitting information and amending tax returns when it actually comes time to file.
Keep track of your expenses on a quarterly or monthly basis by record keeping, especially if you are self-employed.
Keep a record of tuition, books, computers, and fees that you pay because you may be able to claim an education credit or deduction for the amounts you pay.
Records need to be kept for at least three years (four for state of CA) from the date you filed the related income tax return. You should keep a copy of your actual tax returns, W-2s, 1099s, etc.
3. Decide how you’re going to file.
Be sure to consider different tax statuses if you are eligible for more than one. For example, if you’re married and can file either jointly with your spouse or separately, be sure to consider both options. This might be something for you to investigate throughout the year, especially if your circumstances change.
4. Review! Review! Review!
Don’t rush. We all make mistakes when we rush. Mistakes will slow down the processing of your return. Be sure to double-check all Social Security numbers and other personal information on your return. Remember, you are the taxpayer signing the return and you are responsible for any missed information.
5. Keep up-to-date on tax laws.
While it might be a good idea to get expert advice regarding tax law, you should also keep an eye on the news for anything that might affect you or your business. A well-informed client can often help an accountant give the best advice, so make sure you know about any changes in tax provisions that could apply to you. Ask questions if you believe something you read or heard may affect you.
6. Hire an accountant or professional tax preparer to do your taxes.
Because constant changes make the tax code more complex each year, you may be more comfortable–and able to use tax savings strategies, pay fewer taxes or receive a bigger refund–if you have a professional prepare your returns.
Tips for the Self-Employed
7. If you are self-employed, you may have to make estimated tax payments.
This applies even if you also have a full-time or part-time job and your employer withholds taxes from your wages. Estimated tax is the method used to pay tax on income that is not subject to withholding. If you fail to make quarterly payments, you may be penalized for underpayment at the end of the tax year.
8. Keep a good record of income and expense for your business.
To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business.
9. Set up a retirement plan.
A retirement plan not only benefits you later in life, but it is also a method of reducing your current tax liability, and often reducing taxable payment on a set amount of money at any point in time. Your taxable income at retirement will most likely be a lower bracket than your working income.
10. Don’t miss the health insurance deduction.
The deduction is for medical, dental or long-term care insurance premiums that self-employed people often pay for themselves, their spouse and their dependents.
11. Deduct transportation costs.
You should be able to fully deduct any transportation costs (plane tickets, taxis, airport parking, etc.).
If you’re driving to meet a customer or conducting business travel, you will need to keep a schedule/log with dates, mileage, etc. If your trip was primarily for business purposes, you can deduct certain expenses, such as hotel costs for any business days; if you combine work and play, you can’t deduct lodging and meals for your personal days.
12. Deduct meals and entertainment for clients.
Paying for meals and entertainment for current or potential clients can be deductible, as long as the meals or entertainment was directly related to and associated with the business. Be sure to keep records such as the date, the purpose of the meeting, and the parties involved.
Tips for Employees/Employed Individuals
13. Collect all your W-2s and 1099s.
You’ll need these to file your tax return. Check and make sure your withholdings from paychecks are correct based on your situation–especially if you had life changes such as purchasing a primary residence, getting married or having a child.
14. Pay estimated taxes.
If you do not pay your tax through withholdings or do not pay enough tax that way, you might have to pay estimated taxes or you may have additional tax liabilities when it comes time to file your tax returns. You may have to pay estimated tax if you receive income such as dividends, interest, capital gains, rent, and royalties.
15. Deduct job-related expenses.
If you paid for expenses related to your job during the tax year, many of these expenses may be eligible to be deducted on your return if they are unreimbursed by your employer. Deductible unreimbursed employee expenses generally fall into one of two categories: job-specific expenses and travel-related expenses. Some examples of job-specific expenses are protective clothing required in your work, such as hard hats, safety shoes, and glasses; physical examinations required by your employer; dues to professional organizations and chambers of commerce; licenses; and regulatory fees, to name a few.
Don’t let tax season scare you into an anxious state this year. Instead, spend some time, plan ahead and follow the tips outlined in this article. I believe you can make it through tax season without pulling out your hair. Now, I ask you, what tip will you be following this tax season?
This story was originally published on February 12, 2016, and has since been updated.
Brittney Castro is the Founder & CEO of Financially Wise Women, an LA-based financial planning firm for women. She specializes in working with busy, established professional and entrepreneurial women who are passionate about life and want to finally understand money—how to manage it, save it, invest it, and protect it—in a fun and simple way.
