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Your 2024 tax strategy with CPA Brittney Suttle

Brittany Suttle, CPA, explains how to better prepare for the tax season , and what money-saving strategies we need to be implementing.

🎉 The good news is that there are no major tax updates for independent business owners in 2024. 

Tax season is upon us, and there is no doubt that filing your taxes can be a stressful time as an independent business owner.  

  • According to a recent survey by FreshBooks, almost 63% of business owners rate their tax time stress at 3 or more on a scale of 5.
  • The same study reported that 60% of owners said they would rather do a number of unpleasant things than deal with taxes – including getting a root canal.

This stress highlights the importance of proper tax planning, using modern accounting software, seeking professional help, and staying updated on tax regulations.

Today on the show, we are sitting down with Brittany Suttle, who is a CPA and founder of Knies and Co., a virtual CPA firm. Her mission is to make money more approachable for independent business owners. Brittany gives us a tax season roadmap to help us better prepare, and money-saving strategies we need to be implementing.

The Independent Business podcast is powered by HoneyBook, the all-in-one clientflow management platform for independent business owners to streamline their processes and create remarkable client experiences. Book clients, manage projects, get paid faster, and have business flow your way with HoneyBook. Use the code PODCAST to get 20% off your first year as a new member.

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Transcript

2024 tax updates for independent business owners

The good news is that there are no major tax updates for independent business owners in 2024. Some of the smaller updates include:

  • Restaurant tabs are back to being a 50% deduction after going up to 100% during the pandemic
  • Higher standard deductions
  • Higher tax bracket limits

No major change is good news, as it means that filing your taxes can be a smooth process this year.

Common mistakes that independent business owners make when they file their taxes

The biggest tax mistake that business owners make is not actually on their taxes, but in their bookkeeping process. The mistake is not ensuring that your reporting is correct. Essentially, business owners do not accurately reconcile their bank accounts and make sure that what they report is also what shows up on their statements. Overstating or understating your revenue and expenses can cause a true tax burden. 

The most commonly overlooked tax deductions

The next common mistake that independent business owners make on their taxes is not fully understanding what business expenses are deductible.

Often overlooked expenses include:

  • A home office
  • A portion of your cell phone, if you use it for business
  • If you work from home, you can deduct half of your internet costs
  • Any mileage you drive for your business (small trips, like picking up office supplies or going to the post office can add up)

To make sure you don’t miss any deductions, you need to update your books every month so that you don’t have to backtrack at the end of the year. Utilize tracking software like Quickbooks to make it simple and automated.

Tax season roadmap for independent business owners

Start by organizing your income by your invoices and deposits rather than the 1099s you receive. List out all of your income and categorize your expenses. You can pull up a Schedule C online to see what the different categories are for expenses. 

Next, organize all of your tax forms, like your W2 or 1099s, into a folder on your computer. 

The three different ways to structure your business

There are three different ways to structure your business: sole proprietor, LLC, or S-corp. 

Sole Proprietor: you’re operating under your social security number and have not registered your business with the state. All of your income and expenses are reported on your personal tax return under a Schedule C form. You pay both income and self-employment taxes. Pros: it’s simple and easy. Cons: you have no protection, so if a client sued you they could go after your personal assets as well as your business assets. 

LLC, or limited liability company: you are taxed the same way as a sole proprietorship (you still pay both income and self-employment taxes), but you now have a veil of protection over your personal assets. If you have a high net worth and a lot of personal assets, an LLC makes a lot of sense for you. The cons of an LLC is that you have to register it in the state you live in and pay fees to your state. Fees vary per state; for example, in Indiana, you have to pay $30 every two years whereas in California you have to pay $800 per year.

S-Corp: this is actually a tax election, not a business entity structure. If you’re an LLC, you can make the election to be an S-corp, which means you will be taxed differently. With an S-corp, you set yourself up as an employee of your business and receive wages, which will get hit with income and self-employment taxes. However, your business’s remaining profit will only get hit with income taxes. 

An S-corp offers huge potential for saving money on your taxes; however, it’s more complicated than both a sole proprietorship and an LLC. It’s also more expensive, and you have to file a separate tax return, get set up with a payroll provider, and keep better records.

An S-corp is a great option for business owners who make a certain amount that will make the expenses break even. If you’re curious about an S-corp, talk to a CPA. 

When to talk to your CPA about transitioning to an S-corp

When your taxable business profits get to be $20,000-$30,000 higher than the reasonable wage you would pay yourself, that’s when you should talk to your CPA about transitioning to an S-corp. 

For example, if you’re a photographer, let’s say a reasonable wage for the work that you do in your business would be 50,000 per year. When you start making and showing taxable profit of $70,000-$80,000, that’s when you want to talk to your CPA about transitioning to an S-corp. At that point, your tax savings will more likely than not offset the additional costs of an S-corp.

Transitioning to an S-corp too early will mean that you will pay more on the expenses than you’ll save on your taxes, which is why it’s important to wait until you can break even. 

Investing in retirement as an independent business owner

Most entrepreneurs focus on paying themselves a good salary and put retirement on the back burner. However, you can’t ignore retirement forever, and luckily there are great retirement account options for entrepreneurs. 

In addition to the self-employment accounts, you can also open a Roth IRA, which is a tax-free retirement account. Keep in mind that you don’t get deductions on your tax return for a Roth IRA; however, when you withdraw from the account, you don’t have to pay taxes on that money. 

Another option is a Traditional IRA, which is not tax-free, but you get a tax deduction when you make contributions to it. 

After you max out a Roth IRA and Traditional IRA, you can start contributing to self-employment retirement accounts. There are two types: the Simplified Employee Pension (
SEP) IRA
and the Solo 401K. Talk to your CPA to determine which account is best for your business.

What you need to know about the Corporate Transparency Act and the Beneficial Ownership Act

In order to better detect money laundering, the government now requires LLCs and S-corps to file a Beneficial Ownership Information (BOI) report. This report essentially states who owns the business. It went into effect on January 1, 2024, and you have until the end of the year to file it. 

Not filing the report can result in hefty fines or jail time. The good news is that you only have to file it once. 

Staying on top of your quarterly tax payment

Quarterly tax payments are due in April, June, September, and January. There are two ways to determine how much you should pay each quarter. The first way is called the safe harbor estimate, and it’s when you estimate your payments based on your prior year’s tax return. 

The other way is to pay 25-30% of your income each quarter. If you live in a state with state income tax, look at the tax rate and save that amount each quarter as well. 

If you overpay in quarterly taxes, you will get a refund at the end of the year. If you underpay, you’ll owe more when you file your tax return. 

Brittney recommends putting your quarterly payments into a high-yield savings account so that the money can earn interest while it accumulates throughout the quarter. 

The biggest differentiator between businesses that succeed and the ones that fail

Brittney believes that the biggest differentiator between businesses that succeed and the ones that fail is determination and persistence.

Important sections of the conversation

  • [1:52] 2024 tax updates for independent business owners
  • [3:21] Common mistakes that independent business owners make when they file their own taxes
  • [5:38] The most commonly overlooked tax deductions
  • [10:25] Tax season roadmap for independent business owners
  • [12:49] The three different ways to structure your business
  • [17:10] When to talk to your CPA about transitioning to an S-corp
  • [19:12] Investing for retirement as an independent business owner
  • [28:14] What you need to know about the Corporate Transparency Act and the Beneficial Ownership Act
  • [32:25] Staying on top of your quarterly tax payments
  • [37:14] The biggest differentiator between businesses that succeed and the ones that fail

Resources mentioned

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