Business Tax
Entity selection, cash flow management, and tax strategies for small business owners
5 questions answered in this category
LLC vs S-Corp: Which saves more on taxes?
An S-Corp election typically saves self-employment tax once your business profits exceed $40,000-50,000 annually. With an S-Corp, you pay yourself a reasonable salary (subject to payroll taxes) and take additional profits as distributions (not subject to self-employment tax). However, S-Corps require payroll, separate tax filings, and more compliance. The break-even point depends on your specific profit level.
When should I form an LLC for my side hustle?
Form an LLC when your side hustle involves liability risk, you're making consistent income ($1,000+/month), or you want to separate personal and business finances. An LLC provides liability protection and business credibility. For tax purposes alone, an LLC doesn't change much—you'll still report income on Schedule C—but the legal protection and professional structure often justify the $300-500 annual cost.
What business expenses can I deduct as a small business owner?
You can deduct ordinary and necessary business expenses including office supplies, equipment, software, professional services, marketing, travel, vehicle expenses (mileage or actual costs), home office, business insurance, retirement contributions, and employee wages. The key test: Is the expense both common in your industry AND helpful for your business? Keep receipts and documentation for everything.
How do I pay myself from my business the right way?
How you pay yourself depends on your business structure. Sole proprietors and single-member LLCs simply take owner draws. S-Corp owners must pay themselves a reasonable W-2 salary before taking distributions. C-Corp owners receive W-2 wages. Each method has different tax implications. The key is consistency, documentation, and ensuring you're setting aside enough for taxes.
How much should I set aside for quarterly taxes?
Set aside 25-35% of your net business income for federal and self-employment taxes. The exact percentage depends on your total income, filing status, and deductions. Tennessee has no state income tax, which helps. Make quarterly estimated payments if you expect to owe $1,000 or more for the year to avoid underpayment penalties. Due dates are April 15, June 15, September 15, and January 15.