Mastering Your Taxes as a New Entrepreneur - My Journey!

This article was transcribed from the above video.

As new business owners there are a million and one questions running through our mind every single day. Those questions can range from “Am I doing this right?” to “How do I actually move from a W-2 employee to a 1099 contractor to a small business owner and how do I get my taxes done?”

In this video, I'd like to explore some ideas and thoughts that I had along my way of becoming an entrepreneur.

I’m glad that you are here! If this is your first time watching this video make sure that you follow the link to my other videos, because I have a whole series on taxes and this is the 5th video in the series!

If you do have any questions feel free to drop them in the comments of the video, as I review those and occasionally answer those in videos and sometimes I will answer those in my newsletter as well, so make sure you're subscribed to my newsletter!

Disclaimer: this video is meant for entertainment purposes only- this is not tax advice- consider this general info I learned along my way of becoming an entrepreneur. Consider this my opinion, if you do anything make sure you consult a tax professional first because they will be able to answer specific questions related to your specific situation. Everyone's situation is just slightly different.

So in the previous videos we were talking to Mrs. Needs-to-file-her-taxes and in this video I'm going to talk through not just how to get your taxes done as a small business owner but some other things that you might need to think about when you are a new business owner thinking of becoming a full-time entrepreneur or small business owner. First things first, when Mrs. Needs-to-file-her-taxes is ready to get all her taxes squared away; she will need to file her side hustle on the Schedule C. The Schedule C is a form that we've already talked about and discussed in previous videos, so essentially it's just going to be your revenue, everything that you made as far as income is concerned. Then all of your expenses are going to be listed on that same schedule c as well; they'll be listed out either by category or if you need more room there's a section where you can add more information to your schedule c, and it kind of lumps it all together in one line on schedule c. Next it comes to the net profit and so that is what you're going to be taxed on as far as your net profit is concerned. There's all different types of taxes and self-employment taxes are going to be one of those taxes that will be the percentage. Right now it's like 15.3 percent and so that 15.3 is going to tax that net profit and that's what you're going to be charged on your tax return. So everything's going to flow up into your 1040 as we've already discussed, and those are kind of like the key takeaways that I want to make sure that you're aware of as a new business owner. You'll also have your W-2 which you're going to list on the first page of your 1040. I want to make sure that you're aware that I do have a printable and it's free! It's available on my website, I linked it so you can download the PDF. Once you print it out, you can fill it in as you go through your business and I have a section just for your income, that way you're making sure that you're capturing all of your income by month and totaling that at the end of the year. This PDF is a great resource because it makes it easy to just move that number into your schedule c for your tax return. Also on this printable there's a section for expenses and for quarterly estimated tax payments! Your quarterly estimated tax payments will go into that calculation for your self-employment tax and so if you have been paying your quarterly estimated taxes, you might not owe that much when it comes to filing your annual tax return. So all of that goes into your 1040 and that's kind of how the calculation comes to be when it talks about what's due as far as your taxes are concerned or what's a refund.

Mrs. Needs-to-file-her-taxes will have a W-2 as well and that's going to be listed on her 1040; basically she'll have taxes deducted from her W-2 before it gets reported and then after for her schedule C. That's the quick explanation of how all of that works together and it might sound a little complicated but it's really not once you have everything in order- and the printable that I have available for you is going to really help you keep things in order. Definitely download and use that resource.

You will want to make sure that you are going through your finances on a monthly basis, if not bi-weekly or weekly. I go through my personal finances and my business finances on a weekly basis and I make sure that I am capturing everything from my income to my expenses to my quarterly estimated tax payments. For you to calculate and figure that out is going to depend on your own personal situation. A general rule of thumb that I've heard from different entrepreneurs, is that they reserve 25 to 30 percent of their gross profit and so that's a good calculation to kind of keep track of even if you are overestimating then that means you have savings in your bank and you can use that additional savings for any operating expenses down the line or even capital expenditures that you have down the line. The last thing that I want to mention is to make sure that you are tracking your mileage and in my Be Organized printable the second page is a tracking mileage sheet, so you just print that out and put it in your car and every time you go on a trip for your business it will help you track; for example let's say you're a photographer, so you're gonna go to multiple places so you’d just write the date of the trip, the purpose, and the trip miles.That way you are tracking everything and if you do have a CPA that is filing your tax return, you would hand all of that over to your CPA and it's just so easy for them to file your annual tax return. Now that we have all of that out of the way, I wanted to talk through and discuss a little bit more as far as the mindset is concerned, because when I was starting my business back in 2017, I started listing out my financial goals and some steps that I wanted to take before I even pulled the switch of starting my business. So really gearing up your mindset into becoming a business owner is a whole different set of things.
I'm gonna go ahead and link a couple blog posts that I have regarding how your mindset is concerned, but it's really just getting your mindset in the correct place. It took me a whole year to comb through details that I had on my mind. A couple questions that I asked myself were like- “how sustainable is this?”, “how long can I be working at my W-2 job and doing my side hustle at the same time?”. Sustainability is another big topic that I wanted to bring up; because if your business model isn't sustainable then it's not going to get you from a W-2 to a side hustle to a small business owner. It's going to leave you with just a side hustle. So it’s important to really think through and dig deep as far as how the sustainability factor plays into your business. The steps that I took were that I basically started with a google sheet and I just jotted down all of my ideas that I could, as far as starting my business was concerned. I had a tab (of course this was through excel) of blog post ideas because I knew that if I wanted to start a business and I wanted to get some visibility I would need to have a website presence and with that came a blog! AND I still have blog ideas for the rest of this year but it's just one of those things that I thought would be valuable for me in creating a voice and showing my authority to google. This helped my SEO… but SEO is a whole separate topic that I am not the expert on but I'll go ahead and leave some resources for you.

After creating a list of blog post ideas, I also had a to-do list of things to make sure that I was financially sustainable by myself. That way I could make sure that if I was taking this step to become an entrepreneur that I would have the financial stability in order to get me there. I created a list of three items back in 2017 of things that I wanted to attain to make sure that I was financially sustainable and able to attain stability by September of 2017. So September through December 2017 were really the months where I started fleshing out the ideas of my business, and then on January 1st 2018, I went live with everything! On my to-do list were things like: write a business plan, take a bookkeeping course, put disclosures on my blog, set up a twitter page, set up a Facebook page, and I had the cost associated with each of the items. I wanted to make sure that I had enough money to fund those ideas first before I even pulled the switch to go live on January 1st 2018. Not only did I do all of those things but I definitely crowd-sourced a lot of it, so I made sure everyone in my life knew that I was starting my business before I even went live in January. I reached out to people that I was working with at my W-2 job and at previous W-2 jobs and I talked to my family and friends to make sure everyone was aware. It really paid off! By putting all of those feelers out I was able to hire someone to help me with creating a website and a logo right away and I was able to have my first client right away. So if your goal is becoming a sustainable business then I would highly encourage you to make sure you write everything down and track everything to make sure you are preparing for it financially. Write down every cost associated with all of your ideas as well, because you want to make sure that you're able to fund those ideas. I hope this was really helpful for you and share it with someone who is wanting to turn their side hustle into a full time gig!

LINKS & RESOURCES:
My Tax video series:

https://www.youtube.com/playlist?list...

Self employment taxes: https://www.irs.gov/businesses/small-...

Download "Be Organized": https://www.accountingbyedrina.com/be...

Mindset blog posts: https://www.accountingbyedrina.com/bl...

and

https://www.accountingbyedrina.com/bl...

SEO Resources:

https://www.accountingbyedrina.com/bl...

and

https://rebekahreadcreative.com/seo-b...

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