SESSION RECAPS

Maximizing the Tax Benefits of Your Small Business/Side Hustle

Thanks to everybody who attended December’s Wednesday Wind Down session–we really appreciate your patience while we dealt with technical difficulties. And an extra special note of thanks to Khadija Bingham, founder of Money Honey Financial, and Kevin Ozenne for sharing advice and insights to help side hustlers maximize their cost savings by taking advantage of small-business tax breaks. As usual, we can’t fully capture everything covered, so here we’ll share an overview of tax reporting requirements, the different factors that impact small-business taxes, a brief primer on tax deductions/write-offs, and some suggested tools for tracking all those business expenses.

How do I file taxes for my small business?

Khadija started by dispelling some common misconceptions about business taxes. She first flagged that, contrary to popular belief, you must file business and personal taxes together as part of one overall tax return. Here is a list of other things to remember when filing your taxes. 

  1. Taxes are due on the usual April 15th deadline.
  2. You must report income for any year where profits exceed $400 profit (no exceptions!). 
  3. Fill out the Schedule C (Profit or Loss from Business) form for federal taxes, then include that number as part of your personal income tax return. Depending on your location, you’ll have to follow a similar process for state and city taxes. 
  4. Beware of Estimated Tax Payments and Self-Employment Taxes! As the business owner, you are now responsible for paying both portions, i.e., employer and employee contributions, of Medicare and Social Security taxes. So make sure to pay self-employment taxes quarterly. (Note: January 16th, 2024, is the last quarterly estimated tax deadline for your 2023 taxes.)

Remember, ignorance is not a valid defense when filing taxes. Ensure you understand federal, state, and local tax reporting requirements to avoid mistakes that raise red flags.

Now that I know how to file taxes, what should I factor into them? 

Since small business owners only pay taxes on net profit, let’s start with how profit is calculated.

As you can see from the image above, reporting business revenue without deducting (or ‘writing off‘) costs you incurred while running that business means passing up an opportunity to reduce your tax burden. So start tracking those business expenses and reclaim more of your hard-earned income! 

What counts as deductible?

For something to qualify as a deductible, the IRS says the cost must be both “ordinary and necessary.” In other words, it’s a cost commonly incurred by professionals in your industry and a cost required to run your business (e.g., cosmetics for makeup artists). The most widely known deductions are related to maintaining a home office, marketing, supplies, travel, continuing education, and payment for professional services (e.g., lawyers, photographers, accountants). However, you can deduct other business-related costs like software subscriptions, office equipment, website hosting, and maintenance fees to save even more.

Is there a limit to how much I can write off?

Deducting as much as possible to reduce your tax burden is an understandable temptation; however, being forward-thinking is essential. But Khadija reminds us that if you ever need a cash infusion to help grow your business, securing investors, applying for grants, or obtaining business loans will be difficult if you’ve claimed year after year of losses on your tax returns. You also risk having the IRS deem your business a hobby, which means you’ll be required to report all income without claiming any expenses. Overall, it’s essential to be honest about what’s needed to operate your business.

How do I keep track of everything?

We strongly suggest enlisting the help of an accountant (check out Khadija’s Money Honey Financial!). That said, you can also find support at a small business development center if finances are a constraint. Finally, Khadija closed with suggestions for tools to keep track of things for your businesses. You can use software like Excel, Wave Accounting, and QuickBooks to help with business accounting, and free apps like Toggl and MileIQ help with tracking time and mileage.

 We hope you found this helpful! If you missed this session, check out the video replay–it has tons of additional information that couldn’t fit into an email recap. We look forward to seeing folks at the next Onyx meeting!

Warm Regards, 

Onyx Team

Khadija Bingham

Founder of Money Honey Financial

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Event Description: 

In this video, Kevin Ozenne and Khadija Bingham share practical tips for optimizing the tax benefits of having a small business or side hustle so you can keep more of that hard-earned income!

Kevin Ozenne

CEO/Founder: Still Waters Consulting LLC. A Management Consulting Practice

Event Description:

Tax Strategy 101

  • In this video Kevin Ozenne explained the ramifications of tax non-compliance and shared strategies people can use to lower their tax burden legally (e.g., maximizing retirement account contributions and deducting mortgage or student loan interest).
  • Maximizing the tax benefits of a small business/side hustle

In this video Kevin Ozenne and Khadija Bingham share practical tips for optimizing the tax benefits of having a small business or side hustle so you can keep more of that hard-earned income!

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