Many things go through your head as you contemplate the pros and cons of starting your own business. Freedom, flexibility, control of your destiny, generating wealth, adding a second income stream, and building a family legacy are all solid drivers for entrepreneurs. As tax season approaches, let’s touch on some sound business ownership strategies that will have you thinking differently about your tax planning.
Do Your Due Diligence
You’ve likely spent time researching various business ownership opportunities such as the proper entrepreneurial startup, independent consulting, buying someone else’s up and running a business (franchise or not), or investing in a franchise opportunity with a new or established franchise brand. While doing this research, remember to consider even the most minor expenses to maximize your tax break. For example, track all your start-up expenses: travel, home office, and incorporation (accounting & legal).
Understand Your Funding Options
Did you know that funding organizations focus on specific types of business models? For example, there are a handful of major players in the franchise funding space who will meet with you at no cost to discuss the best options for you. These options include using your personal savings, home equity lines of credit, Small Business Administration backed loans and even 401(K) Rollover for Business Startup strategies. Keep in mind that business loan payments aren't tax-deductible. When a company receives a business loan, it's not included as taxable income, so you cannot deduct principal loan payments when that loan is repaid.
Filing your taxes can already be a hassle, but tax season looks like torture when you place loans, grants, and subsidized loan payments in the mix. That is why hiring the right tax professionals is essential to help you avoid the headache of tax season.
Hire the Right Tax Professionals Early
Never underestimate the power of certified and seasoned tax professionals. Understanding the complexity of tax codes at the state and national levels can overwhelm us. Add on the nuances of business taxes, and you might be tempted to walk away before you even start. But you would be missing out on all those incredible benefits. The first two professionals recommended when you venture into business ownership are listed below.
When starting, there are fundamental differences, especially when forming the correct business entity - S-Corp, LLC, C-Corp. An attorney may be able to help implement tax-smart strategies for creating, buying, selling, or expanding your business. The process is highly complicated, but an attorney already understands the nuances and is prepared to help you, no matter where in your business you are.
Certified Public Accountant
Having a CPA (Certified Public Accountant) on your team, and from the beginning, is key to having a successful tax season. It requires meticulous record-keeping to calculate your costs and prove their accuracy when it comes to tax season. A CPA can help you start right from the beginning. It is essential to understand that CPAs are not accountants. They are licensed to keep current with tax laws to maintain a license in the state they practice.
"You must pay taxes. But there’s no law that says you gotta leave a tip."–Morgan Stanley Advertisement