I can’t count the number of times in my career where I have had someone come into my office and tell me about a business that they started, it took off and now they want tax help.   When they come in after year-end this really limits the options that they can implement to reduce their tax liability.  This is especially true when they tell me that they, “didn’t set up an entity” because they didn’t know they needed to. Oh, how painful to hear those words!

If you have recently started a business, plan to start a business or have a side hustle that you are passionate about let me give you some direction that could end up saving you some of your hard-earned money.

1. Set up an entity – This is an important first step as it creates the most tax savings opportunity and can help give you some liability protection. There are lots of different entity structures that you can have but one of the most common is a single-member LLC.  Setting up a single-member LLC will give you flexibility in how you are taxed as you can either be taxed as a Sole-Proprietorship or as an S-Corporation.  Being taxed as a Sole-Proprietorship or an S-Corporation will in a large part be based on how much money you anticipate to make and how much time you are putting into this business.

2. Keep good records – You really should know more about your business than how much money is in the bank. How did it get there?  Were all of your projects profitable or just certain ones?  What’s your profit margin?  Have you gotten all the deductions that you are entitled to?  There are lots of affordable and convenient options out there including an excel spreadsheet, a Google sheet, Xero, Yardbook, Quickbooks as well as many others.

3. Plan for retirement – Everyone has a retirement plan but a lot of people don’t know what their plan is. After you get an entity setup you have options for retirement plans.  Do you want to contribute money pre-tax or post-tax?  Do you want to contribute to an IRA, Solo(k), SEP Plan, SIMPLE Plan or some other retirement plan?  The type of plan you choose is usually dictated by the type of entity you set up and the number of employees you have or plan to have included in the retirement plan.  Also, there are different contribution limits for the different types of plans so be sure to know those limits.

If you are unsure which entity type to choose, what accounting records fit your needs or which retirement plan to set up, please reach out to one of our business experts.  We are happy to set up a free 30-minute consultation to go over your questions.  We want to help lift your business and see you succeed!  Partner with us to help you navigate through some of these confusing hurdles of getting your business set up in the right direction.