• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar

Wealth Pilgrim

No Money Worries. No Matter What.

Neal Frankle featured in
  • Home
  • Life Insurance
  • Investing
    • Build Strong Investment Building Blocks To Avoid Going Broke In Retirement
    • Systematic Mutual Fund and ETF Investing
    • Stock Market Investing Guide
    • Choosing the Right Investment Brokerage Guide
    • How Bonds Work Guide
    • How Banks Really Work Guide
    • Annuities – What You Need To Know Before You Invest
    • A Beginners Guide To Buying Individual Stocks
    • Create A Pool Of Great Mutual Funds and ETFs To Pick From To Secure Your Retirement
    • ETF and Index Fund Investment Guide
  • Earn More
  • Banking
  • Retirement Planning
    • Retirement Guide
  • Ask Neal a Question
  • Reviews
    • Upgrade Personal Loans Review
    • Lending Club Review
    • Prosper Review
    • Ally Invest TradeKing Review
    • CIT Bank Review
    • LegalZoom Review
    • Lexington Law Review
    • Airbnb Host Review
    • Should You Drive For Uber?
  • Tax
  • Courses
    • Raise Your Credit Score So You Can Buy a House – Free Video Course

Crucial Small Business Tax Tips for Starting Your Own Business

by Neal Frankle, CFP ®, The article represents the author's opinion. This post may contain affiliate links. Please read our disclosure for more info.

Tax tips for small businesses can be very beneficial to business owners (remember, every little bit helps). Many business owners rely on their CPAs to be innovative and come up with some unique ideas to support their business. I interviewed one CPA who came up with a boatload of ideas you need to know about.

Mike Piper, accountant extraordinaire and brain genius behind Oblivious Investor, is the man I’m talking about. Over the course of the interview, I learned how vital a basic understanding of taxation is for the self-employed. In fact, this basic understanding can mean the difference between business success and failure.

I also take this issue really personally (maybe I need to talk this over with a shrink). As you know, I got some pretty crappy advice when I was a kid. I had to rely on my dad’s accountant and broker for advice after my father’s accident. The advice was self-serving and terrible. While that CPA did end up spending time in the slammer for screwing other people out of their money, that didn’t help me.

I really dislike it when professionals don’t show up for their clients. This is why I want you to be informed and ask the right questions. This is important regardless of whether you run a huge business or are just starting to look into easy to start businesses for college students. Your CPA might not end up a jailbird, but it’s vital that you understand the basics so you don’t get sold a bill of goods.

OK. Enough. Let’s talk turkey. Here are a few gems I picked up from Mike:

First, it’s crucial to set your business up correctly.

Should you set your business up as a sole-proprietor? An LLC? Professional LLC? An S or C-Corp? This decision will have far-reaching consequences on how much tax you pay and how much liability you take on.

Folks with modest incomes might stick with the sole-proprietorship model, but they take on limitless business liability if they do. That can hurt. Small business liability insurance doesn’t cover every risk. On the other hand, other forms of business limit your liability and save you tax money. However, these are more complicated and lead to higher accounting expenses.

Did I learn which business entity is perfect for the self-employed? Nope. According to Mike, it really depends on your situation. These kinds of conversations are best handled between you and your tax preparer.

So, if you’re going to talk to your tax expert anyway, why bother learning this tax stuff?

As I said, you can’t afford to pay the price for your tax preparer’s mistakes.

Even if she’s a law-abiding CPA, don’t expect your tax preparer to be proactive. As a rule, accountants aren’t. They don’t like giving advice. Also, I hate to break it to you, but your accountant has 500 other clients to worry about and may not have time to think this question through as much as you might. You have a lot more at stake. You need to have a basic understanding of this issue so you can have an intelligent conversation about it when you talk to your accountant. You want to ask smart questions rather than just accept what you’re hearing.

Don’t get me started again.

So how do you get that knowledge? Well, Mike has an answer for that too.

He’s written a series of books about these types of issues. All the books are written in plain English (no legal jargon) and all are less than 100 pages. All righty! My favorite two are the Surprisingly Simple series. Here are a few of the topics he covers:

Business Taxation 101: A brief primer on tax topics in general, especially as they apply to businesses.

Home Office Deduction: How to ensure you qualify for it and how to calculate it.

Estimated Tax Payments: When and how to pay them, as well as an easy way to calculate each payment.

Self-Employment Tax: What it is, why it exists and how to calculate it.

Business Retirement Plans: What the different types are, and which one is best for you.

Numerous Business Deductions: Several deductions explained in detail, including how to make sure you can qualify to take them and how to maximize them.

Audit Protection: Learn what records you need to keep (and how long to keep them) in order to protect yourself in case of an audit. The last thing you need are IRS audit flags.

Not bad when you consider he does it in under 100 pages.

Another tip often overlooked by self-employed people and their accountants comes into play when you think about retirement plans. Even if you have a full-time job and are covered by your employer’s retirement plan, you may be eligible to create an additional retirement plan if your side business is profitable. This is a huge deal because it allows you to sock away big bucks (tax-deferred) for the future. It can mean the difference between a wonderful and weak retirement down the road.

These two issues are huge, and unfortunately many self-employed folks simply outsource thinking about these decisions and defer to their CPA’s. In essence, that is the reason why Mike wrote his books.

