Growing Your Business
Business and Tax Tips for the Self-Employed: What are the Pros Saying?
Tax season is here and we're sure everyone is busy getting their tax returns together. Today we're talking tips for the self-employed. Having your own business and being self-employed comes with the freedom of being your own boss, a flexible schedule and a slightly more complicated tax return. When you're a self-employed person, there's more to filing your taxes than completing a W-2. However, there are tax breaks that a self-employed person qualifies for that a W-2 employees don't get. In this month's #TaxBuzzChat, we're chatting with industry leaders, tax experts and small business owners to discuss business and tax tips for the self-employed.
-
Where do you see self-employed business owners making the biggest mistakes?
-
What are the best examples of self-employed tax deductions that are missed because of poor record keeping or just not understanding the tax laws?
-
What is your advice for dealing with individuals who are misclassified as independent contractors by their employer?
-
What is your best advice for a self-employed person who is just starting out?
-
What would you recommend as a retirement plan for self-employed individuals?
-
Seems these days everyone thinks an LLC is business entity. Do you think LLCs are misunderstood and over used? Would business liability insurance be a better option?
-
What local, state and federal regulations are most overlooked by the self-employed?
-
Many self-employed starting out in business lack money management skills and waste financial resources on perks when they should be thinking lean. What advice do you have for them?
These are just a few of the questions the pros discussed and debated in today's very active live Twitter chat session.
We know how busy everyone is, so thank you to everyone who took the time to participate! Be sure to check out the highlights of the chat below.
@TaxBuzzOnline will be hosting a #TaxBuzzChat on Twitter the first Wednesday of every month at 10am PT/1pm ET. Our next chat will be Wednesday, May 2nd. Don't miss out on the next hot topic! Tweet us if there are topics that you'd like to chat about or have questions about.
We have a lot of questions to go through today, so let's get started! Q1. Where do you see self-employed business owners making the biggest mistakes? #TaxBuzzChat #selfemployed #BusinessOwner pic.twitter.com/VDz8FQ9aTj
A1. Not taking advantage of Solo 401K plans.#TaxBuzzChat
Not keeping good records or paying attention to the nuts and bolts of running their business.
A1. Self Employment Tax frequently catches new Small Business Owners by "surprise" (shock). The 15.3% tax, in addition to income tax, results in a painful reality- it can be difficult to budget & create sustainability. #TaxBuzzChat
YES! They can plan for the income tax but this one is frequently a shocker their first time to experience it. #TaxBuzzChat
When I was in law school, an acquaintance of mine thought I'd be a good source of legal advice for setting up an LLC. It's much more complicated than asking a 2L how to do the articles of organization! #taxbuzzchat
Not sure I'd call it a 'mistake' per se, but I think it can be hard for self-employed biz owners to research and keep up to date on all the relevant tax requirements. Especially new entrepreneurs. #taxbuzzchat
A1 - the self-employed biggest mistake is to not care about finances (or getting information into a decent format) until #TaxTime. A little work throughout the year would make it so much easier. #TaxBuzzChat
A1. Novices frequently overlook the above-the-line health insurance deduction, that allows self-employed individuals to deduct their health insurance premiums without itemizing deductions or being subject to the 7.5% of AGI limitation on medical deductions.#TaxBuzzChat
A1. Many times, #selfemployed business owners fail to create a long-term planning strategy. "Instant gratification" creates a false sense of security and could, in the long-run, cause the business to self-destruct.#TaxBuzzChat
Great question. A1. Not enlisting the support of an #accountant with specialized expertise in small business accounting. It's vital to start with a strong foundation to avoid problems in the future. #TaxBuzzChat
Q2. What are the best examples of #selfemployed tax deductions that are missed because of poor record keeping or just not understanding the tax laws? #TaxBuzzChat #taxdeduction pic.twitter.com/aofECLeYx9
A2 Poor record keeping with misclassification of expenses & payroll. With payroll it's common for selfemployed to pick up net checks rather than the gross which leads to them adding the payroll taxes with payroll expense which will lower the deduction for payroll. #TaxBuzzChat
A2. Often #selfemployed are not sure of what is and what is not deductible and they err too much on the side of caution. Even if they are do-it-yourselfers a consultation with an #EnrolledAgent or other #taxpro is a good investment.
