11 Things to Know About Taxes Before Starting Your Own Business
Lawyer Magazine
11 Things to Know About Taxes Before Starting Your Own Business
Navigating the complex world of taxes can be daunting for new business owners, but armed with the right knowledge, it becomes manageable. This article demystifies key tax considerations, drawing on expert advice to pave the way for fiscal success. Discover how to leverage the tax code to benefit your business venture, with input from seasoned CPAs and business lawyers.
- Tax Code Rewards Business Owners
- Invest in a Good CPA
- Bring in a Professional Early
- Understand Capital Expenditures and Depreciation
- Consult a Business Lawyer for Local Taxes
- Stay on Top of Tax Planning
- Approach Taxes as a Monthly Bill
- Set Aside Funds Early
- Research Tax Benefits for Green Businesses
- Track Everything Year-Round
- Set Aside Income for Taxes
Tax Code Rewards Business Owners
Before starting my own business, I wish I had fully grasped just how advantageous the tax code is for business owners. The tax system is structured in a way that rewards entrepreneurship-something I didn't fully appreciate until I was deep into the field. The ability to deduct business expenses, control salary through an S-corp structure, and leverage depreciation to offset income are just a few of the opportunities available.
Had I known this earlier, I might have structured my career differently-perhaps acquiring businesses using SBA financing, leveraging startup losses strategically, and reinvesting in additional ventures. The bottom line? The tax code creates a playing field where business owners have far more flexibility than W-2 employees when it comes to tax strategy.
Advice for new entrepreneurs:
1. Understand the tax benefits of ownership. You don't have to be a tax expert, but working with a CPA who understands tax planning-not just compliance-can significantly improve your financial outlook.
2. Structure matters. Choosing the right entity (LLC, S-corp, C-corp) isn't just a legal decision; it impacts your taxes, funding options, and long-term wealth-building strategy.
3. Optimize cash flow. Many new business owners assume profitability and cash flow are the same. They're not. Strategic planning allows you to maintain cash flow while still taking advantage of tax deductions.
4. Plan beyond the first year. Tax planning isn't just about saving money today-it's about building a sustainable, tax-efficient financial structure for the long term.
Invest in a Good CPA
One thing I wish I'd fully grasped about taxes before starting my own firm is just how complex they can be, especially for small businesses. It's not just about filing annually; it's the quarterly estimated taxes, self-employment tax, understanding deductible expenses, navigating state and local taxes, and the ever-changing regulations. I initially underestimated the time and expertise required to manage it all correctly. My advice to new entrepreneurs is: Don't try to be a hero and handle it all yourself, especially in the beginning. Invest in a good CPA or tax advisor from the outset. They'll save you headaches, potential penalties, and likely even money in the long run by identifying deductions and strategies you might miss. It's an investment in your peace of mind and the financial health of your business.
Bring in a Professional Early
One thing I wish I had known before starting my business was just how many different taxes and municipal regulations exist. There are numerous tax obligations—some of which I wasn't even aware of until I encountered them firsthand. Navigating these complexities can be overwhelming and time-consuming, so my biggest piece of advice to new entrepreneurs is to bring in a professional early on. A knowledgeable accountant or tax advisor can help ensure compliance and avoid costly mistakes.
Understand Capital Expenditures and Depreciation
You have to understand that not every expenditure can be "expensed" in the tax year that the payment was made. Certain capital expenditures on things like equipment and vehicles must be depreciated over a number of years, as opposed to fully deducted in the year the expenditure was made. Likewise, if you are a professional, advancing expenses on behalf of a client is neither an expense nor a capital expenditure. Rather, it's a loan to your client, which shows up as an asset on the balance sheet. Not understanding these concepts can lead to a situation where your tax accounting shows "profit" but there's not enough cash in the bank to pay the tax liability.
Consult a Business Lawyer for Local Taxes
One crucial thing I wish I had known about taxes before starting a business is how local tax regulations can significantly impact financial planning. For instance, in Istanbul, understanding corporate tax rates, VAT obligations, and potential deductions early on can save entrepreneurs from unexpected liabilities.
My advice to new entrepreneurs is to consult a business lawyer in Istanbul to structure their company efficiently and ensure compliance with local tax laws. Keeping detailed financial records and leveraging available tax incentives can also help reduce the overall tax burden and support long-term business growth.
Stay on Top of Tax Planning
As the Founder and CEO of Nerdigital.com, one thing I wish I had known about taxes before starting my business is just how complex and time-consuming the tax process can be, especially when it comes to managing business expenses, deductions, and estimated quarterly payments.
I underestimated how crucial it would be to stay on top of tax planning from the very beginning. I was focused on growing the business and didn't fully grasp the importance of understanding deductions like software expenses, office supplies, and business travel. By not tracking them properly early on, I missed out on potential savings and ended up scrambling to correct things at the end of the year.
Advice for New Entrepreneurs: Consult with a Tax Professional Early On: Tax laws can be tricky, and having an expert help you navigate them will save you a lot of headaches later. Stay Organized: Keep track of every receipt and business-related expense. The better your record-keeping, the easier tax season will be. Plan for Quarterly Payments: Don't wait until the end of the year. Set aside a portion of your income each month to cover quarterly tax payments and avoid surprises.
While taxes might seem like a burden, with the right systems in place, they can be managed effectively, leaving you more time to focus on what matters most: growing your business.
Approach Taxes as a Monthly Bill
When I first began, I assumed taxes were just something to handle at the end of the year. That was a huge mistake. I once received a tax bill that caught me off guard, and I had to rush to find the funds to pay it. Nobody explained to me that taxes should be a regular part of your routine, not just a last-minute issue.
My suggestion is to approach taxes as if they were a monthly bill and start setting aside money from the very beginning. Also, hiring a good accountant early on is a smart move. It's much more affordable than trying to fix errors down the line.
Set Aside Funds Early
Tax planning is extremely important when starting a business. I underestimated the value of setting aside funds early on, which led to some unexpected liabilities. I would first advise new entrepreneurs to consult with a tax professional, in order to have a clear scope of your business. Additionally, invest in accounting software, like Quickbooks, in order to save time and money.
Research Tax Benefits for Green Businesses
When starting my eco-friendly and sustainability company, one thing we wish we had known about taxes is the importance of understanding tax credits and deductions available for green businesses. Early on, we didn't realize that certain sustainability efforts, like investing in eco-friendly products and energy-efficient systems, could qualify for tax incentives. Once we discovered this, we worked closely with a tax professional to claim deductions, which resulted in a 17% reduction in overall tax liabilities in the first year. My advice to new entrepreneurs is to take the time to research tax benefits specific to your industry and consult with a tax advisor early on. It can make a significant difference in your business's financial health and support your sustainability goals. Understanding these details will help you make smarter financial decisions as you grow your business.
Track Everything Year-Round
I wish I had known that taxes aren't just an April problem—they're a year-round game. Nobody warned me about quarterly taxes, self-employment tax, or how easy it is to get wrecked by bad bookkeeping. The biggest lesson? Track **everything** and don't wait until tax season to figure it out.
My advice? Get a solid accountant early, automate expense tracking, and set aside a chunk of every payment for taxes so you're not scrambling last minute. The IRS doesn't care if you "forgot." Play it smart, and taxes won't be the thing that tanks your business.
Set Aside Income for Taxes
Taxes hit different when you're a business owner. I wish I had known to set aside at least 25-30% of my income for taxes and to track every deduction. New entrepreneurs-get an accountant and don't overthink your questions. There are no dumb questions.
