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Solo-Entrepreneur? 5 things you should know about your taxes by Paul Koullick of @keepertax

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Solo-Entrepreneur? 5 things you should know about your taxes

by Paul Koullick

Whether you’re earning money in a side hustle, or have your own small business, it comes with some serious tax burdens. Many first-time self-employed don’t realize this and wait until the end of the year only to discover that they owe thousands of dollars to the IRS and forgot to keep expense receipts. In this guide, we’ll cover the basics of what you need to know to avoid getting slammed by taxes as a freelancer.

#1 No, taxes aren’t being withheld from your paychecks

If you’ve previously only worked as an employee (W2), it may come as a shock that the money you earn on a 1099 contract or invoice does NOT have taxes already withheld. That means you’ll need to consciously remember to set money aside throughout the year to avoid needing to take a loan out at the end of the year.

#2 Keep track of work expenses throughout the year

Everything you buy and then use for work, whether it’s a new phone or gas for your car you drive for work errands, is at least partially deductible. Trying to remember expenses from nine months ago at tax time is really difficult, so it’s best to track these expenses throughout the year.

Sometimes, what counts as a tax write off isn’t entirely intuitive but you can use online guides like this one to learn more about what expenses you should be keeping track of during the year.

#3 If you work from home, you can likely claim the home office deduction

Even if you don’t have a separate room dedicated for work, you may be eligible to claim this valuable deduction. As long as you have a workstation located somewhere in your house or apartment where you tend to do work (rather than entertaining guests or watching TV), you get to write off of rent, utilities, wifi and so on.

#4 All of this matters even if you’re only self-employed part-time

Even if The standard deduction does not trade off with itemizing 1099 work expenses. It’s additive – meaning that you can claim both! That means even if you have a full-time W2 job and only do limited part-time 1099 contracting work, neglecting to claim work expense tax deductions is like donating money to the IRS!

#5 If you earn more than $1,000 per year, file quarterly (estimated) taxes

If you earn above the $1,000 threshold from self employment work, you’ll need to file quarterly taxes. Also known as estimated tax payments, this is the IRS’s way of simulating a salary tax withholding so that you aren’t caught off guard with a huge tax bill at the end of the year.

The good news? It takes just 15 minutes. You can use free online tools like Keeper’s quarterly tax calculator to quickly estimate how much you’ll need to pay, and file online. It takes just 15 minutes, and allows you to avoid a nasty penalty from the IRS.

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Paul is the founder and CEO of Keeper, an app that helps freelancers and 1099 contractors save money on taxes. In his free time, he loves jogging, chess, and spending time with his family in San Francisco.

How to Make Tax Time Less Stressful by @Pamela_Lund

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How to Make Tax Time Less Stressful

by Pamela Lund | Featured Contributor

Tax time just passed so you don’t have to think about income tax again for a year, right? Sure, if you like being stressed out and cash strapped every April. 🙅‍♀️ If you always scramble to get all of your records together, have to frantically pull together cash to pay what you owe, or haven’t set your business up to maximize deductions you should start making changes now so next year goes more smoothly.

I’m not a CPA or an attorney so the advice here is based on my decade of experience owning a business, originally as an independent contractor then as an S-Corp. You should speak with a professional before you make any major changes but these tips will help you ask the right questions when you do so you get the most benefit.

Make Bookkeeping a Habit

Until I became a business owner I never balanced my checkbook or budgeted. Every month I’d sit down to pay my bills and cross my fingers hoping there was enough money to cover my expenses. If there wasn’t? Well that’s what credit is for, right? 🤦‍♀️ When it came time to do my taxes I had a pile of receipts and no organized record of deductions. Not only was this time consuming and stressful, I know I missed out on deductions which means I wasted money. While this might work for a salaried employee with one income stream, it’s not ideal for a business.