A2. Poor record keeping creates obstacles and potential financial penalties for late reporting and estimated tax payments. How can you tell what you owe, if you don't even know what you made? Must be current to be accurate and compliant. #TaxBuzzChat
A2. Often taxpayer will misclassify. QuickBooks has cost more tax deductions. Taxpayers should realize that you don't fix your plumbing, you don't fix your car, why do they think because they are a plumber or an auto mechanic they can keep their books #TaxBuzzChat
Mileage gets reported on IRS Form 2106, doesn't it? #taxbuzzchat
A2. Not setting-up the correct type of legal entity which would allow the business to reduce the self-employment tax costs. This represents a significant source of wasted tax expense #TaxBuzzChat #taxtips
A2. We see with our users the #1 missed opportunity is paying their children. With the new tax bill it has become even more lucrative. #taxbuzzchat
A2. Very few #taxpayers take the time to properly document their business travel leading to miss deductions for vehicle use. #TaxBuzzChat https://t.co/pFsPEPA42V
A2. The home office deduction could frequently be used or increased if there was better record-keeping. #taxbuzzchat
Q4. What is your advice for dealing with individuals who are misclassified as independent contractors by their employer? #TaxBuzzChat pic.twitter.com/kFfIrRwOgE
Workers can file Form SS-8 Determination of Worker Status for Purposes of Federal Employment #Taxes and Income #Tax Withholding with the #IRS. https://t.co/xDY2bJjeqM There may also be recourse with the US Department of Labor https://t.co/zl2qZb1jnv #TheCPATaxProblemSolver pic.twitter.com/MpG71wRlHR
A4. That's often a tough one because people need to keep their jobs. If they are willing to file for the IRS determination that's the way to go, but very few are (unless they have left the employer. #TaxBuzzChat
A4. If taxpayer is misclassified as Independent Contractor by employers, I discus with taxpayer the options and where the law stands, offering an SS8 in some cases, in others simply paying the 7.65% and calling it a day - #TaxBuzzChat
A4 (cont) but under no circumstances take any deductions against the otherwise W-2 income. This is a paid preparer penalty. Disclose, disclose, disclose #TaxBuzzChat
A4. First, speak to your tax advisor. You might want to allow the tax advisor to negotiate with or contact the employer to address the issue. The last resort should be to contact the Internal Revenue Service... #TaxBuzzChat
A4 (cont) (although this might be the only way to deal with the problem if the employer is unwilling to listen) #TaxBuzzChat
A4. This is a tough situation because in most cases the employee needs the work so it's very difficult to make much of a stink about the issue #TaxBuzzChat
A4. Tough question. If they do anything about it they stand a good chance angering the employer. They can file an SS-8 and request an #IRS determination. Pay FICA #taxes with the Form 8919 instead of paying SE tax until a determination is issued. #TaxBuzzChat https://t.co/r5I00ykQRV
A4. An employee who is misclassified as an independent contractor is missing out on a lot of benefits and rights. They should File Form 8919 with their tax return to avoid paying double their share of payroll #taxes. #taxbuzzchat
Q5. What is your best advice for a #SelfEmployed person who is just starting out? #TaxBuzzChat pic.twitter.com/8Ok7YtXICX
A5: Start out with learning the CORRECT way to use QuickBooks and start record keeping now. It will take time and also know that just because you know how to use it doesn't mean you understand everything terms of deductions and expenses. #TaxBuzzChat
A5 Continued: If you start with this step then later down the road you will not need to back track and duplicate your work when it comes time to provide it to your tax professional. #TaxBuzzChat
A5. Just starting out - I spend time with taxpayer finding out what they want the business to do for them. This is critical when choosing a federal tax classification. The Limited Liability Company offers the flexibility to... #TaxBuzzChat
A5 (cont) change federal tax classifications as the business grows or the needs of the #taxpayer changes. I own my clients, meaning they make no decision without consulting with me - I am their resource, their sounding board and their advisor #TaxBuzzChat
A5. If they are inexperienced find a professional that can help them select an appropriate entity, accounting method, establish a payroll if they have employees, get a resale permit if they have retail sales and acquire all the appropriate permits.#TaxBuzzChat
A5 - meet with an attorney, accountant, and financial planner at the beginning. You don't need to invest a lot of money but you need a good plan to do it all correct from the beginning. #TaxBuzzChat
A5. I think it's important for new entrepreneurs to get mentors for different aspects of biz ownership; also, when in danger, when in doubt, get professional accounting/legal help, and they'll work it all out. #taxbuzzchat
A5 - #taxbuzzchat Understand #cashflow and the best ways to get paid faster. Including invoicing quickly. Make it easy for your customers.
