Written by Amy Stapler, CPA
“Behind every small business, there’s a story worth knowing. All the corner shops in our towns and cities, the restaurants, cleaners, gyms, hair salons, hardware stores – these didn’t come out of nowhere.” If you are a small business owner, you know this to be wholeheartedly true. Your business is built on hard work, sweat, tears, hopes and dreams. While the reasons for starting your own business may be varied, one thing remains the same, you want your business to succeed while still being able to do what you love, whether that’s running your own store, providing a service for your community or simply affording yourself the time to have a personal life outside of work.
So, how do you handle the “business” side of running your business to make sure you stay on track? Not everyone is well versed in the intricacies of tax rules, payroll regulations or bookkeeping practices but we can help you with those areas. At BMSS, we know what it’s like to run a small business as many of our accountants either grew up in a family-owned business or have spouses who have started their own businesses over the years.
For starters, how do you decide which entity type is right for you and what are the tax implications for each? If you choose to become a partnership or limited liability company (LLC), the entity’s income (and deductions) flow through to you. Trade or business income that flows through to you for income tax purposes might be subject to self-employment taxes – even if the income isn’t actually distributed to you.
Or, you could elect to become an S-Corporation. For S-Corps, even though the entity’s income flows through to you for income tax purposes, only income you receive as salary is subject to employment taxes and, if applicable, Medicare tax and possibly the NIIT.
In addition, if you are self-employed, your business earnings may be subject to self-employment taxes based on your entity selection. This means your employment tax will be both the employee and employer portions of these taxes. There are also state and local taxes to consider as well as unclaimed property, personal use of auto, and classification of employees that may impact your business.
Don’t despair however, there are some benefits for being self-employed as you may be able to take advantage of some above-the-line deductions. For instance, you may be able to deduct 100% of health insurance costs for yourself, your spouse and your dependents, up to your net income from the business. You can also deduct contributions to a retirement plan such as a SEP IRA or Solo 401(k). A retirement plan analysis can help you determine the best fit for you and your business.
While this, and all of the other accounting matters not mentioned, may seem overwhelming and a cause for anxiety, we are here to be a champion in your corner. It’s our job to provide you with the comfort and security in knowing that we have your back when it comes to handling taxes, payroll, business consulting, bookkeeping and more. Let us take care of the “grunt” work of your business so you have more time to focus on what matters most to you, doing the work you love to do.