How Solopreneurs Can Lower Their Taxes

0:00From Entrepreneur Media, this is Problem Solvers, a show that solves entrepreneurs toughest problems. I'm Jason Pfeiffer, Editor-in-Chief of Entrepreneur Magazine, and each week I take a problem that you're probably dealing with and get tactical solutions from people who have been there and solved that. So, let's get solving. This episode of Problem Solvers was produced in partnership with TurboTax. I have heard a lot of people say the following sentence, I was born to be an entrepreneur. You know, these were the people selling lollipops at a 10x markup in their elementary school. They were the people who had side hustles for their side hustles, born entrepreneurs.

0:39You know them. Maybe you are one. But now I ask you, have you ever met someone who was born to be a tax expert? Because I hadn't until now. I actually started doing taxes out of high school, which is weird. I agree. That is weird. So meet Lisa. My name is Lisa Green-Lewis, and I'm a CPA and tax expert with TurboTax. And Lisa found that at a weirdly early age, she just had a knack for taxes. I've always been able to easily translate the law, and it started with my family asking questions. Wait, wait, wait, wait. So in other words, you were like a teenager giving tax advice to your family? Yes, just for them to start.

1:25But then Lisa grew up and followed her dream. She became a CPA. And for a while, she was also a small business owner, so she really got to understand how entrepreneurs think and what it means to be grappling with taxes while also running your own business. Eventually, Lisa joined the truly perfect place for her, which is TurboTax, a market leader in helping people prepare and file their taxes. Lisa's entire job now is to help people understand taxes. Maybe you've seen her on Steve Harvey or The Ellen Show or any number of places. When a new tax law comes out, she is digging in. Translating those laws and communicating them out to consumers to help them really understand what it means to them and how to save.

2:10That's why she's here talking with me on Problem Solvers today, because Lisa says that entrepreneurs and solopreneurs in particular make a major mistake when thinking about taxes. And as this tax season approaches, she wants to make sure that you are aware of this mistake too, so that you either don't make it or never make it again. And here is that simple mistake. Solopreneurs tend to only think about taxes when it's time to file their taxes. You don't want to wait until like tax time to gather all your expenses and income because you may leave something out. Instead, she says it should be something that you're thinking about and preparing for all year round, so that when tax time rolls around, you are ready and you have the maximum amount of information to get the maximum number of deductions.

3:06In this episode of Problem Solvers, Lisa is going to give us a lot to think about and a lot of ways to save on your taxes too. It is a tax lesson for solopreneurs taught by a woman who was born, literally born, to save you money on your taxes. So let's start at the beginning. Before we talk about taxes, we really should back up and understand and appreciate the solopreneur mindset around taxes. Because as I told her, look, there is good reason that solopreneurs are not thinking about their taxes all year round, even if they're supposed to. I think a lot of the reason, Lisa, that solopreneurs may not be thinking about taxes until tax time is because they say, ah, whatever, like my business is very simple.

3:49it's just me i know what money is coming in it's pretty straightforward so when do you think they reach this moment in which they're getting into pretty dangerous territory if they're not thinking very deeply about their taxes and what can they do to start preparing better i think as their business grows and they start making more money doing more transactions and having expenses that is the time that you want to reconcile, make sure the income you're seeing is accurate and definitely your expenses. And like I mentioned, it's up to you. It doesn't have to be weekly or biweekly, whatever works best for you, but just doing it is important.

4:40So another point when your taxes become more complicated is if you're deciding to switch business structures. A lot of people that jump into self-employment, they think right away, oh, I've heard that you save more money changing your business structure to an LLC. Now, if you're a solo LLC, your taxes are basically the same as being self-employed. You're still filing the same form, have the same dates. But if you're a multi-member LLC, that's where they can get more complicated as well. You're going to have different forms that you fill out, different tax deadlines that you have to be aware of.

5:25Yeah, actually, that is something I experienced myself as a solopreneur. So I am the editor-in-chief of Entrepreneur Magazine, which is a W-2 job. But I also have a business outside of that. And it started as a S-corp and then I made it a C-corp and I made myself an official employee and then I pay myself through a payroll provider at the end of the year because of the tax advantages there. But that was a whole big thing that I had to navigate. Right. Yeah. And I just always tell people, just be aware of that when you're first jumping into a business and you're self-employed and you're not making a lot of money yet.