The last tip I’ll share with you is Mike’s suggestion that we do our own taxes by hand one year. He didn’t suggest that you actually turn it in to the IRS, but he did emphasize how much we’d learn simply by going through this process. It does sound like a really smart idea…but I don’t think I’ll be doing it. My situation is kinda complicated and I don’t want to spend the time.

However, I’m glad I read Mike’s books. I feel empowered to have better conversations with my CPA next year. What do you think? Does it make any difference how much you know about taxes? What have you done about it? Got any horror stories to share about CPAs?


Tweet
Pin
Share

Reader Interactions

User Generated Content (UGC) Disclosure: Please note that the opinions of the commenters are not necessarily the opinions of this site.

Comments

  1. Neal says

    November 14, 2009 at 9:46 AM

    FS.

    Yes. If you want to make money, self publishing is the way to go. Traditional publishers are great for the props…maybe….but that’s about it.

    Having said that, I am in fact shopping a book I wrote recently but it’s a strategic rather than a business decision.

    Reply
  2. Mike Piper says

    November 12, 2009 at 5:56 PM

    Yep. The books and my sites are my only sources of income.

    Self-published from the get-go. Never even pondered the possibility of finding a traditional publisher.

    Really, the first book was written simply so that I could hand it out to my self-employed friends who had tax questions. I had no idea that people would end up buying it on Amazon. After it became apparent that there was a demand for easy-to-understand, concise explanations of tax topics, I decided to write more books.

    It wasn’t so much a story of triumph as an accidental business. Granted, it still took–and takes–a lot of work…

    Reply
  3. Financial Samurai says

    November 12, 2009 at 4:54 PM

    Mike – Nice, so just to clarify, your books and your site is your primary source of income? If so, very cool! How was the process like before you found someone to publish your book? Did you face a lot of rejections at first?

    I’m always interested in hearing stories of triumph.

    Reply
  4. Mike Piper says

    November 12, 2009 at 1:12 PM

    Financial Samurai: Yep. It’s my primary business actually. 🙂

    My own business is an LLC, taxed as a sole proprietorship.

    Reply
  5. Financial Samurai says

    November 12, 2009 at 1:10 PM

    Very cool, and good resources. I didn’t realize Mike did all this stuff.

    Neal, remind us again what type of business you chose to incorporate yourself as again?

    What about you Mike?

    Reply
  6. Jeff @ Sustainablelife blog says

    November 12, 2009 at 10:11 AM

    Thanks for posting this, I’ve been looking into starting my own business for a while now, and it’s great to hear of some more resources I can check out. I know nothing about accounting.

    Reply
  7. Neal says

    November 12, 2009 at 7:35 AM

    Daniel,

    So true. I’ve noticed I’m being a ton more productive now that we got rid of the TV.

    Reply
  8. Neal says

    November 12, 2009 at 7:34 AM

    Mike,

    Right…my dad could really pick ’em.

    Anyway, thanks for coming on the show. Can’t wait for our next interview!

    Reply
  9. Daniel says

    November 11, 2009 at 12:25 PM

    I’ll definitely check out Mike’s books. Some people are in situations where they can start their own businesses, but for the rest of us, getting educated with our spare time can have big benefits. Instead of wasting hours in front of the tv, why not read some books? The more we learn, the more valuable we are, to ourselves and to the people around us.

    Reply
  10. Mike Piper says

    November 11, 2009 at 8:02 AM

    Holy cow! I knew you had a broker who tried to churn your account, but I didn’t know you also had a CPA who ended up doing jail time.

    Where did your dad find these people?

    Anyway, thanks again for interviewing me–it was fun. Hopefully your readers/listeners find it helpful. 🙂

    Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Are You Human? * Time limit is exhausted. Please reload CAPTCHA.

Primary Sidebar

Who is Neal Frankle

Neal Frankle

I'm a Certified Financial Planner™ with more than 25 years of experience. I feel very blessed and hope to share my personal financial experience and professional wisdom with readers of WealthPilgrim.
Read More »

Stay Connected

Facebook Twitter YouTube RSS

More Categories

Career Development
College Funding
Credit Cards
Credit Score Fixes
Money and Marriage
Debt Relief
Estate Protection
Property Investment Loans
Small Business Strategies
Spend Less Money

Disclaimer

Wealth Pilgrim is not responsible for and does not endorse any advertising, products or resource available from advertisements on this website. Wealth Pilgrim receives compensation from Google for advertising space on this website, but does not control the advertising selection or content. Please do the appropriate research before participating in any third party offers. The information contained in WealthPilgrim.com is for general information or entertainment purposes only and does not constitute professional financial advice. Please contact an independent financial professional for advice regarding your specific situation. Wealth Pilgrim does not provide investment advisory services and is not a registered investment adviser. Neal may provide advisory services through Wealth Resources Group, a registered investment adviser. Wealth Pilgrim and Wealth Resources Group are affiliated companies. In accordance with FTC guidelines, we state that we have a financial relationship with some of the companies mentioned in this website. This may include receiving payments,access to free products and services for product and service reviews and giveaways. Any references to third party products, rates, or websites are subject to change without notice. We do our best to maintain current information, but due to the rapidly changing environment, some information may have changed since it was published. Please do the appropriate research before participating in any third party offers.


About · Contact · Disclaimer & Privacy policy

Copyright © Wealth Pilgrim 2021 All Rights Reserved