Tax Advice – The Complete Guide

By Riley •  Updated: 07/12/20 •  11 min read

With each year a new tax season comes with it. Which is why you might be looking for some tax advice!

No one loves paying taxes. And it might be the thing you hate most in life, but that doesn’t change the fact you still have to pay them.

The best you can do to manage the hurt Uncle Sam is about to do to your pockets and bank account is arming yourself with knowledge.

When it comes to taxes, what you know can go a long way.

So You Want To Be an Entrepreneur

Advice on filing your taxes

Being an entrepreneur can be an awesome and highly profitable experience. However, according to Uncle Sam, that experience and those profits come at a price.

When you become successful on your venture, whether it be a startup, or a great investment, your good ole buddy Uncle Sam and his pals from the IRS will be looking for their cut.

If you own a business, even if it’s based in your home, the IRS wants you to report any and all activity.

Of course, they’re looking for ways to take more of your money, but if you’re clever, informed, and meet the right conditions, you can actually save a little money on your taxes too.

On the other hand, if you’re starting off as a home business and you’ve been funding it with your personal income, you can reduce your taxable income if you report a loss.

More specifically, if you actually lost money rather than made money in your home venture in any given fiscal year, you can have your taxable income reduced so that you won’t have to pay as much.

Another thing you should know as an entrepreneur operating a business is you’ll have to file both business and personal income taxes.

What Business Owners Need to Know About Taxes

What you need to know about taxes

In short, as a small business owner you need to know about taxes because if you don’t, you could wind up facing some nasty penalties or paying more than you really have to.

Filing taxes as a small business doesn’t have to be all that bad. In fact, you’ll have certain advantages available to you.

This is important. Because you need to know what to show and how to show it. You should be going after every exemption and rack up every single one you can qualify for.

If you have a home office, you can qualify for a special tax deduction if you can provide the necessary documentation.

You should be able to show documentation on how many square feet the home office is and the amounts you pay for insurance, utilities, and also how much your rent or mortgage payments are.

If you use your vehicle for your business you should keep a mileage log because all those miles can add up to some hefty deductions as well!

You can write off travel expenses and even meals, as long as you provide the proper documentation of course.

These deductions can save you a lot of money, so make sure you keep any and all receipts!

Tax Advice Creatives and Entrepreneurs Need to Know

One thing that ends up holding many creatives and entrepreneurs back is their naivety and lack of expertise when it comes to taxes.

This is unfortunate because it results in the failure of so many promising startup businesses.

Creatives and Taxes

Creative entrepreneurs are full of brilliant ideas. And they use those ideas to create awesome new companies that do some pretty amazing things.

Failing because of inadequate tax knowledge is a shame and it’s happening to way too many entrepreneurs.

As an entrepreneur, you might feel like you shouldn’t be bogged down with having to learn a bunch of dry tax information to succeed.

But, with the introduction of powerful software, you don’t need to learn nearly as much as you would have in previous years.

However, basic tax knowledge is still essential. We know it sounds unfair. As a creative you want to be free and focus on what you do best, creating.

But business taxes aren’t going away anytime soon.

If your business is registered in the United States, it will be subject to U.S. taxes and compliance with the IRS.

And that’s why we created this guide to help you navigate these taxes without going crazy.

By the time you’ve finished reading our guide, you’ll be armed with enough information to come out on top when filing your taxes.

Tax Advice for Entrepreneurs and Business Owners Stay On Top of Their Taxes

Tax Advice for Entrepreneurs

One of the best pieces of tax advice I can give you is to stay on top of your business taxes and track your expenses.

Keep an accurate accounting of both your profits as well as the money that’s going out.

The more accurate your accounting is, the more maneuverability you’ll have when filing your taxes.

Another piece of tax advice I want to share is that you should always be on the lookout for exemptions. Learn about them, target them, and get them whenever it’s possible to qualify for them.

Businesses and entrepreneurs who take advantage of tax exemptions are more nimble and face fewer financial challenges.

When it comes down to it, there’s really no excuse for not utilizing the tax advice you are being given or any of the exemptions you qualify for.

The biggest reason people miss them is because they don’t know about them in the first place, and that’s a shame.

One exemption you should look into offers a potential 20% reduction on your business income taxes.

That’s a lot of money! And for single entrepreneurs, with an income under $157,500, you may qualify.

Likewise, if you’re a married entrepreneur and made less than $315,000, you can also qualify.

This beauty of an exemption stems from something called the Tax Cuts and Jobs Act.

While the name itself doesn’t sound all that exciting, it’s something you should be very interested in as an entrepreneur making an income off your business.

How the Recent Tax Overhaul Affect Business Owners, Freelancers, and Entrepreneurs

Remember that little gem we mentioned earlier called the Tax Cuts and Jobs Act?

Well as it turns out, there’s a whole lot more to it and you’ll want to learn as much as you can about it if you want to give yourself the best chance of success as an entrepreneur in America.

Under the Tax Cuts and Jobs Act, the average tax return amounted to $2,869, which is a healthy number that has no doubt improved the quality of life for millions of Americans.

