Updated: Jul 8, 2022
By now, you should have established your business idea, developed a business plan, registered your business, chosen your software, found a location to rent/buy, started marketing, purchased an insurance policy, gathered financing, etc. Now you are starting to make money!
On the accounting side, you should have a business checking account and credit card. Do not use your personal bank and personal credit card to make purchases for your business. This is referred to as piercing the corporate veil and can make your business lose integrity in the eyes of the IRS. You should also determine how you are going to track your transactions to keep your finger on the pulse of your business.
Estimated tax payments are due 4/15, 6/15, 9/15 and 1/15. One of the biggest mistakes I see start-ups make is not making estimated payments and not saving enough money for taxes at year-end. The majority of businesses I work report their income and expenses on a Schedule C, and are not aware that their business net income is taxed at the 15.3% self-employment tax rate and then again at their ordinary income tax rate.
Another mistake I see new businesses make is not tracking their out-of-pocket expenses, like mileage, cell phone and home office expenses. For a solo service provider, sometimes, these out-of-pocket expenses are the only expenses they actually have. Missing this expenses means paying more taxes.
Tax time can be very telling for a new business. If you did not track your expenses, or do any tax planning, tax time can be incredibly stressful.
In year one, I recommend connecting with a tax advisor early on in the year to help answer any quick questions you may have throughout the year and engaging them for tax planning in September, to make sure you are on-track and to make sure there are no surprises come April 15th.