A5. New Self-Employed have a lot of free or low-cost resources available to help them start right. Use those: SBDC and Score and then hire a professional to help your specific situation- with tax, legal documents...#TaxBuzzChat
A5. Enlist the services of an accountant, attorney, insurance agent, and financial planner to assist in building your business plan and making sure you have covered all of your foundational bases #TaxBuzzChat #taxtips
A5. Engage a #tax professional immediately! The "soft-cost" of engaging this person will more than offset the future costs of fixing a problem that never needed to exist.#TaxBuzzChat #TaxPros #taxtalk #Taxchat https://t.co/RqnYmMMCP4
Q7. What would you recommend as a #retirement plan for self-employed individuals? #TaxBuzzChat #retirementplanning pic.twitter.com/Z3O2vuaPtB
A7 - I know it's the easiest, but that's also why I always start off with an IRA or ROTH. Then move to the more complicated ones once their income starts increasing and they can afford to put more away.#TaxBuzzChat
A7. What they can afford is a great retirement plan - if nothing, pay the SET and get the social security payout at #retirement. Using the #SocialSecurity website, play with the numbers and see how you can maximize retirement benefits of social security #TaxBuzzChat
A7 (cont) Solo #401k is terrific, but if there are other retirement plans, 403B, 401K, watch for IRC 414H which aggregates all employee contributions to the maximum allowed #TaxBuzzChat
Would love some #RetirementPlanning input from @Fidelity, @CharlesSchwab, and @Vanguard_Group - #taxbuzzchat
Hi Lee, we'd love to help. This is a good place to get started with our online resources: https://t.co/u7fkUAh5pi, and you're welcome to call us anytime at 800-343-3548 for a small business plan consultation. Thanks for thinking of us!
A7. This is also an area where the drive to cut current taxes can get in the way of sound long-term planning. A good mix of pre-tax and after-tax plans will often serve better than just trying to get that AGI down. #TaxBuzzChat
A7. Depending on their entity structure, I would recommend a SEP, Simple #IRA or Safe-Harbor #401k plan. I always recommend maximizing their contributions to cut down on current year income #TaxBuzzChat
A7. As a start up, keep it simple and utilize an #IRA if there is a profit and wait until the business is established before worrying about a #retirement plan.#TaxBuzzChat https://t.co/cvBapZWfIc
That's my approach, too. You can get more complicated as the income goes up (i.e., they can afford to put more away) and they establish a habit of saving regularly. #TaxBuzzChat
A7. My best advice is to have a plan and commit to putting a certain amount toward retirement on a regular basis. Self-employed people have great freedom in choosing the type of plan that is best for them, but almost anything is better than nothing. #taxbuzzchat
Q9. Seems these days everyone thinks an #LLC is business entity. Do you think LLCs are misunderstood and over used? Would business liability insurance be a better option? #TaxBuzzChat #businesstips pic.twitter.com/U4XdaJknma
A9. Each business needs to look at their specific requirements. There is no correct entity for all businesses and you need to enlist professional assistance in working to understand the best entity for your business #TaxBuzzChat #businesstips
A9. #LLCs are a good potential tool, but so are other forms if business. It really depends on what your ultimate needs are and what your state laws are. #TaxBuzzChat
A9 (cont) My #business is a C Corporation because C Corporations afford the best fringe benefit opportunities for business owners. To me, this is the most important need #TaxBuzzChat #businesstips
A9. There has been some hype related to #LLCs everyone thinks they must be an LLC even without having idea why. But the wakeup call comes when they have to pay the state fee #TaxBuzzChat https://t.co/sgcgYu0PsP
A9. An LLC means that creditors of the business cannot come after the assets that you hold personally. Whether or not business liability insurance is a good choice depends on the type of activity of the business and what business assets need protecting. #taxbuzzchat
Q9: I work w/ lots of online sellers, many of them foreign (non-U.S.) based & can't tell you the number of emails I get from sellers that say "I formed an LLC on this or that site" without getting proper advise first - and don't understand what they've done. (A 1/2) #TaxBuzzChat
Q9: Often their response is "I read on a user board" or "heard" or "someone told me that I need to set up an LLC to sell in the US." Often they don't understand what an LLC is, how it's taxed, the need/benefit of making an entity classification election. (A 2/2) #TaxBuzzChat
Q10. What local, state and federal regulations are most overlooked by the #SelfEmployed #TaxBuzzChat #businesstips #taxtips pic.twitter.com/3m6neKKHpN
A10. City business taxes seem to be the most frequently overlooked along personal property taxes. #TaxBuzzChat #businesstaxes #taxtips https://t.co/i2aMRVrvIH
A10. I see the misunderstanding of payroll regulations as the most overlooked by the #selfemployed This results in significant penalties and liability exposure #TaxBuzzChat
A10 - #Taxbuzzchat Depending on your location you may need to register and pay fees on the city level, not just your state. These local #tax collectors can also get ugly fast.
