Things Every Entrepreneur Needs to Know About Their Taxes

by Jun 8, 2021

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As an entrepreneur, your success depends on the smooth run of your business. Taxes, unfortunately, can be a huge wrench in the system, suddenly forcing fees and time, and energy. And what’s worse, they are unavoidable! They come around every year (and sometimes more often) and each time they can be a pain to sort out. However, there are things you can do and precautions you can take that will make doing your taxes less stressful, less threatening, and less of an impediment to your business plans.

They Can Be More Complicated

Taxes as an entrepreneur tend to be more complicated than when you’re a traditional employee. Employee forms are relatively straightforward and have not changed significantly in the past decade. Business owners, however, are constantly experiencing the frequent changes of tax reforms, new laws, new rules on deductions, etc. Entrepreneurs should be aware of any and all new updates to their tax requirements. In addition, you can expect your taxes to change if your business goes through serious growth. This means you need to keep your accounting services professional informed so you’ll be appropriately prepared. Stay aware of expectations so you won’t be blindsided or penalized for any ignorance!

You’re Responsible for Everything

It’s important to know what you are expected to pay taxes on! You’ll need to account for every aspect of a business that requires financial interaction. The most obvious of these will be income taxes, property taxes, sales taxes, employment taxes, and excise taxes. Entrepreneurs are also responsible, though, for paying other taxes like social security, Medicare, and unemployment taxes. Be extremely thorough as you go through each building block of your company and determine what needs to be paid, where. If you do forget, you can be fined for not completing your dues.

You Get Taxed for Being Self-Employed

You even get taxed for just being an entrepreneur! As a sole proprietor, you qualify for the self-employment tax and the personal income tax. When you are an employee, your employer (usually) takes out the employment tax automatically, as you do for your employees. There is no automatic tax take-out when you are the boss of your own paychecks. With each pay period, track how much you will owe in self-employment taxes. Even better, simply set aside a regular chunk of your payment with each period, so that you are prepared for your tax responsibilities when they come around.

April 15th Isn’t the Only Tax Day

Unfortunately, filing taxes may not be a once-per-year activity. Tax returns are required only once per year, but other taxes may be required to be filed depending on profit achievements or corporation deadlines. You also may be responsible for quarterly estimated federal tax payments. Consult an experienced business person within your field to verify that you are aware and prepared for each of these tax dates, and incorporate them into your business plan timeline.

Take Advantage of Deductions

Thankfully, there are a number of things that, as a business owner, you are entitled to claim as a deduction. If you work from home, deduct your home office as a housing cost. Plus, any utilities used in order to run your business, like electricity or heating and cooling systems, can be deducted in part as a required expense for your business function. Even the supplies that you use to conduct business—any technology, paper, ink, and other odds and ends, are deductible. Look also at any expenses accumulated from transportation in the name of your business. Flights and commuting to network, hold meetings with businesses that will help you develop your own, and customers, are all considered necessary and therefore deductible. If you choose to upgrade your “business” setting in any way, this too can be partially deductible, but only if the upgrades are deemed appropriate and necessary. Finally, basic rights like retirement and health insurance are always important to account for in your tax deductible.

Just Ask for Help

Use the wisdom of professionals. You have enough on your plate without worrying about this constant cycle of taxes and filing, especially when you are responsible for so many various financial elements. Hiring a certified public accountant (CPA) can give you the confidence that nothing is being overlooked and everything will be done correctly. In addition, experienced accountants will know of any helpful loopholes or things to take advantage of in order to pay the lowest amount of taxes possible and get the highest tax return that you can manage. It is worth the investment to have something keeping consistent track of your financial expenditure and advising you on the long-term effects that those investments will have, especially during tax season!

Keep Your Information Organized

If you don’t want to use a certified accountant (or even if you do), make sure you have a solid and effective system of organization for all of your information. Save your receipts, document, and record every purchase, categorize your information by the branch of business. Include a file of every bank statement, credit card statement, and investment. It may be helpful to make sure that everything is stored both electronically and in paper form, but only if you use the proper security measures to do so. Make it a habit to store this information! You will thank yourself when each tax due date rolls around and everything is filed neatly and orderly in one place, and you are confident nothing has been missed.

Prioritize Your Payroll

The payroll is a regular turnover of your profits into the pockets of your deserving employees. This is a lot of information to keep track of though, and those employees rely on this aspect of their jobs to be done efficiently for their own income needs and for their eventual tax needs as well. The IRS takes paydays very seriously, so don’t let this fall into the cracks or you may find yourself in serious legal trouble.

Stay on top of this essential aspect of business development and civil duty. You will be grateful that you have taken these precautions and prepared yourself well when you find that taxes are simply another thing to check off your list, and not a looming frustration to stress over.

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Hey, I’m Kate! I’m a designer, digital nomad and founder of Six Figure Freelancers – I love to help talented tech pros start businesses.

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