Guide to Taxes

For entrepreneurs who are filing their personal income tax alongside their business income taxes, that’s pretty good news!

And going back to the qualified business income tax deduction, you’ll be happy to know you can qualify for it when filing as a Subchapter-S corporation or as an LLC.

This flexibility is very much appreciated by entrepreneurs and small businesses.

In fact, small business owners earning between $100,000 to $200,000 in gross adjusted income were particularly active in filing for the business income deduction.

Finally, some of the most important changes that’ve come from the tax overhaul that affect entrepreneurs include:

Another great reduction was introduced as a deduction for pass-throughs.

And all together these changes represent a much more favorable tax environment for both entrepreneurs and small business owners including small corporations.

Documents You Will Need to File Your Taxes

There are a great number of documents you’ll need to supply to either your accountant or otherwise turn in when filing your taxes as a business or an entrepreneur with income from a business.

For starters, you’ll need to provide all of your basic financial reports including documents like your balance sheet, profit and loss reports, as well as your statement of cash flows.

Other documents you’ll need include the appropriate tax form that matches the structure of your business.

For example, if you’re a freelancer or sole proprietor, you’ll need to file a 1040, Schedule C, Schedule C-EZ, 1040-SE which is for freelancers and sole proprietorships.

If however your business is structured as an LLC, you’ll have to file under 1065, 1120-S, Schedule K.

Subchapter-S corporations need to file under 1120-S, Schedule K-1, 940, 941, 943. While partnerships file as 1065, 940, 941, 943.

Sounds exciting, doesn’t it?

Taxes may not excite you, but the benefits and deductions will when you see more money in your bank account and pockets.

If you take the time to learn the ins and outs, you stand to benefit by both keeping more money that otherwise would’ve been lost to the IRS in taxes, and also getting more money back on your tax returns.

Now that we’ve got your attention again there are some more documents you’ll need to submit when filing your business taxes.

You’ll have to come up with all the payroll information including the W-2s, W-3s, and 1099-MISCs of your employees.

Also, you may be required to come up with an inventory total in the form of Cost of Goods Sold.

This is essentially a representation of your closing balance for the year.

To get it you’d take the opening balance of inventory from the previous year and tally it up with your current inventory balance.

The difference will make up the Cost of Goods Sold, or COGS.

The Need to Create a Paper Trail and Track Expenses

Tax Advice - The Complete Guide

As a business, whether its a startup or one that’s been around for a while, tracking expenses is important when it comes to getting a good return on your taxes.

Business expenses represent potential write-offs that can work in your favor come tax season.

When it comes to giving a full account of your expenses, your attention to detail will be rewarded.

Always be sure to keep track of things like 1098 Mortgage Interest & Property Taxes forms, bank statements, credit card statements, bills, and receipts.

When it comes to tracking your expenses, it really will pay to be organized.

Not only will you be able to qualify for more write-offs and deductions, but you’ll also be paying an accountant less money.

Tax accountants will charge more for taking extra time to organize your expense documents and receipts.

Instead of giving away more of your good money to the accountant just keep everything nice, neat, and organized.

Tax Advice on How You Can Save Money Using Tax Software

While there are plenty of services out there that offer the promise of saving money on your taxes, most of these services fall short.

This is especially true when it comes to actually maximize your tax benefits and paying the least amount possible.

Although they might seem convenient and safe, odds are you’re going to end up losing money, particularly the money they’ll charge you to do your taxes for you.

That’s money that you could’ve saved and kept in your pocket if you had used simple software solutions like Quickbooks and Freshbooks instead.

The truth is there’s just way too much detailed information to know when it comes to taxes and there’s no real substitute for reliable software.

As humans, we make mistakes all the time. Software doesn’t.

Sure you might be able to save a few bucks here and there when you work with a professional tax consultant, but most folks end up losing a lot more money than they should.

Why Business Owners Should Give Themselves a Quarterly and Yearly Bonus

You should know as an entrepreneur running a business you may pay less in taxes if you give yourself bonuses that’re spaced out appropriately.

Ideally, in order to get any real benefit from it, you should give yourself both a quarterly and yearly bonus.

But whatever you do, don’t wait until the end of the year to give yourself a bonus.

If you wait until the end of the year and only give yourself an annual bonus, the advantage is lost, and you’ll probably end up paying more taxes for it.

The Big Picture When It Comes to Tax Advice

Fortune always sides with those who can understand the big picture.

The big picture here is that while taxes are complex, you can still save a lot of money as an entrepreneur.

All it takes is a little research.

And that’s the best piece of tax advice I can give you.

Using software to help you file your taxes will save you both time and money. So don’t be afraid to try to save a little extra on your taxes.

Be honest and be smart, with the right tools and the right information, you’ll come out on top like a pro.

Riley

Adran Riley is the co-founder of Red October Firm, a photography and graphic design studio in Bloomfield, CT. He's been in the web design and SEO industry since 2015. His mission is to help others share and do what they love online. That way, they can build and connect with even more people.