Taxes for Small Businesses 2023: Beginners Guide to Understanding LLC, Sole Proprietorship and Startup Taxes. Cutting Edge Strategies Explained to Lower Your Taxes Legally for Business, Investing
5/5
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Fringe Benefits
Taxes
Corporations
Depreciation
Business
Corporate Intrigue
Wealth & Power
Business Drama
Tax Evasion
Tax Reduction Strategies
About this ebook
First-time business owners: Don't file your taxes until you've read this book twice.
Just starting a new business and looking for the basics on taxes?
Feel like you're missing out on special tax deductions for small business owners?
Want to know how you can use an LLC to pay less taxes?
If you want to get a handle on taxes for your small business, then this guide may help you save over 100 hours per year in administrative work.
That's if you're one in 3 small businesses that spend more than two workweeks just on federal taxes, according to survey data from the US National Small Business Association (NSBA).
It's no wonder then why almost every small business owner in the NSBA's survey said that doing taxes is their least favorite part of running a business.
Because while 67% of small businesses are spending over $1,000 annually on filing federal taxes…
They could be spending all that money, effort, and time on actually growing their business.
The problem is taxes tend to appear complicated and difficult to navigate.
You may have been warned that you need a CPA to hold your hand… or that you should just let someone take care of your taxes for you completely.
And though it may be helpful to consult with a tax professional… the truth is managing taxes for your small businesses is much easier than you think.
All you need are proven tactics and strategies to help you minimize your taxes and maximize the amount of hard-earned money you get to keep.
In this book, you'll discover:
- What exactly S Corps are, and the tax savings you can gain from this kind of taxation
- What qualifies for business travel deductions, and what you can't include
- Little-known taxes that affect lots of business owners
- How small business owners can earn more by paying themselves a lower wage
- Which tax election is right for your business
- How business income taxes work, and how you can use this to your advantage
- How to leverage your investments to limit your taxes, and the 5 different "tax flavors" that can apply to your investment accounts
- 8 exit strategies you can use to maximize your earnings from selling your business
- The 3 most business-friendly states in the US, plus 9 other states where it's easy to launch a new venture
And much more!
You don't need to be a chartered accountant to figure out taxes for your business.
As long as you have a strong grasp on the fundamentals of how taxes work for small businesses, you can cut back on the amount you're paying to Uncle Sam.
So you can devote more of your money to growing your business and becoming more successful.
But the choice is yours.
You can keep watching your tax bill grow bigger every year without understanding why… or you can conquer all the ins and outs of small business taxes and legally lower your tax bill.
If you're ready to finally catch a real tax break for your business, then scroll up and click the "Buy Now" button right now.
Read more from Nicholas Regan
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Reviews for Taxes for Small Businesses 2023
3 ratings1 review
- Rating: 5 out of 5 stars5/5
Nov 19, 2023
This is a great book. Very concise but gives you a lot to think about. Highly recommend it even past 2023.
Book preview
Taxes for Small Businesses 2023 - Nicholas Regan
Taxes for Small Businesses 2023
Beginners Guide to Understanding LLC, Sole Proprietorship and Startup Taxes. Cutting Edge Strategies Explained to Lower Your Taxes Legally for Business, Investing, & More
Nicholas Regan
Copyright © 2022 by Nicholas Regan
All rights reserved.
It is not legal to reproduce, duplicate, or transmit any part of this document in either electronic means or in printed format. Recording of this publication is strictly prohibited and any storage of this document is not allowed unless with written permission from the publisher except for the use of brief quotations in a book review.
As a way of saying thank you for your purchase, I wanted to offer you access to this amazing book for free: Entrepreneurial Drive
Access the course here: https://tinyurl.com/33ttjfy4
image-placeholderThis guide takes you through the characteristics of a gritty person, the habits that gritty people develop, and shows you what you need to do to build your grit to leave your old life and become a successful entrepreneur and turn your dreams into reality.
Contents
Introduction
1. What to Do With All This Money?
2. The Particulars of Federal Payroll Taxes
3. What Uncle Sam Wants from Your Income
4. The States of Taxation
5. Other Taxes That Affect Business Owners
6. Minimizing Sole Proprietor Taxes
7. Use Your LLC to Legally Pay Less to Uncle Sam (And Others)
8. Corporations and Their Tax Reductions
9. Which Tax Should My Business Elect?
10. Additional Tax Minimizing Items
11. Stocks, Bonds, Mutual Funds, and Taxes
12. Exit Strategies
13. Don’t Make These Common Mistakes
Final Words
Introduction
Small businesses with less than 500 employees are the lifeblood of the American economy. In fact, 99.9% of firms in the US are considered small businesses, and the average tax rate that they pay is nearly 20%. However, that can vary a lot by state and the structure of the business—whether it’s a sole proprietorship, LLC, or other entity.
