A Founder’s Guide to be More Strategic with Entrepreneur Tax
Last Updated January 13, 2022
Being an entrepreneur is challenging yet unique. You can;
- Work flexibility
- Do remote work
- Create a network of connections all over the online platforms
But if you are used to grinding the work by 9-5 like an average business, how will you manage the entrepreneur tax that falls on your shoulder?
You probably do not have much time to think about managing the records.
Or even think about the tax benefits you are eligible for.
Working as an employee is pretty much straightforward. Your employer deducts the taxes, W2 or 1099 Form is given to fill, tax deductions are made accordingly from your paycheck. That way an employee pays almost 20% of his dues to the government,
But such is not the case with an entrepreneur. There are several startup taxes that need to be taken care of. Entrepreneurs can benefit from these taxes and get a generous amount of tax returns in the end. But one needs to be very careful about tax return filing deadlines.
Since you are an entrepreneur, you are deducting taxes from your own income. So whatever amount of taxes you owe to the government is reduced.
Before we go any further, in this article we will discuss in brief detail the entrepreneur taxes, reasons for delaying in startup taxes, and ways to make tax filing better.
Table of Contents
Why Entrepreneurs Hate Taxes
Does any entrepreneur enjoy filing taxes? Not really. No. but there are some weirdos who love accounting and taxes. It’s not surprising at all when a study suggested that 30% of people detest doing their own entrepreneur taxes while 26% hate doing taxes at all. 31% of these are the paperwork that causes trouble while 24% find it highly inconvenient and time-consuming.
So keeping the study in mind, we concluded the three most common reasons why people hate filing startup tax.
Entrepreneurs mostly are excited about running their small venture but lack the knowledge of handling proper finances. The same goes for taxes. People usually do not understand the gravity of taxes and see less value in putting any emphasis on timely tax filings.
In Chicago Tribune, Marjorie E.Kornhauser stated,
“Unfamiliarity with basic taxes is quite harmful. Individuals may pay more than necessary when they are unaware of the deductions and credits.”
Entrepreneurs with a lack of proper knowledge despise filing taxes, especially the millennials.
One of the biggest fears of millennials is to get their tax filings wrong. A mistake can shatter their confidence easily.
According to personal finance expert Liz Weston,
“Millenials have less experience with the tax code and its complexities. They are less keen to seek professional help.”
So tax season is a nightmare for the millennials. A W2 Form covers most of the tax complexities from the income side. But entrepreneur tax is different. You need several other documents to handle it.
Fear of Taxes
Deductions and exemptions may be unfairly deducted when entrepreneurs are unfamiliar with the taxes.
You need to make sure that whatever deductions are made, cover the correct amount. Do not let your fear and anxiety of startup tax take better control of you.
Be proactive when it comes to paying taxes. Hiring tax professionals can help you overcome the fear of paying taxes.
6 Ways Entrepreneur Tax can be Painless
The process of filing entrepreneur taxes can be made painless if you take care of the following factors.
Use of Accounting System
Tax preparations must follow up the deadlines. If not, it’s a recipe for disaster for the new entrepreneurs. So the first rule of tax is to keep a healthy record. Any good businessman will record all expenses, revenues, and billables, etc.
The biggest favor you can do for yourself is to maintain a system to maintain the recording expenses.
Of course, the use of any online tool in this regard is a lot helpful. For instance, My CPA Dashboard is one of the easiest ways to maintain online records, for instance. You can also use other options to maintain the tax records, expense records, financial statements, etc.
Discover Lower Taxable Income
Now you need to plan a strategy to lower your taxable income. There are more than one ways to do so.
- Retirement account. Saving for retirement is a smart move on your part. What’s smarter is to use a tax-deferred account.
For instance, if you are married, then joint filing can double the taxable amount. Or if you are an employee under age 50, $5,500 is the taxable income. If your age is above 50, the amount will increase.
- Home office. An entrepreneur can save the location rent and much more just by working from home.