This gets really complicated when a small taxpayer start crossing jurisdictional lines and assumes that they home jurisdiction is they only place they need to worry about. City to city or county to county can have different requirements. #TaxBuzzChat
Q10: They're often very surprised to hear that sending employees or contractors to other states for sales calls, trade shows, prospect/client visits, training, etc., can create nexus - they think nexus only applies if have location/employee in other state (A 2/2) #TaxBuzzChat
Q10: Someone mentioned resources - have to add that @BloombergTax produces a fantastic free resource - its Annual Survey of State Tax Agencies - summarizes responses from state tax agencies (e.g., Depts of Rev) on activities that create nexus, state policies #TaxBuzzChat
Q10: HUGE area of focus of mine->SALT! So many business owners don't understand that even if they are based only in one state, they could possibly have nexus for sales, income, franchise tax purposes in OTHER states and be accumulating state tax exposure (A 1/2) #TaxBuzzChat
A10. Unless the #selfemployed business owner is all-knowing, I would say that most federal and state regulations are overlooked! This is why we hire professionals (attorneys, #CPAs, EAs, etc.)#TaxBuzzChat
Q12. Many #selfemployed starting out in business lack money management skills and waste financial resources on perks when they should be thinking lean. What advice do you have for them? #TaxBuzzChat #businesstips pic.twitter.com/fJNWeoC8jc
A12. As I said before, hire the correct professionals! Let the professionals advise. This will allow the client to do what he/she does best: make money!#TaxBuzzChat #businesstips
A12 - This is where self-employed individuals benefit most with financial guidance and realistic short-term and long-term planning. #TaxBuzzChat
Learn some basic business planning concepts and skills. There are some good resources out there that don't require a big investment of money. #SBA and the #SCORE program are great. #TaxBuzzChat #selfemployed #businesstips #taxtips
A12. If you don't have to have it, or if it doesn't present a return on investment - don't spend or buy. If you think it will make you successful, consider those who have spent themselves into bankruptcy - everyone knows someone. This dog don't hunt.#TaxBuzzChat
A12. Be spendthrift. If it is not needed for the success of the business don't waste precious start up funds on it. Wait the business is financially stable for the perks #TaxBuzzChat #taxtips
I don't see it as much these days, but back in the early 2000s tech bubble, it got insane here in Austin. Still is a little crazy but not like it was.
A12 - #TaxBuzzChat It is hard when the media covers all the toys at the VC funded enterprises. Count every penny, focus on sales first before the "perks".
A12. In my view we tend to see those who are good at a task take on the role of business owner, but is most cases they lack the best business skills they need to be successful. It always amazes me that some feel that owning their own business will be easier #TaxBuzzChat
Thanks for hosting - look forward to seeing the recap! #TaxBuzzChat
Thank you! I enjoyed my very first #TaxBuzzChat
Thanks for hosting! Very informative. #TaxBuzzChat
Thanks for hosting another fun #TaxBuzzChat!
-- Brian Streig, CPA (@cbriancpa) April 4, 2018 To see the full chat session, click here.
We had a great time chatting with our participants on such a hot topic. Feel free to use our #TaxBuzzChat hashtag or tweet us at @taxbuzzonline if you have any additional questions you'd like answered.
We'll be hosting #TaxBuzzChat the first Wednesday of every month at 10am PT/12pm ET for our monthly discussion on all things tax and accounting. Hope you can join us in May!
TaxBuzz Staff
Our experts cover the hot topics in tax, personal finance and business planning. Follow us on @taxbuzzonline to get the latest updates year round.
Recommended Professionals
In the face of economic uncertainty, TaxBuzz is the industry's most up-to-date tax information.
Join 60,000 who get our weekly newsletter. No spam.
Need help selecting a firm?
Use our specialized search engine and get matched to the best accounting and tax firm for your needs.