If you are not thinking about taxes more than once a year you are going to be in a not-so-great place.
Savings for taxes is something that needs to be top of mind at the very least on a monthly basis.
I talked to Erica Goode about how you can pay your taxes with confidence. From saving tax money to what deductions you should be aware of, Erica shares her expertise as it relates to taxes.
WHAT TAXES SHOULD AN ENTREPRENEUR BE AWARE OF
From sales tax, usage, income to property tax among others. There are quite a number of taxes required by law to be fulfilled.
So how does an entrepreneur ensure they are on top of each?
Depending on what legal entity you fall into as an entrepreneur be it a sole proprietorship, general partnership, or limited partnership to S corporation, the taxes that you pay will differ however it is certain that you will have to pay income tax and self-employment tax.
Most times, when new business owners start-up they are not sure what taxes to pay and tend to overlook the self-employment tax yet this is required considering the fact that you are not employed and make your own living.
Seeking the support of a financial professional like a CPA will also help you get acquainted with what taxes you should pay because taxes tend to differ in different taxes and you would not want to find yourself missing out on a particular tax or paying for one that is not required.
Is it then possible to save money for your taxes?
HOW CAN ENTREPRENEURS SAVE FOR TAXES
Erica says it is and you need to set aside a portion of money from your business for taxes and you can either do that mentally or physically.
Physically, this means you create a separate bank account for your taxes and intentionally send money into it so you do not fall off the loop when tax season comes around.
If you are wondering how to make that happen, the Profit First Method can help you with that as its tactics cater to tax savings.
Keep in mind that due to the nature of your business, your taxes will differ.
HOW DOES YOUR BUSINESS ENTITY AFFECT YOUR TAXES
Different business entities tend to pay different taxes however for some there is a similarity
Sole proprietorship and Limited Liability Company
A sole proprietorship is a business owned and run by one person (hence, the term “sole”). For legal purposes, there is no distinction between the business and the sole proprietor while a Limited Liability Company is a hybrid entity that combines the characteristics of a corporation with those of a partnership or sole proprietorship.
Both a sole proprietorship and limited liability pay the same taxes.
S Corporation
This is also known as an S subchapter and refers to a type of corporation that meets specific Internal Revenue Code requirements.
As an S Corporation, you get to save on taxes due to the benefits it has however as a business owner you have to pay yourself as a W2 employee based on a reasonable compensation for hiring someone.
In this case, you won’t have to pay self-employment tax.
Now that you have set aside an account for savings and are knowledgeable about your tax situation, why should you keep your receipts?
IS IT IMPORTANT TO KEEP ALL YOUR RECEIPTS?
According to Erica, if you want to deduct it you need to keep the receipt.
Keep in mind that when it is time to audit and certain receipts are missing, you will have to pay tax for them so in order to ensure you are not paying a huge amount of tax, get your receipts organized.
With the majority now coming in via email, creating a separate folder for them in your inbox and filtering them into that folder can help you have them well stored.
WHAT DEDUCTIONS SHOULD YOU BE AWARE OF AS AN ENTREPRENEUR?
The IRS defines a deductible expense as anything that is necessary and ordinary therefore if it touches your business it is likely necessary and if someone else would spend money on that thing in your business it is ordinary.
The necessary and ordinary definitions may differ according to each entrepreneur and with the help of a CPA, you can be able to allocate deductions.
HOW TO STAY UP TO DATE WITH THE DEDUCTIONS
In the past 5 years, there have been a lot of changes in the tax code and Google may not always offer the most up-to-date information therefore a financial expert like a CPA can definitely help you be aware of the deductions.
Due to the nature of their work, they tend to be knowledgeable about the tax code and its changes.
Erica shared her freebie to make sure you don’t miss out on any tax deductions and you can grab your copy here
Did we ease your tension surrounding taxes? Let me know on Instagram or by commenting on this blog post.
CONNECT WITH ERICA GOODE
Erica is a seasoned financial expert and Certified Public Accountant (CPA). She brings her clients a wealth of knowledge from my career in public accounting at KPMG LLP in Chicago and in corporate finance at Walgreens headquarters where she led the financial planning process for a $2B division.
Her passion is helping entrepreneurs and CEOs grow the profitability of their companies while planning for their family’s personal financial future.
Born and raised a Chicago girl, Erica is now located in Idaho with her husband and two kiddos. She is grateful to be able to support clients across the country.
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