Easy Tax Planning Strategies for Content Creators and Influencers
Like any business, organization is key to running a profitable business. A major benefit to running your own company is the ability to take business expenses as tax write-offs. If you have to comb through piles of account statements at the end of the year, you are likely missing out on expenses. Generally, we recommend the following organizational techniques:
-Maintain separate bank and credit accounts – Having a business checking account and credit card is a lifesaver when it comes to organizing your business expenses. An ounce of prevention is worth a pound of cure!
-Hire a professional bookkeeper – If you have enough transactions to justify bringing in professional help, hiring a bookkeeper can relieve stress when it comes to organizing your business finances. If they know what they’re doing, a bookkeeper should be able to organize and condense all your transactions into a single income statement, making the tax filing process a breeze.
Forming a separate legal entity
Other than the liability protection they can provide, having an LLC (Limited Liability Company) or S-Corporation can save you money on your taxes. On top of getting additional tax deductions, starting in 2021, you can take advantage of the “Pass-Through Entity Deductions” many states have been adopting. This bypasses the $10,000 state and local tax payment cap on Federal returns imposed by the Tax Cuts and Jobs Act by allowing your entity to pay a portion of state taxes on your behalf. The IRS treats those payments as legitimate business expenses as opposed to just a state tax payment.
Save money for taxes
If this is your first time working for yourself, you probably are not used to paying taxes beyond what your previous employer withheld from your paycheck. Now that you are self-employed, you should be “withholding” taxes based on your company’s income. Depending on where you live, you may have Federal, State, or even Local income taxes you have to pay (and if you sell merchandise, sales tax as well). It’s important to save a portion of your income to pay these taxes, or you’ll likely be in for an unpleasant surprise come tax time. A tax professional should be able to help you estimate the amounts throughout the year.
It’s never too soon to start planning for retirement, and owning your own business can give you incredible tax savings for doing so! By contributing to a Simplified-Employed Pension (otherwise known as a SEP IRA) or Solo 401K, you can reduce your taxable income by up to $61,000 in 2022. This one move can save you up to tens of thousands of dollars in taxes, and set you up for your retirement years.
Home Office Deduction
As a business owner, you can deduct the costs of running an office space. Paying a WeWork subscription, parking, etc. are all tax-deductible. If your office is in your home, you can take allocable portions of your utility bills, phone and internet services, and rent, as a business expense. The IRS scrutinizes these deductions closely, so be sure you prepare your office space to qualify for this deduction. To qualify, the space must be a separate and identifiable part of your home (think spare bedroom/closet as opposed to dining room table) and must be used primarily and exclusively for conducting your business.
Starting any business has its challenges, and keeping track of taxes can complicate things tremendously. Be sure to consult with your tax professional/CPA for guidance and assistance.