Basic bookkeeping will make tax time less stressful by consolidating all of your information in one place. Use an accounting program, such as QuickBooks or FreshBooks, to categorize your transactions so it’s easy to find deductions. Accounting programs also make it easy to send your CPA the financial reports they need to prepare your tax return. Even if you don’t know anything about financial reports, all you have to do is click a few buttons to run the right reports. No more gathering receipts, trying to remember which credit card you used to buy your laptop, or worrying about what you’ve forgotten.

Speaking of credit cards, keep your business and personal expenses completely separate to make bookkeeping as streamlined as possible. Once a week or so simply download your transactions and classify them, pay your bills, and reconcile your accounts so you never have to worry about your balances.

Consider outsourcing your bookkeeping if it’s difficult for you to stay on top of or if it’s particularly stressful for you. You should spend your time doing what you’re good at so you can maximize your productivity and profitability.

Hire a CPA

As business owners we wear a lot of hats (and we wouldn’t have it any other way) but there are some things that are best left to a professional. Business taxes are one of those things. A good CPA will advise you on more than just taxes but the peace of mind that comes with knowing your taxes are done correctly and with the maximum deductions possible makes the expense worthwhile.

Ask other entrepreneurs, your lawyer, or people in your networking group for a recommendation to find someone you can trust. It helps if they are familiar with your specific type of business but it’s not usually necessary.

Pre-pay Estimated Income Taxes

If you’re a salaried employee of your company you should already be paying the bulk of your income taxes with each payroll. If you’re a salaried employee but you’re not using a payroll service, consider using one so you don’t have to calculate payroll taxes and can automate tax payments to reduce the time you spend on payroll. There are numerous payroll services you can find with a quick search or QuickBooks has one that you can add on if you use their bookkeeping software.

If you have a pass-through business, like an S-Corp, you’ll need to estimate how much additional (distribution) income you expect your business to have beyond your salary and pay quarterly estimated taxes so you don’t have a big tax bill at the end of the year. Your CPA can help you estimate how much you should pre-pay but in most cases you should pre-pay what you paid the prior year unless you expect your income to change drastically.

If you aren’t paying yourself a salary and you expect to be profitable, you still need to pay income taxes before you file your return with quarterly estimated tax payments. Not only will you avoid penalties by pre-paying your taxes, you also won’t have the stress of a large tax bill.

Maximize IRA Deposits

You already know that you can and should deposit the maximum (currently $5500 for people under 50) in an IRA to reduce your tax liability. But, as a business owner you may qualify to have a SEP-IRA instead to which you can deposit an amount equal to up to 25% of your salary. As long as your salary is over $22,000 annually that’s more than the standard IRA limit so it’s worth looking into.

Keep in mind that you may have to give other employees, current or future, the same SEP-IRA benefits that you have. Check with your CPA before moving forward so they can advise you on the legal and financial impacts.

If you do set up an SEP-IRA, make sure to set aside 25% of your salary each month for the deposit or actually deposit it with each payroll so you don’t have to scramble at the end of the year to come up with the money.

Incorporate (or Don’t)

Depending on your state, business type, and income level it may make sense for you to incorporate as an S-Corp or LLC. Doing so may offer tax advantages by reducing the self-employment tax you pay on the distribution portion of your income vs. the salary portion.

If you choose to incorporate, try to do it on a date such as the first day of a new quarter or the first of the year to make accounting, and therefore taxes, as easy as possible.

If you’re only incorporating for a tax advantage, keeping mind that those advantages may go away in the near future, that there is paperwork to be filed regularly, and that there are annual fees associated with incorporation that may not make it worthwhile for your situation. Speak with a business lawyer and your CPA to determine the business structure for your situation.

As a business owner you’ve got enough stress. If you implement a bookkeeping process, maximize your deductions, and pre-pay your income taxes, tax time shouldn’t involve more than a bit of paperwork and will definitely be less stressful.

5 Ways Businesses Can Start Prepping For Tax Season Now by @DeborahSweeney

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by  | Featured Contributor

Happy New Year! Are you ready to tackle your taxes?