Many of these businesses don’t pay federal income taxes on the business itself because so many are either sole proprietors or pass-through entities like S corps and LLCs. Not familiar with pass-through entities? That’s OK; you’ll learn everything you need to know about small business taxes by reading this book.
Understanding taxes is key for entrepreneurs so that they aren’t overwhelmed by a tax bill that’s higher than it needs to be. Small businesses employ about 60 million people and account for almost half the US workforce at 47.3%. Paying the right amount in taxes and staying financially healthy isn’t just key for the business owners but for all the people who depend on them as well.
Less than a third of family-owned businesses are successfully passed on to the next generation. But much of that is due to improper planning or a total lack of planning. When not done correctly, much of a business or an estate can be lost to Uncle Sam. However, there are plenty of ways to prepare for a successful transition with less leakage due to taxation.
Fortunately, even if you don’t know that much about business taxation or taxes in general, understanding and minimizing them (within the confines of the law and the tax code) doesn’t have to be all that hard. You’ll learn the fundamentals in this book so that you can understand the taxes you’re facing and how you can legally lower them.
The book is organized by the different types of taxes that business owners may need to pay, bearing in mind that not all businesses pay the same taxes or receive the same tax breaks. However, it’s important to remember to look at your tax situation from the bigger picture. If you’re considering one method of reducing a certain tax, you might end up with a bigger overall tax bill if it negatively affects a larger piece of your business.
If you’re an investor, you know that one of the first rules of investing is that there is no free lunch. There are always trade-offs. And the same goes for taxes, as well. One business entity might give you bigger tax deductions for the fringe benefits that you provide your employees yet subject you to double taxation, for example.
When Uncle Sam gives you a gift in the form of a tax advantage or loophole,
always expect that there’s some kind of string attached to the gift or negative consequences for it at some point.
First, we’ll start with some more upbeat information about what small businesses can do with their earnings! There are some interesting tricks in the tax code that are dependent on what kind of business structure you choose and what you plan to do with the profits that may lead to certain tax benefits.
Then you’ll discover the details of payroll taxes. If you previously worked for someone else, you may not have paid too much attention to Social Security, Medicare, and unemployment taxes that were withheld from your paycheck. As an employer, you need to be familiar with them, and as a business owner, you need to know if there are any ways to minimize these on your behalf.
Next, we’ll spend some time on federal income taxes. While your business might not pay them, you will. Many businesses pass the income or loss from the company’s operations through to the shareholders, so you must understand how federal taxes work and how different business entities give you different tax benefits.
You’ll also learn more about state income taxes. Although some states are known to be more small-business friendly when it comes to taxes, if you’re not physically located in those states, you’ll still have to pay your state’s taxes (even if you chose to form your business entity in a friendlier state.) There are additional state taxes that your business may be responsible for, and you’ll learn about those as well.
Then we’ll get into the specifics of taxation depending on whether your business is a sole proprietorship, an LLC, or a corporation. These entities all have different ways of being taxed and different tax benefits, so we pull back the curtain on the details for each. Interestingly, although you may choose to form a specific business structure because it’s best for your personal circumstances, in many cases, you can elect to be taxed as a different type to take on the best tax benefits.
Although there are additional taxes that business owners need to be aware of, such as the estate and gift tax, there are also ways to use IRS rules to decrease your tax burden, even if they don’t specifically relate to your business.
If you’re planning to sell your business, or at least you’re thinking of an exit strategy, you’ll find details on selling your business with minimal tax pain. Some of the techniques are best for family-owned businesses that you’re passing down to the next generation, and others work for any business sale.
When it comes to your strategy—especially if you have a family business—it’s critical that you look at everything with an objective eye. That does include considering family issues that you’re aware of so that they don’t come back to bite you.
And speaking of things coming back to bite you, we’ve included a chapter on the common mistakes business owners make regarding their taxes. Plenty of other entrepreneurs before you have made these mistakes, so learn from them and make your own brand-new errors. That’s sort of a joke, but not really.
You will make mistakes as an entrepreneur—it’s inevitable. You want to try not to make really expensive ones or ones that you can’t easily reverse. As an example, once a court has decided that your LLC isn’t really acting as a for-profit business, not only have you probably lost all your business deductions, but creditors can reach your personal assets. That is generally not reversible. Fortunately, there are a number of ways that you can strengthen your asset protection and safeguard your business deductions.
Once you’ve read through all the topics in this book, you’ll be equipped with the knowledge you need to feel confident about your tax decisions and potentially start lowering your tax bill. Why wait any longer to find out how you can legally send less to Uncle Sam? Let’s get started!
Chapter 1
What to Do With All This Money?
