x
Admin

In the News: Bigger Business Tax Bills?

Pesso_0-1685541339827.png

 

Hey Sellers,

 

This week we’re talking taxes, with an article from Forbes reporting on increases in US federal income tax payments for private businesses of all sizes. I’d love to hear your thoughts and how businesses from other markets are handling tax bills in the comments below.

 

Forbes: Private Businesses Reach Their Tipping Point Over Increased Tax Bills

 

According to the report, certain US businesses that have had no profit changes are seeing a higher taxable income and larger tax payments for 2023. Forbes states that the increased payments aren’t coming from any new legislature, but rather kicking in from the 2018 Tax Cuts and Jobs Act. The big changes are decreases on tax deductions from: research and experimental expenses, interest on financing and loans, and purchases on certain assets that qualify for bonus depreciation. The loss of these savings can have a big impact, and can get worse in 2026 when the next set of changes kick in.

 

Pesso_1-1685541339828.png

 

When I had my shop, we paid our tax bills quarterly, and it was always stressful. We would mostly be able to guess how much we would owe, and we used a separate business savings account to stash it away. We tried to have it as early as possible so we would have it ready no matter what extra expenses came up, but it was a challenge and always tight. And of course every now and then the bill would end up being more than we expected. It was all so scary and stressful, and we had to scramble a bit to reallocate funds by the time it was due to come out of our accounts. We had a decent amount of business loans each year, and losing any deductions from that interest would have definitely hurt us a bit. 

 

What’s your perspective:

  • Did you notice an increase in tax payments so far this year where you are based?
  • What can you do to make sure you will be prepared to pay your tax bills, with or without increases?

 

Can’t wait to hear your thoughts!
Pesso

 

️ Aylon Pesso, he/him
Small Business Evangelist, Square

Join the Square Readers Book Club
2,916 Views
Message 1 of 20
Report
19 REPLIES 19
Super Seller

We are still on extension.. so we will see what happens. After our 3rd year in business we hired an accountant on monthly retainer. They are responsible for our books, P&L, etc and they are our tax planners so they try to mitigate the big tax bills. 

 

While they are sure an $$ investment- it is well worth it to not get surprised.

 

Dina
Co-Owner Amityville Apothecary
www.shopamityvilleapothecary.com
Instagram | TikTok @AmityvilleApothecary

Podcast: Apothecary After Dark (YouTube & Spotify)
2,903 Views
Message 2 of 20
Report
Admin

Thanks for sharing, @DLRosenberg -

 

I'm so glad that you have an accountant that works well for you and is worth the cost! Gotta love being prepared and not surprised by massive charges.

 

What exactly is a tax extension? 

 

Any tips and strategies you can share that they do for mitigating the bigger tax bills?

️ Aylon Pesso, he/him
Small Business Evangelist, Square

Join the Square Readers Book Club
2,892 Views
Message 3 of 20
Report
Beta Member

I didn't notice anything really - but we did make more profit, so it could have been offset a bit.  We won't know until tax time - I do use the Balance Accounts with square to squirrel money away as I like to order when I see money in our bank account - so it's better spread out for me.  We will have additional funds for unexpected repairs, payroll and market money if we so choose to go to market. I guess we will wait and see.  

2,836 Views
Message 4 of 20
Report
Beta Member

Pretty much the same for me too.

AS
2,835 Views
Message 5 of 20
Report
Admin

Thanks for sharing @pierceandbelle !

 

Congrats on the extra profit, and hopefully no big surprises come your way!

 

That's so great that the Square Balance account is working for you to stash some extra away to cover taxes and other extra unexpected costs that always seem to pop up. 

Rooting for y'all!

️ Aylon Pesso, he/him
Small Business Evangelist, Square

Join the Square Readers Book Club
2,559 Views
Message 6 of 20
Report
Super Seller

Interesting topic, @Pesso.  Here’s our situation.

