Tax time for most people is a time for celebration—for planning how to use that little tax return windfall. But for entrepreneurs and small business owners, it’s a different story. Even after you’ve been in business for a few years, figuring out your taxes without a W-2 can make you break out into a cold sweat. If you’re being kept up at night thinking about next April, here are 5 tips to make the process as painless as possible.
1. Prove You Are Really in Business
Even if you have a real estate license, that doesn’t automatically show the IRS that you’re running a business. You have to show that you’ve been trying to make money—even if you’re operating in the red some of the time. Why is that important? Well, if you want to take business deductions (which you absolutely should), you can’t just be in business as a hobby. You have to put in the time and effort and make sure you’re staying organized and running your business like a business. That’s especially important for realtors, since the market can be extremely volatile.
2. Understand Tax Law and Tax Benefits
You don’t have to be as knowledgeable as an accountant, but it is important to know more than the average person about tax law and benefits if you’re running a business. There are many different types of business structures that are taxed at different rates. Knowing the benefits and downsides of each structure will help you decide which one makes the most sense for your specific situation and business. If you’re not sure how to structure your business or you don’t understand the pros and cons of different tax laws, be sure to talk with a professional who can walk you through and help you understand your options.
3. Know Your Deductions and Keep Track
Deductions can save you a lot on your taxes, and every entrepreneur and small business owner should keep track of them. With that said, it’s important to know which deductions make sense for your business and how they’ll look to the IRS when you submit your tax return.
For example, realtors can write off some of their car expenses, but only the ones that are directly generated by their business. This can be calculated by determining the percentage of time the car was used for the business, and it could save you big. This is just one of many potential deductions, and it’s worthwhile to consider every expense and see if it should be part of your tax return. Be sure to keep all your receipts and file them away. You should keep several years’ worth, just in case you get audited.
4. Network with other Trust People in Your Industry
Even though tax laws apply to almost all businesses in the same way, common deductions and other specific situations may apply to your industry a little bit differently. Creating a network of people you trust in your industry who have been through the process before can help you choose how to set up your business and do your taxes to avoid penalties and audits. There are many tax resources online too. Your peers might have insights and knowledge you’d never even thought of, which can make getting through tax time a lot easier.
5. Don’t Be Afraid of Starting and Growing Your Business
Some people get so nervous about the tax and bureaucratic aspects of running a business that they’re afraid of starting and growing a business in the first place. Don’t let that be you! It’s challenging to be an entrepreneur or small business owner, no doubt. But you’ll also have more opportunities and control over your life while removing a cap for your earnings.
Don’t Let Taxes Hold You Back
This is a great time to get into real estate or just about any business, especially for women. Globally, the growth of female entrepreneurship between 2015-2016 was double that of men. Women-run businesses also tend to outperform companies run by men, and fields like real estate are allowing women to shine. So don’t hold back just because of taxes—just be aware of your responsibilities and benefits, and ask for help from a professional when you need it.