It may not happen in the first or second year of your business, but (hopefully) over time, your company will start earning profits for you. Depending on what type of business structure you have and how you choose to be taxed, you have some options about what to do with the profits that you’ve generated.
What Are Profit and Profitability, Exactly?
Some readers may already be familiar with the definition of profit,
but others might not. There’s a lot of jargon thrown around when it comes to taxes, so in this book, we’re going to clarify as much as possible. But basically, profit is your revenue minus expenses.
First, we’ll consider business income to be the same as revenue. This is often referred to as the top-line number. However, revenue is not necessarily the same as sales. Revenue is the money that comes into the company as a result of the core operations of the business.
Sales are the amount of money that comes in from selling products or services to clients. In other words, sales are a part of revenue. If all your operations are focused on selling products and services, then your revenue is the same as your sales.
Now you might be wondering what other sources of revenue might be. Selling assets (such as a building) adds to the top line, but it’s not selling the product or service unless the company is in the business of real estate. Investing gains, interest, and royalties are all examples of revenue that aren’t sales.
At the other end of the spectrum are your expenses. You’ve got the cost of goods sold or COGS. You may also have utilities, rent on your storefront or warehouse, printing expenses, office supplies, and advertising costs that you incur as a result of running your business but that aren’t directly related to the cost of the goods that you’re selling.
Gross profit: Your gross profit is the sum of your sales minus the COGS. If your gross profit is negative, you’re operating at a loss. This could be because you’re not making enough sales, you’re underpricing your product or service, or your cost of goods sold is too high. Or some combination of the three. If you’re selling a service rather than a product, your COGS may mostly be the labor involved. Gross profit is a way to see how efficiently a business uses labor and supplies to produce its goods and services. When the cost of goods sold rises, your gross profit will decrease, so there’s less money to spend on business operations. You can see that the converse is true as well: the lower the cost of goods, the higher your gross profits, leaving you more money to spend on operations.
Net profit: You need to know your gross profits to calculate your net profit, which is your revenue minus COGS, operating, interest, and tax expenses. This number reflects your company's financial health and whether it can make more than it spends. It’s the amount you’re left with after accounting for all the expenses in your business. If the number is negative, then you’re operating at a net loss. If that’s the case, you’ll need to consider what expenses are reasonable to cut back and whether you should increase prices. And if you’re planning to expand but you’re already running at a loss, you need to figure out how to get back to net profitability before you try to get any bigger.
Profitability: This number is the ratio between your profit and your revenue. If this percentage is close to 100%, you have pretty low expenses. If the percentage is low, that should tell you that your costs are on the high side, or you need to increase revenue . . . or both.
What Are Retained Earnings?
These earnings (profits) result from the business from launch to the current operating statement that has been retained within the business instead of being distributed out as wages, dividends, or other distributions. They add up year after year, and any losses offset these earnings.
As an example, suppose you lost $1,000 in your first year of business and made $3,000 in the second. At the end of the first year, you’d actually have retained losses, and at the end of the second (assuming you hadn’t made any distributions), your retained earnings would be $2,000. If you distributed $1,500 to yourself as wages somewhere in the year, your retained earnings would be $500.
Some companies (namely C corporations) pay a penalty if they retain too much in earnings. Other companies don’t have that limitation. Yet there are ways to reduce the retained earnings.
One way is to invest it back into the business. Suppose after you paid yourself $1,500 you bought a new computer to replace your old one for $400. Now your retained earnings would be $100.
Other ways to reduce retained earnings are to distribute them, either as wages or as dividends. These two types of distributions are not treated the same way in all types of business entities, so it’s important to understand the difference. Now, the person you’re distributing to may treat the wage and the salary as the same thing once it hits their bank account, using the money to pay for their mortgage or buy groceries. However, the business may need to know which type of distribution it is and keep a record of it.
What Are Distributions, Draws, Wages, and Dividends?
You may already be familiar with the concept of dividends when they come from the investments that you’ve made in your retirement account. You might hold shares of a stock and periodically receive a small payment known as a dividend that is taxable to you when it’s distributed (unless you’re holding the stock in a retirement account.) They’re reported to the IRS on your personal income tax return, IRS form 1040.
You’re also probably familiar with wages, which are the salaries that the employees of a business receive. This is reported on a W-2, and sometimes employees of a business are known as W-2 employees to distinguish them from contractors who receive a 1099 form. These are also reported by the employee to the IRS on a 1040.
But how do the owners of a business get compensated? A sole proprietor or single-member LLC takes a draw from the business instead of a wage. They enter their income and expenses on what’s known as the IRS Schedule C, which is attached to their form 1040. The IRS disregards the single-member LLC for tax purposes (unless the LLC specifically requests otherwise). Hence, Schedule C adds the business income or loss to their personal income tax