Tax and Finance Tips for Entrepreneurs

Tax and Finance Tips for Entrepreneurs

The Bureau of Labor Statistics reports that more than 10 percent of Americans are self-employed. The numbers continue to grow, and we are here to make sure you have helpful resources to sustain your small business!

Tax season can be stressful—whether you are still prepping tax documents for this year, want to get a head start for next year, or are kicking around the idea of branching out on your own, here are some areas to focus on and consider as you fine-tune those finances for business.

Gather your network of experts

Who do you know who has been in business for themselves for awhile? Tap into them and ask them about their process for filing taxes, setting up retirement options, or tracking expenses. Ask your network about trusted accountants, CPAs, bankers or financial advisors. Set up virtual meetings or coffee chats with professionals in these areas to ask them about their services, things you may need to consider as you build your business, or things to watch out for as you grow. Your trusted network could include:

  • Tax professional or CPA

  • Bookkeeper

  • Financial advisor/planner

  • Business coach

  • Payroll or HR advisor (if you have team members)

Build your toolbox

You know us—we’re in the business of providing tools to make things easier and save you time. The same can be true for business finances. Forget the notebooks and paper trails for tracking (we know you’ve lost that ‘very important note’ a time or two – same here!) and start building a list of resources and apps that can make the not-so-fun a bit more palatable. Here are six areas to consider:

  • An accounting software such as Quickbooks or Freshbooks

  • A project management tool such as Notion, Monday or Trello (or even just a Google Sheet)

  • A payroll and onboarding tool for contractors or staff such as Gusto

  • A budgeting tool such as PlanGuru (or a Google Sheet)

  • An appointment scheduler such as Sparkle Scheduler

Know your filing type or ‘tax status’

There are a variety of options for filing your taxes and all will have pros and cons based on your business size (revenue, employees, etc.). All companies indicate a ‘tax status’ at the Federal level with states adopting this status for corporate income taxes. At a high level, these include:

  • Sole Proprietorship

  • LLC

    • Disregarded

    • Partnership

    • S-Corporation

    • C-Corporation

  • Corporation

    • S-corporation

    • C-corporation

The size of your company, potential legal liabilities, tax types of your business and startup costs can all impact your tax status. Moreover, as your business grows, you can always change this tax status. Make a point to review your status with your tax advisor or CPA each year to ensure you’re set up in the most beneficial way for your business.

Create your budget and understand expenses

Whether you work with an accountant or utilize an accounting software to set up your chart of accounts, take time each year to establish your business budget. There are many items that small business owners can deduct as expenses that are sometimes missed (or not tracked) each year. Nerdwallet has a great list of 21 small business tax deductions, some of which can include:

  • Advertising and marketing fees

  • Auto expenses

  • Inventory

  • Rent

  • Research and development costs

  • Software subscriptions

  • Some legal and professional fees (talk with your tax advisor as these have changed over the years)

  • Start-up costs 

  • Travel expenses

  • Utilities

Knowing what you can deduct as you prep your budget can be helpful in making business planning decisions—if some of the money may come back to you in other ways, it can be beneficial to spend it if it ultimately moves you closer to your business goals. Always check with the state where you file business taxes as some State and Federal deductions will be different.

Understand and maximize retirement savings options

You don’t have to work for a large corporation to take advantage of retirement accounts or 401k plans. We spoke to Melissa Harrison, CEO of Allee Creative, who has implemented a few different retirement options over her 16+ years as a business owner.

“Early on, when I was the sole employee of the business, I worked with my financial advisor to set up a SEP (Simplified Employee Pension) IRA which allowed me to contribute pre-tax earnings while benefiting from some additional tax deductions that, for me, were better than that of a traditional IRA.”

As Melissa’s business grew, she moved the retirement benefit to a Safe Harbor 401k. “This retirement savings option was a win-win for myself as a business owner, the company, and my employees. I can contribute to the plan as an employee of the company, our employees receive a match and, if we have done well at the end of the year, I am able to provide a share of the profits back to the employees and to myself as an employee of the company,” mentioned Melissa.

If you haven’t set up a retirement plan, talk with your tax advisor and financial planner. Ask about your options and benefits between plans such as a SEP IRA, traditional IRA, Safe Harbor 401k or other options. For instance, individuals with side gigs or part-time entrepreneurial endeavors who are not paying withholding taxes, SEP IRA deductions can be a nice help to their year-end tax obligations. Understanding how the benefits will impact not only your savings later on but your savings each year as a business owner is an important part in the decision-making process.

There is a lot that goes into business finances and tax planning. Our advice is to start with the resources above and talk to a trusted tax advisor or financial planning throughout the year. Be mindful of deadlines that may impact quarterly tax payment dates, filings based on your tax status or extensions that may be available. The experts are here to help, including the team at We Sparkle. If we can make an introduction to one of the Sparklers within our network, let us know. And until then, you’ve got this!

While we do our best to provide adequate information for our We Sparkle community, we do recommend that you always talk with a tax advisor when making any changes or major decisions regarding your filing status, taxes, and business finances.

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