There's been a lot of chatter lately about the new tax laws, who qualifies for what, and how small businesses, creative professionals and freelancers can benefit the most. When I started designing, I always wanted everything to be professional, so I worked to create a business, choosing to form a separate entity, an S-Corp, to be specific. This, over time, has worked to my advantage over other freelancers, so we will talk about what I've learned with Hazz Design, and also get some advice from Aaron Young, CEO of Laughlin USA, a company that has formed and protected over 100,000 entrepreneurs and small business owners over the last forty years.
What About Solopreneurs, Freelancers, Ghostwriters, or Designers?
When it comes to taxes and brackets and filings, where do solopreneurs fall? More than that, what are the best options so that someone operating solo is protected and keeping the most money in their pocket? First, let's start with you...
Whether or not the new tax laws benefit you, now is the time to have the conversation about being a business versus being a freelancer. There are many benefits already built into being taxed as a business that most freelancers, startups, and solopreneurs don't take advantage of, which means you pay more taxes instead of keeping more revenue. In the past, the mindset of freelancers was to stay under the radar, not realizing that this mindset wasn't conducive to the overall profitability.
3 Things to Consider To Protect Your Business & Save
First, the disclaimer - please consult a tax professional. I am a designer not an accountant. My point is that, you don't have to do it alone, or figure it all out for yourself, but you are responsible for taking action, so you should also take advantage of the tools and resources available to you. With all of that being said, let's break this down into the three simple things you can and should do immediately to save on taxes and protect you and your livelihood.
- Think like a business. Tax laws aside, being a business means thinking like a business. There is a necessary mindset shift to get beyond the pieces and parts. Yes, you have to work, but you should also be thinking about alternative revenue streams that don't require you to put in more hours. Or, you should think about creating a business that survives you or is an asset that you can eventually sell. Luckily I learned this one quickly and have three different types of revenue streams: a) consulting income, of course; b) my podcasts, membership group, books, and courses; and c) royalty, revenue and residuals from my product designs sold at retail. Do what you can to build out your business, as a separate entity, so that you aren't looking at a lifetime of the day-to-day grind.
- Know Your Deductions. There are 1000's of deductions that most small business don't take advantage of. This is equivalent to throwing money away. Many freelancers and small business owners hear words like deduction or retirement and skip town. Kidding, but they definitely turn a blind eye because itemizing and this paperwork sounds like so much work. But we live in the age of digital tools, and there are so many resources to make these tasks easy. I track mileage with an app. There are also dozens of receipt tracking systems, operating like a digital shoebox, so there really is no excuse.
- Protect Yourself. Beyond the tax advantages, there are legal protection benefits you should be taking advantage of. The separation of self and business is important. My S-Corp. designation qualifies me for new deductions and allows me to make plans for the future that I probably wouldn't if I were just operating day-to-day. I knew the proper structure for my business because I consulted a professional. Just as I expect new product designers and launchers to come to me for my decades of expertise, I do the same for my financial and tax needs. Professionals can easily find the right structure for your business, because it's something they do every day. Points to consider:
- Not every freelancer should be an LLC or a corporation. The state, the type of business, your growth plan, are all deciding factors for your business structure.
- Having backup, in the form of experts, is one of the best kinds of protection. They will see the things you would never see.
- The question shouldn't be whether or not you should structure your business. The question should be which structure is the most beneficial to you?
Stressing About All The Deadlines & Paperwork
When I first met Aaron Young at an event, he was giving a presentation on protecting your family and your business. It had this post-it slide with all of the forms that you're supposed to file, and all of the documents you're supposed to track, and all of the things you're supposed to think about and this highlights one piece of the stress that is entrepreneurship. Laughlin's has built a corporate veil service, to alleviate some of that stress, and to make sure I am protected, so I don't have to remember deadlines for filing, or in case I miss something simple like a resolution, or changing CPA's, and so on.
You Have to Take Action
Ignorance of the law doesn't protect you from it or let you automatically benefit from of it, a message entrepreneurs and freelancers need to understand. Ignoring the list of tax and structure to do's does more damage than anything. Inaction is guaranteeing failure and more tax payments in the future. Luckily we have more resources than ever before to protect ourselves, get the most out of our business structure, and keep the most money in our pocket.