There are three letters that can make small business owners tremble…. IRS. The reality is the Internal Ebong Eka Headshot.pngRevenue Service has a job to do, just like you have a job to do for your small business.

 

As we approach Tax Day, it is important to use available tools to minimize your small business tax liability. As a CPA who has worked with many small businesses, I receive a lot of questions about how to save money while remaining compliant with the IRS.

 

CLICK HERE TO READ MORE ARTICLES FROM SMALL BUSINESS EXPERT EBONG EKA

 

If you are a self-employed small business owner, here are five ideas to help you prepare and are IRS approved.

 

1. Estimated taxes: Self-employed taxpayers are generally required to make estimated payments throughout the year. If you're not compliant with making estimated payments, you may be subject to an ‘underpayment tax penalty.’

 

The questions then become:

     a. How do I make tax payments?

     b. How do I calculate those tax payments?

 

First, making tax payments or estimated tax payments is relatively easy. Speak with your personal tax accountant, CPA, or enrolled agent to help you make payments online. Your tax professional will also be able to help you calculate your estimated taxes for each quarter.

 

RELATED: THE 5 SMALL BUSINESS TAX PLANNING TIPS EVERY SMALL BUSINESS OWNER SHOULD KNOW

 

2. Schedule C or Schedule C-EZ? You may be required to file Form Schedule C, Profit or Loss from Business, depending on the type of business you have. If you are a single member LLC, a different entity but taxed as a single member LLC or a sole proprietorship, your income from self-employment is reported on Schedule C of your personal tax return.

 

You may be eligible to use Schedule C-EZ, which is a simpler form if your business expenses are less than $5,000. Check with your CPA because your circumstances and facts may differ.

55715593_s.jpg

3. Paying Self-employment tax: Self-employment tax is similar to payroll taxes for certain self-employed business owners and includes Medicare taxes and Social Security. The IRS generally requires you pay based on self-employment income. I have seen examples of small business owners having issues with the IRS because they did not realize they had to pay self-employment tax. Whether you are subject to self-employment tax depends on your situation, the type of entity that you have and the character of the income you generated. Speak with your tax advisor or CPA to determine if you are subject to self-employment tax.

 

4. What are my allowable deductions? Small business taxpayers can deduct expenses they paid to run their business that are both ordinary and necessary. An “ordinary expense” is one that is common and accepted in the industry. For example, a printer, computer or other items used in the normal course of business. A “necessary expense” is an expense that is helpful and appropriate for your trade or business, such as a particular type of paper used for proposals. Keep track of your receipts and organize them for your accountant, CPA or tax preparer.

 

5. Sole proprietors or independent contractors: Sole proprietors and independent contractors are two types of self-employed entities but similar in many cases. Taxes for those two can be very difficult if you do not plan ahead. An independent contractor is a person who works for themselves, but may not necessarily have a separate business entity in order to conduct business. Sole proprietors in many cases have a separate business entity or a “doing business as” (DBA). Additionally, independent contractors will receive Form 1099 from clients or whoever they provided services to.

 

About Ebong Eka

Ebong Eka is no stranger to the world of personal finance. As a certified public accountant and former professional basketball player he offers a fresh perspective to small business planning and executing. With over fifteen years of accounting, tax & small business experience with firms like PricewaterhouseCoopers, Deloitte & Touche and CohnReznick, Ebong provides practical money solutions tailored to the everyday person, the aspiring entrepreneur or the small business owner.

 

Ebong is the founder of EKAnomics, a sales, pricing and leadership firm. He is also the founder of Ericorp Consulting, Inc., a tax and management consulting firm. Ebong is the author of “Start Me Up! The-No-Business-Plan, Business Plan.

 

Web: www.ebongeka.com or Twitter: @EbongEka.

You can read more articles from Ebong Eka by clicking here

 

Bank of America, N.A. engages with Ebong Eka to provide informational materials for your discussion or review purposes only. Ebong Eka is a registered trademark, used pursuant to license. The third parties within articles are used under license from Ebong Eka. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.

                                                                             

Bank of America, N.A. Member FDIC.  ©2017 Bank of America Corporation

Similar Content