If you’re part of a startup or even just have a side hustle, you may be missing out on these tax-saving tips for entrepreneurs! This episode contains actionable points for you to be able to immediately begin saving money on your taxes.
Tax-Saving Tips for Entrepreneurs:
When should you start working with a CPA?
As soon as you start planning a business. You should have a conversation with a CPA once you start thinking about building a business. When you start working with a CPA it will be like adding another member to your team. They can help with your bookkeeping or help you get your bank account in order to buy a property.
“Tax laws and rules change almost yearly and they can be different based on if you’re online or if you have a brick and mortar store. You need someone to keep you up to date on all the laws and changes.” 🙌
How much does it cost to work with a CPA?
CPA costs can go from $150 – $450 an hour. 💰 Some CPA’s are changing their billing to per tax return instead of hourly billing.
Are there any immediate tax-saving tips for entrepreneurs?
- 90% of small businesses are S corporations. Electing to be an S corp will help you to save in self-employment tax.
- Filing under your own name as a self-proprietorship or as an LLC every dollar profit that you make is subject to 15.3% of self-employment tax.
- An S Corp gives you more flexibility. You can save $5 thousand to $7 thousand dollars a year by filing as an S-Corp.
What separates a business from a hobby?
If you are making an income from any type of activity that you are doing, you need to report it on your tax return. The biggest piece is being able to take all of the deductions. There is a lot of gray area between a hobby and business, but if you google business vs. hobby IRS. They have a list of 9 or 10 factors of what makes it a business instead of a hobby.
What are some of the best ways to manage your books?
It is very important to keep your records in order. You need accounting software: Zero, Freshbooks, Quickbooks. For me the most user-friendly is Quickbooks. Chris has Excel templates that he gives his clients when they are starting out. (See resources below to download Chris’ excel templates for managing your books.)
What are some expenses that entrepreneurs should keep track of?
Most new business owners can write off their mileage on their cars, one of the best apps for this is MileIQ. (These miles count when you are driving to meet a client or purchase things for the business. Right now in 2019 the rate is $0.59 per mile.) Did you buy a computer? Calling clients and vendors? Your phone bill is an expense also. Chris says, “Here’s what’s important: make sure that you are tracking your expenses to confirm that you are making money and are profitable.”
How does tracking all our expenses save money? 🤑
It gives your CPA or whoever is doing your tax return cleaner and better information. They will be able to easily spot things that are missing. Having all this info will help you to see month over month and year over year the difference of what you are spending and making. If you are ever wanting an investor of some type, they will want to see all these financial reports. The same goes for banks if you are trying to get a loan.
Can online business owners write off an office or space in their home?
✅ Yes, they can use the simplified method. This gives you a substantial tax return. It’s based on the square footage, but the average return is $1600 – $2000. This will work whether you own your home or are renting.
Resources Mentioned in this Episode:
- Annual Income and Expense Worksheet
- Income and Expense Tracker by Month
- MileIQ – Tracking App
Do you have more questions about how to save money on your taxes?