 

First, this is a reason that all of our businesses are LLCs — either partnerships or single-member ones.  Federal tax laws, as well as those of most states, treat LLCs as something called pass-through entities.  This means that all profits (or losses) are passed to us via a Schedule K-1 and is then taxes based upon our personal rate for that year.  That personal rate is usually much lower than any standard corporate rate.

 

This also allows us to keep our CPA/tax advisor in the loop, since he prepares our rather complicated personal returns and advises us on quarterly payments we should make for the next year, etc.  Each quarter we review the P&Ls for each LLC and start setting aside the necessary funds to pay both the federal and state taxes on those come tax time.  Since all of our businesses are combined for this analysis, quite often that one business that is struggling can help eat up some of the tax liability for the ones that are doing well.  It’s a win-win.

 

Anyway, since we’ve always used LLCs because they make sense for most small businesses like ours, we don’t care about corporate tax rates, and such.

Chip

If my answer resolves your issue, please take a minute to mark it as Best Answer. That helps people who find this thread in the future.

Piper’s Ice Cream Bar, Covington KY USA
Website
Facebook

“Take what you like, take what works, leave the rest!”
2,789 Views
Message 7 of 20
Report
Admin

Thanks @TheRealChipA for the info! The tax world is definitely outside of my expertise, so it's great to learn a bit here from ya!

 

The article did say that the changes would affect pass-throughs, so hopefully it still wont affect y'all.

 

That's so great that you have a CPA who takes care of both the business and personal and stays on top of all of the extra complications and processes. Especially advising the extra to put aside, and with one business covering another.

️ Aylon Pesso, he/him
Small Business Evangelist, Square

Join the Square Readers Book Club
2,559 Views
Message 8 of 20
Report
Super Seller

I haven't noticed a change in my business' overall tax liability, but taxes are definitely one of the most stressful things about owning a small business, and life in general! I had the most stress over Sales Tax payments (I never separated that money out of my regular operating account, so I always had to borrow or move money around when that tax became due.) The BEST thing I did was last year I opened a Square Savings Account and have it set to automatically take out a percentage to cover the Sales Tax I'll owe. In my state the rate is 6%, but in order to compensate for any CASH sales I made,  I set the auto save rate in my Square Savings to 8%. So far, that seems to cover both credit card and any cash sales I end up owing State Sales Tax ....and last quarter I even had some extra money saved in that account!  A BONUS I didn't need for the tax, so it went into my pocket as some profit!

2,784 Views
Message 9 of 20
Report
Admin

Thanks for sharing, @HC_Charlie !

 

That's such a great idea to do the automatic savings plan for what you would need for sales tax. So clever, especially to add some extra to account for cash sales! Even cooler that you ended up with some extra, which is always a plus. 

️ Aylon Pesso, he/him
Small Business Evangelist, Square

Join the Square Readers Book Club
2,559 Views
Message 10 of 20
Report
Super Seller

Definitely like this idea and will start looking into it tonight! I do monthly payments ours is 6% as well and our bookkeeper keeps track extremely well and each month adjust it accordingly but for my bank I had to open a separate account and for mobile deposit and transferring money from back and forth is getting kinda crazy plus it cost to open it and I have to maintain a certain amount or I get charged it's just not ideal really. But I could have square savings and go from there. Thank you,  I believe you just saved me time and money! 

2,444 Views
Message 11 of 20
Report
Admin

Thanks @Twpchair for sharing!

Super cool that you were doing a similar savings plan and a that you have a bookkeeper to guide you a long the way. 

Awesome that you're going to look into Square's accounts, and how they can help you! I ran into the same issue of the costs of a Business bank account, and the free-ness of Square's accounts is pretty amazing. 

 

And thank you @HC_Charlie for the suggestion! 

️ Aylon Pesso, he/him
Small Business Evangelist, Square

Join the Square Readers Book Club
2,346 Views
Message 12 of 20
Report
Super Seller

Hi Pesso! Thanks for this informative post!

