4 Tax Lessons Many Business Owners Learn The Hard Way
Money as a business owner is far different than money as a regularly employed person. In my experience, it’s like dealing with two entirely different animals.
One situation — you get a paycheck every two weeks and you can follow some standard personal finance advice. In another situation — you don’t get paid every two weeks and regular personal finance advice seems impossible when you have variable income.
The reality is there are many money lessons that some business owners learn the hard way. I’m including myself in this, by the way. Even though I’ve been at this for a while I still get slammed with some money lessons every once in a while. Here’s a list of the top ones I see.
Just because it’s tax deductible doesn’t mean you should buy it.
Out of all the tax lessons business owners learn the hard way, this is definitely one I see pretty often. Heck, I’ve fallen into this trap myself!
It’s easy to think that something is coming out “cheaper” just because you can write it off. However, you’re not going to get all the money back, so if you don’t actually use what you’re purchasing then you’re just wasting money.
Yes, you do actually have to pay taxes every quarter.
I remember when I first started freelancing back in 2010 I had no idea I had to pay taxes on it every quarter. In my defense, there weren’t that many people out there at the time who were making a living freelancing and publicly blogging about it. Unfortunately, Uncle Sam couldn’t care less.
The end result was I had to scrape up some cash. Since I wasn’t making a lot back then, it wasn’t a whole lot I had to pay. I also had some savings because of a day job, so I ended up being just fine. Unfortunately, many business owners aren’t as lucky and get slammed with a big surprise tax bill.
Keep an eye on tax brackets.
Here’s one of the tax lessons I learned the hard way earlier this year. It’s May. I’m ecstatic because I just had my first five-figure month. My accountant told me my profits had already doubled from the previous year.
I was on Cloud 9 for a few weeks until my accountant told me how much I owed in taxes for the second quarter. Turns out I’d hit a new tax bracket, and while that’s cause for celebration because you’re making more money, it also means you have to pay a higher percentage in taxes. Since I didn’t realize I’d hit this new tax bracket, I hadn’t saved enough for taxes and had to pull some money out of my emergency fund.
No, you can’t deduct everything.
Business owners get lots of breaks when it comes to tax deductions. Unfortunately, many of them try to take it too far at times. This could lead to being audited which, from what I here, is not fun.