Quote of the Week

"The only way to do great work is to love what you do."

~Steve Jobs

This Week’s Tip

How to Handle Taxes as a New Business Owner: A Simple Guide

Understanding and staying on top of your tax obligations is an important aspect of running a successful business.

Taxes are unavoidable, but by knowing the basics of business taxes, setting up a solid system, and planning ahead, you’ll be able to focus on building your business without constantly worrying about tax surprises. Let’s break down how you can handle taxes as a new business owner.

1. Understand the Different Types of Taxes

As a business owner, there are several types of taxes that you may be required to pay. Here are the most common ones:

• Income Tax: Just like individuals, businesses must pay income tax on the money they make. Depending on your business structure (sole proprietorship, LLC, corporation), the way you pay income tax will differ. As a sole proprietor or member of an LLC, you’ll likely pay taxes on your personal return, while corporations file separate returns for their business income.

• Self-Employment Tax: If you’re running a sole proprietorship or working as a freelancer, you’ll need to pay self-employment taxes. These taxes cover Social Security and Medicare and are separate from income taxes. As a business owner, you're responsible for the entire amount, which is currently 15.3% of your net income.

• Sales Tax: If you sell physical goods or certain services, your state may require you to collect sales tax from customers. You’ll need to register for a sales tax permit with your state, collect tax on your sales, and remit that tax to the state.

• Payroll Taxes: If you have employees, you’ll need to withhold and pay payroll taxes. This includes Social Security, Medicare, and federal and state income tax withholding. Employers are also required to match Social Security and Medicare taxes for each employee.

• Excise Taxes: Certain industries are subject to excise taxes, which apply to things like gasoline, alcohol, tobacco, and certain services. If your business falls into one of these categories, you'll need to account for and pay excise taxes.

Understanding which taxes apply to your business is the first step in managing your tax obligations.

2. Set Up a System for Tracking Your Income and Expenses

One of the biggest mistakes new business owners make is failing to keep track of their income and expenses. This can lead to missed deductions, inaccurate tax filings, and even penalties for underreporting income.

To avoid these pitfalls, set up a system to track all of your business transactions. Use accounting software like QuickBooks, Xero, or FreshBooks to keep everything organized. These tools will help you categorize your expenses, track your income, and make tax time much easier.

Make sure to keep receipts, invoices, and any other records of business transactions, as these will serve as proof in case of an audit. If you’re unsure which expenses are deductible, a good rule of thumb is that anything necessary for running your business is likely deductible. This can include office supplies, business meals, travel, equipment, and more.

3. Quarterly Estimated Taxes

Many new business owners are surprised to learn that they don’t just pay taxes once a year…they may need to pay quarterly estimated taxes. The IRS expects you to pay taxes on your income throughout the year, so it’s essential to estimate your earnings and pay taxes quarterly if necessary.

To avoid underpayment penalties, use IRS Form 1040-ES to calculate your estimated taxes based on your projected income. You’ll typically make these payments in April, June, September, and January, and they can be made online or by mail.

If you expect your business to make a substantial profit, it’s a good idea to work with an accountant to ensure your quarterly tax payments are accurate.

4. Deductions and Credits

One of the key benefits of being a business owner is the ability to deduct business expenses from your taxable income. This lowers the amount of tax you owe, helping you keep more of your earnings.

Some common deductions include:

• Business expenses like office rent, utilities, and insurance

• Equipment purchases or depreciation

• Travel, meals, and entertainment related to business activities

• Business vehicle expenses

• Home office deductions (if applicable)

In addition to deductions, you may also be eligible for tax credits. These are typically applied directly to the taxes you owe and can provide significant savings. Check out credits available for research and development, renewable energy investments, and hiring certain employees.

Consult with an accountant to make sure you’re taking advantage of every possible deduction and credit.

5. Work with a Tax Professional

Handling taxes can be overwhelming, especially as your business grows. While there are plenty of resources available for you to file taxes on your own, working with a tax professional can save you time and ensure that you’re in full compliance.

A tax professional can help you:

• Navigate complex tax laws

• Maximize deductions and credits

• Avoid costly mistakes

• Prepare for tax season and file your returns accurately

• Plan for future taxes as your business grows

Even if you’re just starting out, a consultation with a tax professional can help you lay the foundation for a solid tax strategy moving forward.

5 Key Action Items to Take Now

1. Understand Your Tax Obligations: Research and identify which taxes apply to your business based on its structure and industry.

2. Set Up Accounting Systems: Implement accounting software to track income, expenses, and keep receipts organized for tax deductions.

3. Prepare for Quarterly Taxes: Set up a system to calculate and pay quarterly estimated taxes to avoid penalties.

4. Identify Deductible Expenses: Make sure you’re tracking all of your business-related expenses so you can claim every possible deduction.

5. Consult a Tax Professional: Schedule a meeting with a tax professional to ensure you’re on the right track with your tax strategy.

Navigating taxes as a new business owner doesn’t have to be overwhelming. By understanding your obligations, staying organized, and working with professionals, you can handle taxes effectively and keep your business running smoothly. Get started today, and you’ll set yourself up for long-term success.

This Week’s Resource

Turn Doubts into an Actionable Business Plan

What’s stopping your business dreams? Is it the overwhelming feeling of where to begin, or the fear of falling short in front of investors and lenders?

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Trivia

Question: What company’s "Just Do It" slogan became one of the most iconic advertising campaigns of all time?

Answer:
Nike, with its "Just Do It" slogan, launched in 1988.

Business Lesson:
A memorable, motivating slogan can turn into a powerful marketing tool that inspires customers and strengthens brand identity.

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