 

Very early on, I worked with an accountant - both my husband and I own our own businesses so it was complicated DIYing it. That being said, the Square Savings, that shaves off a percentage of earnings has been really nice to use toward quarterlies. I believe, in California at least, we pay most of them in October of this year. Paying those in advance helps to reduce our taxable income pretty significantly, however, we still end up owing more on it.

 

Also, this year, I have been a lot smarter with my money. Last year, I got used to saving, and this year I am putting the cash in places that will yield earnings through interest - Square Savings is one of the highest I've seen while still being accessible at 1.75% and Wells Fargo is offering 5.05% on 10 month CDs. Those earnings will help offset any tax hikes - especially since that same money was going to earn 0.01% sitting in my checking account.

 

What will you do to offset?

UV-Free Tanning Salon Owner, Northern California (Campbell)
2,422 Views
Message 13 of 20
Report
Admin

Happy to pass it along, @Bronze_Palms !

 

And thank you for sharing all of this!

 

That's so great that the Square Savings has been helping you automate it and make your tax payments as painless and stress-free as possible. I'm glad you're happy with the interest rate there, and I love your process of taking more control over your finances and making the most of it when you can. 

I love it!

️ Aylon Pesso, he/him
Small Business Evangelist, Square

Join the Square Readers Book Club
2,343 Views
Message 14 of 20
Report
Beta Member

If Uncle Sam wants to completely tank the economy this is a good way to start. It is always worth it to support small business and keep it affordable .

2,333 Views
Message 15 of 20
Report
Beta Member

I'm not sure. We are still very new, only in our second year. Last year wasnt to terrible, but our losses far exceeded our profits which helped. Will have to see what 2023 is like.

2,324 Views
Message 16 of 20
Report
Super Seller

This is the first year I am paying quarterlies and I am really glad I am. It is too burdensome to have to come up with the cash in one lump sum during tax season. I don't earn in a lump sum so I don't like to pay out in lump sums. We make sales every single day so moving the money more frequently is better for me.

 

Based on last year percentages, I owe 14% in taxes so I move that amount at the end of every month into a separate account. I have Square Savings to thank for this. I have a percentage of every sale dropped into Square Savings so it doesn't hurt so much at the end of the month. I pay Quarterlies on time and, since they are already allocated, I don't miss that money at all. It makes paying taxes painless. 

 

The 14% in taxes is not a perfect science and I may end up owning a little more come tax season, but not much.

UV-Free Tanning Salon Owner, Northern California (Campbell)
2,019 Views
Message 17 of 20
Report
Super Seller

Beautiful @Bronze_Palms. Square savings is how I “force” myself to do three things — set aside funds to cover the off-season bills, give me a cushion for the unexpected, and ensure a reasonable owner draw each month. 

Like you, I don’t notice it usually. Sometimes I have to raid it when the unexpected is more unexpected than I planned for. Lol. But, overall. I sleep so much better at night knowing that money is there.

Before Square savings, I tried a dummy accounting entry on my books to “hide” funds. Of course, it was just a little too easy to get to when I got the urge. Automatic Savings is more of of sight, out of mind for me now. 

Chip

If my answer resolves your issue, please take a minute to mark it as Best Answer. That helps people who find this thread in the future.

Piper’s Ice Cream Bar, Covington KY USA
Website
Facebook

“Take what you like, take what works, leave the rest!”
2,016 Views
Message 18 of 20
Report
Admin

Thanks for sharing, @TheRealChipA --- So glad that the Savings plan is working for you too! Love the out of sight out of mind strategy.

 

For sure having to raid the savings is a thing that happens, having a backup is great for that. 

️ Aylon Pesso, he/him
Small Business Evangelist, Square

Join the Square Readers Book Club
2,009 Views
Message 19 of 20
Report
Admin

That's so wonderful that you're feeling on top of it now that you switched to quarterly, @Bronze_Palms ! I've heard a bunch of folks on this thread going with the automatic savings from Square Savings, and it's so great to hear it's working for you too!

️ Aylon Pesso, he/him
Small Business Evangelist, Square

Join the Square Readers Book Club
2,009 Views
Message 20 of 20
Report