Brittney has been featured in the Wall Street Journal, New York Times, CNBC, Glamour.com, Entrepreneur.com, KTLA, CBS, and more. Away from the office, you can find Brittney working out, drinking coffee with steamed almond milk, reading, playing with her fur baby Arya, and of course dancing!
Sign up to receive your Financially Wise Toolkit jam-packed with great tools and resources to help you on your financial journey at financiallywisewomen.com. Follow Brittney @brittneycastro.
6 Ways to Reinvest Your Tax Refund and Make Your Business Profitable
Make your money work for you.
Photo: Polina Zimmerman for Pexels
If you're investing in yourself this year, you should take a minute to think about what that means for your taxes. Don't fret, this is the good kind of tax post. Early bird catches the IRS worm, after all.
And with tax season just around the corner, it's never too soon to give pause on how you're going to spend a refund. While everyone will tell you that year one of being a small business owner is the hardest, during tax season, there are multiple credits you can take.
If you’re in the position to get refund from the IRS, the best decision you can make as a business owner is to put that money to work.
Here is how to reinvest your tax refund. Use these six ways to make sure that year two is golden (or at least in the green).
You’re only as good as your team.
You hear this again and again because the numbers do not lie. It costs you time and money to employ workers who do not work at optimum capacity. According to a study conducted by ADP, engaged employees are 57% more effective and 80% less likely to leave your company. Employee turnover or a disengaged employee can cost you $2,246 per year. To power your bottom line you need to make sure your team is happy and appropriately paid. It might be hard to see the payout to pay your employees more, but it is a long term investment.
The goal shouldn’t be expansion (unless you really do need to add to your team), but reinforcing the team from within.
Know When You Need to Delegate and Let Those Reigns Go
If your tax refund gives you the flexibility to outsource tasks that are eating away at your time, it might be the right time to consider doing so. For instance, if as a business owner you’re attempting to cut corners for the sake of funds, but you’re wasting time in the office sorting, organizing, answering customer support emails, or you’re losing hours in QuickBooks, figure out what you’re costing yourself.
An easy way to do this is decide what (if you were profitable) would you be paying yourself. If paying someone else is cheaper hourly than what you are worth, you’re losing money. Delegate and open up your schedule to focus on other parts of the business that only you can handle.
You’re a valuable asset to yourself, don’t diminish that by refusing to hire or delegate.
If You're Doing It Good, Tech Will Help You Do It Better
Are you a small business without a website? Do you need to update your photography equipment? Investing in foundational elements of your business is key and will take you to the next level.
Beyond the basics, there is life-changing tech for every business. The primary reason most new small businesses fail in the first two years is generally attributed to a lack of marketing savvy.
Companies that make it past the two year mark have found a way to streamline marketing and social media experience- it’s nearly impossible to engage customers without them. And for a time-strapped new business owner
Investing in the right automated marketing tools is one of the best decisions you can make. Research the different options that best fit your business.
Simply Measured, Keyhole, and Sprout Social are three great options worth looking into. There are multiple plans that offer everything from brand monitoring to reporting tools. This tech will also help you analyze where you’re performing best, so you can direct attention into areas that make the most sense to make that money.
Pay Off Business Debt
If you’re racking up points on that AMEX, you might be tempted to take a vacation, but what you should do is pay off your bill. When you pay off your credit cards you are basically making at 13 to 20% ROI, depending on your APR.
Become a Lean, Green, Tax Rebate Machine
If you have the ability to install solar panel, you can lower your future tax bill. The government offers tax incentives for businesses that invest in green technologies.
Businesses can deduct 30% of their solar install cost on their federal taxes. Not a bad break for giving Mother Nature one.
Don’t Be a Drip, Invest in One
One of the secrets of wealthy people is that they don't expect to make all their money in one place. They have multiple investments that bring them cash. If all of your 2018 ducks are in a row, you might consider an investment as a way to double down on your financial security.
A dividend reinvestment plan (DRIP) allows individuals to buy shares directly from a company and to reinvest dividends from those shares automatically. It’s a plan that takes advantage of the power of compounding. Simply put, compounding is the process of earning dividends on reinvested dividends.
With a DRIP, instead of receiving cash from a declared dividend, participating investors receive shares and fractional shares of company stock of equivalent value.
It’s sort of the magic wand in finance, because it is one of the easiest ways to build wealth with a small amount of effort. Check out what DRIPs might deserve your investment dollars here.
This post was originally published on April 5, 2018, and has since been updated.
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