If you answered “no,” don’t worry. As the holiday season wraps up, many small business owners may find that they aren’t quite ready to dive into their tax paperwork — even though there may be the promise of a great tax return awaiting them. Here’s what you can do to get prepped for tackling taxes now — I promise to make it as painless as possible.

1. Stay updated about tax reform news

This year’s tax season is already shaping up to have a slightly different tone than previous years due to the passing of the tax reform bill and its surrounding discussion. What do small business owners need to know about the tax reform and how it affects filing their taxes this year? Kelly Phillips Erb at Forbes addressed common questions she had received about it from taxpayers with one of the most frequently asked including when the new law would take effect. She notes that once the bill has been signed into law, it will apply in the beginning of the 2018 tax year and take effect on January 1, 2018. This means the new law will affect 2018 tax returns, not the 2017 return filed in 2018.

Throughout the rest of 2018, it will be key for entrepreneurs to continue following tax reform news from reliable media sources. This will allow small business owners to better understand the changes within America’s tax system and educate others that have questions about the process.

2. Get organized

This is about more than collecting receipts that gathered up over the course of the year. Remember to keep these areas organized too!

  • Mark down key filing dates for January like estimated tax payments, sales tax, and when tax season is slated to officially begin along with making note of upcoming deadlines.
  • From 1099s to W-2s, designate a specific spot to store all of your necessary tax forms.
  • If you got married, divorced, or had a child in the last year, this means your filing status has changed and should be updated accordingly.
  • Filing method. How will you file this year? Determine if you will need to use a software or work alongside a tax preparer.

3. Determine which deductions your business can claim

There’s plenty a small business can claim as a deduction on their taxes including the cost of renting space, salaries and wages, and insurance just to name a few. The deductions extend to entrepreneurs that work from home too, such as home office, travel, and even meals. Take the time to make sure you’re not missing out on any lesser-known deductions. Some areas to highlight may include health insurance and start-up costs, applicable for those that started a business this year.

4. Contribute to your retirement fund

Do you have a Roth or Traditional IRA fund? How about a retirement account? Use this time to add as much money as you can to these accounts, as these contributions count!

5. Figure out if you will need an extension.

It’s never too early to determine if your business needs a tax extension. If you already know that you won’t be able to file on time, look into requesting an extension as quickly as possible. Additionally, it’s important to note that there might be changes for these requests in 2018 so be sure to check in with the IRS as needed.

 

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Deborah Sweeney – Legal Expert, CEO, MyCorporation.com – Calabasas, CA

Deborah Sweeney HeadshotAs CEO of MyCorporation Business Services, Inc. (MyCorporation.com), Deborah Sweeney is an advocate for protecting personal and business assets for business owners and entrepreneurs. With her experience in the fields of corporate and intellectual property law, Deborah has evolved from lawyer to business owner. She has extensive experience in the start-up and entrepreneurial industry as she has been involved in the formation of hundreds of thousands of businesses for MyCorporation.com’s customers.

Ms. Sweeney received her JD & MBA degrees from Pepperdine University. She is active in the community and loves working with students and aspiring entrepreneurs. She serves on the Board of Regents at California Lutheran University and is a founding member of Partners of Pepperdine. Deborah has served as an adjunct professor at the University of West Los Angeles and San Fernando School of Law in the areas of corporate and intellectual property law. Ms. Sweeney is also well-recognized for her written work online as a contributing writer with top business and entrepreneurial blogging sites.  She is a regular contributor on Forbes, American Express, Social Media Today, and BlogHer among many others.

In her ‘free’ time, Deborah enjoys spending time with her husband and two sons, Benjamin (8) and Christopher (6). Deborah believes in the importance of family and credits the entrepreneurial business model for giving her the flexibility to enjoy both a career and motherhood. Follow her on Twitter @deborahsweeney and @mycorporation.

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