Setting up your own business is a wonderful journey of self discovery and for a woman it’s one of the most definitive statements of self assertion. It’s also a pretty steep learning curve! No matter how comprehensive your business plan, how meticulous your market research or how detailed and elaborate your income and expenditure projections for your first year, those first few months of your first trading year are a baptism of fire. All new entrepreneurs care deeply about their businesses and show that care in applying meticulous attention to detail to every customer facing aspect of the business. In other words… Micromanaging. While this is a perfectly natural and understandable impulse, it can sometimes deafen us to other important aspects of our business like strategy and that thorny old chestnut known as compliance.
Death and taxes
They say that death and taxes are the only certainties in life, and in today’s economy, failing to adequately prepare for either can be disastrous for your business and your family. Many a promising small business has either been derailed entirely or impeded in its growth for failing to adequately meet its business tax compliance obligations. And if that happens you’ll be stepping into the ring with the IRS. There can only be one winner… And it won’t be you.
Thus, it’s essential that you avoid these common pitfalls that plague many sole proprietors, freelancers and others who draw an income from self employed means in their nascent months. Ensure that your business; compliance is unimpeachable and you’ll spare yourself an ugly encounter with the IRS.
Recognize your self employment
A lot of people start their businesses while still working full or part time in a salaried job. This is prudent as it allows you to build your brand while insulated from many of the risks that plague new businesses. You must, however, also recognize that the income you receive when you start trading is indeed taxable. Part time freelancers have the same tax obligations as those who devote their full time to their businesses. You are still liable for income tax and self employment tax as well as a Medicare surcharge if your freelance endeavors net you $200,000 a year or more.
Be prepared for an audit
Many new businesses assume that just because they’re in their first year of trading that they won’t be audited. While an audit is unlikely unless you do one of these things to trigger one, you can be audited at any time. Thus, you should always have a tax attorney on speed dial in case you need someone to represent your interests.
Keep track of your expenses
If your business has not yet invested in an accountant and / or book keeper it’s most definitely worth considering one. These people will be able to help you to ascertain what can and cannot be declared as a tax deduction. Nonetheless, it’s vital that you keep track of your expenses. The IRS isn’t going to flag them for you, so you need to factor them into your tax return every year.
While these will depend on the nature of your business, they can make a universe of difference in terms of the tax you pay each year.