Congratulations! You want to start a business. You are about to join a magical club of entrepreneurs that might actually be able to make serious bank. As a person who has been there, done that, I made a lot of mistakes in my first 10 years of being a business owner.
The biggest mistakes I made were not on advertising or similar. They were all about my taxes. It’s an issue I’m still slogging through, to be honest. If I could turn back time, I’d change several things. Here’s what I think every entrepreneur should know before they hit their first tax season…
Author’s Note: This is advice that I wish I had. What works for me may not work for you, so PLEASE make sure that you talk to a tax pro about your particular situation.
First things first, consider registering your business with the IRS.
You can register as a Sole Proprietorship, LLC, S-corp, or several other options. Every business is going to be structured differently, so if you’re not sure what to use, it’s a good idea to talk to a tax professional or a business formation advisor.
One thing I really, truly wish that I knew beforehand was that you don’t have to pay a tax advisor if you’re starting out. There are programs out there that can help you establish the right business registration, including SCORE as well as state-run business support programs.
The IRS website also notes that they have tax assistance for people who earn under $75,000 per year.
You really should get a business bank account.
I know this seems like common sense, but it was not common sense to me. I didn’t know freelancers could get a business account. All you need to get a business account is to apply for an EIN and register as a sole proprietorship with the IRS.
A business bank account helps you keep personal and business expenditures separate—even as a freelancer. This streamlines bookkeeping and makes it easier for you to figure out your profit and losses from month to month.
Any profits you want to spend personally can be transferred to your bank. Or, if you have an S-corp, you can pay yourself a salary.
Start bookkeeping ASAP.
I had a nasty habit of waiting until the end of the year to do my profit and loss (Schedule C) form. It was brutal. You can prevent a lot of stress by getting a bookkeeping service as well as a specialized tax accounting service.
Believe it or not, there are specialized business tax services for specific industries. I find that using an accounting service that’s well-versed in your field is really, really smart. It saves you a lot of write-offs you normally wouldn’t get during tax time and they can advise you on a lot of random stuff.
Oh, and having them on your side can be an immense help during an audit. Like with all things, check their reviews. You do NOT want to have a bad accountant on your hands as a business owner.
I pay roughly $300 a month for this service. That’s not bad considering how much they save me in the long run.
For the love of all that is holy, keep track of your expenses.
I was surprised at some of the things I could write off as a model and influencer. For example, makeup? Yep. Tax write-off. The same can be said of all the clothes that I shoot in. Since I have severe PTSD and tend to write about traumatizing topics, the supplements I take to keep me glued together during those write-ups or public speaking moments can also be written off.
If I didn’t keep track of my expenses, I would not be able to write all those off. They show up on my software and I can add notes if need be. It’s great. Automating your expenses tracking or using an app like Expensify to track receipts is a must.
Pay your tax estimates quarterly, and yes, save up for them.
This is a must for basically any freelancer who makes a living doing what they do. It’s also a thing for any business owner. It[s worth noting that you can pay these taxes frequently, even daily if you want to.
At the end of the year, you can actually get a refund from your regular payments. It’s a nice feeling, I hear.
Load up on those benefits!
As a business owner, you get to choose what benefits you get as the owner/employee. These benefits are generally tax-deductible. This is considered to be one of the best ways to save money while you improve your life. Good benefits to invest in include:
- Health insurance
- Dental and vision insurance
- A Roth IRA
- A 401(K)
- HSA/FSA contributions
There are more. But generally speaking, if it gives you tax benefits, you should load up on benefits.
Have a central storage hub for your important business documents.
Oh my God, why didn’t I do this before? My life got immensely easier after I got a filing box for my tax documents a year ago. It got even easier when I started to digitize my tax and business paperwork filings. I now have a print and digital version of each. It’s wonderful because it keeps everything organized in duplicate.
Why duplicate? Simple: you need to keep these documents somewhere. If you get an IRS audit, they will ask you to mail the original documents to them. This is all important to know because if you’re like me, your first instinct is to throw out papers that are more than a year old.
Put alerts on your phone for major tax and paperwork deadlines.
The IRS2Go app actually offers this service for you,. If you use a website to get your business registered, then they also usually send email alerts to you when you need to refile something, update something, or similar. After all, that’s literally their business.
I’ve used LegalZoom for this with great success, but they only do certain types of registrations. So, I also started to mark my calendars for stuff like this. A lot of the legal and tax paperwork you make can be automated, automated, automated.
Oh, and finally, you might need to collect sales tax.
This is one of those things that you’re going to need to chat with a tax advisor about. In many states, both online and in-person sales will have to have sales tax payments. Other states don’t have a sales tax at all.
I already got a license to collect sales tax just in case I need it. However, my business didn’t get to that thresh hold quite yet. Even so, it’s better to be safe than sorry, right?
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