A proper home office setup means an easy deduction to claim. The deduction claim can be based on the office’s square footage as a percentage or by the simplified version where 300 square feet is written at $5 per square foot.
- Insurance expenses. You can also benefit from a Health Savings Account (HSA). It allows you to set aside money for future medical expenses.
The tax-deductible will be kept aside for the medical expenses especially if you have a high-deductible health insurance plan.
This is just a simple list of how you can save from your entrepreneur tax big time. Hundreds of deductions are out there so be diligent with similar opportunities.
Paying Quarterly Taxes
The tax deadlines are the same for both employees and employers. However, if you happen to be a 1099 independent contractor or a sole proprietor, you can pay quarterly taxes too.
If you are not so sure about payment calculations or how to make estimated payments, you can visit the IRS website to study their guidelines. But another way is to hire tax preparers like My Count Solutions.
Accuracy is crucial in taxes. When paying quarterly estimated payments you can even accidentally overpay or may delay the payments triggering penalties.
Using tax software can save you loads of trouble to keep up with the filings and deadlines. The software works as the resurrecting power tool containing all the last accounting year data. Some of the software may even provide the feature to forecast income deductions or estimated payments.
This gives you plenty of insight into what to expect from entrepreneur tax. However, do not expect a big tax return.
Do Not Forget Tax Credits
One of the most effective ways to handle the startup tax is to reduce your tax bill. Tax credits lessen the business liability.
The government felt the need to introduce tax credits to incentivize the new startups. It also helps small businesses to subsidize their health insurance so that they are able to hire employees easily.
For instance, if a business has a preliminary tax bill of $6000 out of which $1000 is credit, then the entrepreneur has to pay $5000 only at the time.
Do NOT forget that tax credits can be filed too.
Invest in Accounting Services
A quality tax software knows no bound. But to benefit from it in the long run, you still need professional guidance to use it. Software use isn’t expensive or confusing either. But a tax preparer or a CPA can make better use of it.
Hiring tax professionals, even remotely, works in the favor of your business.
They collect, engage, and collaborate with the stored and updated data. They make sure that the startup taxes are handled properly. The use of software only speeds the process to manage the financial details.
When can you do your own Entrepreneur Tax?
You may wonder which parts of taxes you can handle on your own. These are three situations that you can take care of;
- Quarterly estimated payments. As discussed above, entrepreneurs can make these payments if they are sole proprietors. These are easy and straightforward to submit. But in the end, you may still end up wanting an accountant’s help to calculate the taxes.
At least for the first few times.
- Filing W2 Form and 1099-NEC Form. As an employer, you need to provide a copy of Form W2 and 1099-NEC Form to the employees, independent contractors, and the IRS. The payroll and accounting are easily taken care of when the desired information is enrolled in the software.
- Tax return extension filing. Need more time to file an entrepreneur tax return? You can put in a request to the IRS for a return expansion. It’s simple, you just need to check a box mentioned right next to the estimated tax payment.
When to Use Professional Help of My Count Solutions?
Taxes will take up a huge chunk of your time even if records are maintained. Going through the files at the end of the accounting year means stepping outside of your comfort zone. In some situations, it becomes more than compulsory to take help from professionals like My Count Solutions like;
- First-Year Business Tax Returns. The first-time tax filings are always confusing and most crucial of all. It’s easy to make mistakes too. No matter how simple your business niche is. You will need professional accountants and bookkeepers at hand.
- LLC, Partnership, or Corporation Establishment. Legal help ensures that LLC, partnerships, or corporations are taken care of as professional business entities. To make sure all taxes and formal deadlines are handled properly, at this point you need to choose professionals to handle the business structure and taxes.
- Fixed Asset Sale. Planning to sell a fixed asset like machinery or land, means either you will gain from the sale or suffer a loss. It can affect your tax condition as well.
- IRS Inquiry. In case you face an IRS audit, you will need our professional help too. So call us up for any details.