Are you a small business owner with a dream, a dream as big as West Hollywood?
If so, chances are you can relate to one of the entrepreneurs in our “The fans meet the hustle” video series Suni Reid, the founder of Auntie’s Coffee, says they want to cultivate community, nurture the culture of African Americans, and create a space for queer people to come together. But that’s not all Suni wants to achieve.
“My goals with the company are to have a physical store in West Hollywood,” they say.
It’s a big dream, but not impossible. The key is to have a solid plan, and naturally that means understanding and anticipating other potential taxes and financial commitments for small businesses.
Watch Suni’s episode of “Hobby Meets Hustle,” then come back here to learn more about how a good tax approach helps small business dreams come true.
An Inside Look at the Small Business Tax
From income and expenses to sales tax and small business tax rate, Suni has a lot on her plate. Fortunately, even though they are one founder, Suni doesn’t have to tackle the dream alone. In “Hobby Meets Hustle,” the three experts, Niki Reynolds, Brittney Castro, and Ashley Covarrubias, help Suni review his top business challenges and share tax tips and strategies to help overcome these obstacles.
This is what Suni learns, and what you you can learn from them:
To fulfill her dream of turning Auntie’s Coffee into a brick-and-mortar outlet, Suni says they need to address three main things:
At the time of filming, Auntie’s Coffee operated through a series of pop-up shops. In order to have a permanent location in West Hollywood, Suni will need to purchase or lease a physical store, which means they may be responsible for paying different taxes or state and local small business licenses. She’ll also need to think about the additional costs of a physical space, including furniture, regular cleaning, permanent equipment, and more.
“The most pressing challenge I face is burnout,” says Suni. “Being a single founder, I find myself having to put on a lot of different hats.”
Many small business owners are in the same boat, and to get past burnout, Suni will likely need to hire one or more team members to help lighten the load. In most cases, that means paying wages and taxes on those wages, including Medicare and Social Security. However, this can also create a tax deduction or two, depending on how Suni hires and pays its employees.
“We keep inventory,” Suni says, “but when we have big events, keeping inventory levels to meet that demand has been really challenging.”
In order to become a physical business, Suni will need to have more inventory on hand. Of course, purchasing/manufacturing and storing inventory represents a significant business expense. Although not a tax deduction, inventory can reduce taxable income.
Tips for Small Business Owners
Suni has big dreams for her small business. Our “Hobby Meets Hustle” experts have plenty of tips to help them—and you—see actual business income, navigate tax rules, and more:
Suni uses a business structure called an LLC, a limited liability company. Niki points out that this is a particularly smart move. “I want to congratulate you on taking that step to protect yourself from liability,” she tells Suni. An LLC helps protect people like Suni from debt incurred by their business.
This corporate structure also comes with some unique rules. For example, as Niki points out, Suni has an annual tax filing fee because it is registered as an LLC in California; They must also file every year, regardless of whether their business generates any income.
It is important to know that LLCs like Auntie’s Coffee do not pay taxes on their profits directly. Instead, the profits are passed on to the owners, who then pay income tax within their individual tax bracket. That means LLCs generally avoid what some call the “double taxation” trap, which occurs when both a business and its owner are taxed.
Ashley tells Suni that there is more than one way to have her mark in a physical location. As Ashley points out, partnerships with other small businesses—in this case, brick-and-mortar coffee shops that would roast and sell Auntie’s Coffee brand beans—can be win-win. That’s not just for revenue, expense, and tax purposes, but also for brand awareness, customer engagement, and more.
Suni knows she needs to choose team members, but she’s not sure if a marketer or salesperson would be a better investment for her business. Ashley recommends the latter, helping Suni see that it’s best to build teams around the most important needs of her company. She also points out that Suni can pay sellers on a commission structure. Paying employees on a commission structure could be beneficial because it would control labor costs. The more productive the seller is (creating more revenue for the business), the more he earns; the less productive they are, the less it would cost the company.
Small business tax: what is your responsibility?
Suni was presented with opportunities to evolve her business. That further means evolving your business tax plan.
Here are some things small business owners should keep in mind when making changes that could affect their income, expenses, or even tax withholding:
Small businesses are taxed differently depending on how they are legally structured. However, small business taxes generally begin with a business profit or income. You’ll pay more taxes when you earn more money, but you may also qualify for more deductions and credits.
You should also keep in mind that sales tax is not part of your earnings. You are putting it together on behalf of the state (and sometimes local) government. Depending on how much you sell, you may have to make periodic payments to the state and/or city where you do business.
You’re probably already keeping a close eye on your day-to-day expenses, but as your business grows, so do your opportunities to count those expenses as a tax deduction. For example, many types of employee compensation are tax deductible, which means that an expanding team can help you in more ways than one. On the other hand, employees also create considerations, such as withholding tax or payroll tax, that can change your overall tax strategy.
If you, like Suni, dream of owning a physical business, you will have to deal with the costs of owning or renting property. When you own your building, you’ll pay property tax on your real estate the same way you pay on your home, and you can deduct some parts of this expense. If you rent your space, your rental, maintenance and utility fees may be tax deductible.
Why a Tax Plan is Important for Your Small Business
Whether you want to grow your business, move to a new location, or simply improve your business revenue in the way that makes the most sense, it’s clear that finances, especially taxes, have an important role to play. If you want to make sure all those numbers balance out at the end of the day, you need to have a tax plan.
This is why:
1. You won’t be surprised
The last thing you want is a big bill at tax time. When you know what you are responsible for, you can think ahead and set aside a certain amount of your earnings to pay your taxes. Depending on your deductions and returns, you may even keep some of the money you set aside.
2. You will claim the smartest deductions
As Suni develops Auntie’s Coffee, they’re sure to find new deductions, and if they don’t know where to look, they could miss out on those opportunities entirely. That’s why it’s important to go over small business taxes and know exactly what to claim on your tax return.
3. You will know how to proceed
You can and should grow your business based on your passion, but when it comes to things like sales tax, tax rates, and deductions, you want a clear path forward. A tax plan helps you make strategic and structured decisions now that will benefit you in the future, especially as your business continues to expand.
If you’re hoping to take advantage of all these benefits and more, you probably don’t want to rely on a spreadsheet. As tax laws change and your small business sees more income, expenses, and possible deductions, you’ll want tax software and expert assistance that can keep up with your changing needs, and that’s where TurboTax comes in. With automated import tools, expert help, and Plus, TurboTax makes it easy to achieve your dreams.
Get Small Business Tax Help Today
“Participating in ‘Hobby Meets Hustle’ was a meaningful experience because I got practical feedback,” says Suni. “I’m excited to use it to help me grow.”
If you have big and bold dreams like Suni, you’re in the right place. Having a solid tax and financial plan is the first step toward secure growth, and TurboTax helps make it happen.
Don’t worry about knowing the tax laws. You can come to TurboTax and completely turn your taxes over to a TurboTax Live tax expert and do your taxes from start to finish in one meeting. TurboTax Live tax experts are available year-round in English and Spanish, and can review, sign, and file your tax return, all from the comfort of your home.
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