6:09don't be under the misconception that you're not still going to get those same deductions that you would get as a solo LLC, you're going to get the same deductions. So until you're making more money, I mean, LLCs definitely have an advantage, but unless you're making money, because I've seen a lot of people not even making money yet at all, and they do that, and then they're required to pay the state taxes, which depending on your state, they can be pretty high and you're not even making any money yet. Yeah. I live in New York, so I'm very familiar with high state taxes. Yes. I'm in California.

6:47Oh, the two of us. We're competing for who's paying more. Yeah. Same boat. And I would just say, you know, there's no need to worry whether you're a solopreneur or a multi-member LLC, S-Corp partnership. We have our TurboTax business experts that can help you fully do your taxes. And then, you know, even if you decide to do them yourself, we have AI agents that they can actually take your spreadsheets and import the right information into the right forms. And then also uncover deductions that you're not even aware of because our TurboTax business experts, you're matched to ones that are specific to your industry so you don't miss anything.

7:33That's great. That's really helpful. Well, let's talk about some common mistakes that solopreneurs make that I suppose all this support at TurboTax can help people avoid, but it's important to know where people are wasting money or not identifying the right opportunities to save money. So what comes top of mind when you think of solopreneurs making the wrong moves and it's costing them money. Yeah, so I know we did talk a little bit about it, but I could dive deeper into the specifics. So not gathering your receipt that can be worth valuable deductions, but in specifics, receipts for travel, mileage.

8:16A lot of people do miss that or they don't track their mileage. And people that are in businesses and driving their cars, that could be worth a lot of money. You get your mileage times the standard mileage rate, or you can claim actual expenses. And then you have equipment. You know, if you bought computer equipment, you have web support, web design, advertising. All of that can be worth valuable deductions. and then two you know there sometimes people hesitate to take the home office deduction but if you have a dedicated space in your home that you use for your business you should absolutely feel empowered to take that deduction and that can be a huge deduction you know okay yeah actually Lisa wait I have a friend named Lisa not you my new friend an older friend named Lisa who I was literally just talking about this with last week because she does not do that.

9:19She does not take her home office deduction. And I was like, you are crazy. Yes. So can you speak directly to Lisa? Like, what should she be doing? How should she be calculating that? How does she know how much to deduct? What's going on? Help her out. Yes. Lisa. I'm playing this for her. Yes. Um, you can deduct a portion of your mortgage interest, or if you don't have a mortgage, your rent, property taxes, utilities, based on the percentage of your space. So let's say you're using 20 % of your home for your, maybe not 20%, that's kind of big, 10 % of your home for your office space. Then you would multiply that 10 % times all of those expenses and you're going to get that deduction.

10:11So you definitely don't want to miss out on that. Yeah, I think she's nervous that it's going to get questioned or that she might calculate it wrong. I'm delighted that a lot of people are nervous about it and don't take it. And that's why the IRS, they did come up with a flat deduction because they're encouraging people to take it if they're eligible. So there is another alternative without doing the percentage of all of your mortgage interest, rent, property taxes, utilities. It's a flat amount up to$1 ,500 that you can deduct. Oh, that's great. So if Lisa is not confident in whatever her estimated percentage is that her home is as a workspace, then she can at the very least take that standard deduction.

11:08Right. It's up to they get the fifteen hundred by basing it on up to five hundred square feet times three dollars per square feet. Oh, amazing. So that's a great, often overlooked deduction and saving opportunity. And I know there are so many out there that solopreneurs, small business owners just don't know about. What else is top of mind for overlooked saving opportunities? Yes. So one thing people need to know, there's a business equipment deduction under the new law. It was extended permanently. And so you could fully deduct your business equipment up two point five million dollars. Wow. In the first year.

11:58And so that was increased under the new law to two point five million dollars. and people are really surprised by this, but some heavy vehicles classify as business equipment. So like some of the big trucks, like those Ford F-150s, or people could check the exact list, but those classify. So you could fully deduct those as a business expense. Oh, wow. So this could be anything from, let's say a new computer that's for business purposes or a webcam if you're doing a lot of content or something, all the way up to vehicles that have a primary work purpose. Right. Yeah. You have to use the equipment over 50 % of the time for your business for it to qualify.

12:48But yeah, people are so surprised by that. And even if the vehicles don't qualify for the heavy vehicle, they have vehicles under 14 ,000 pounds can deduct up to $31 ,300 for 2025. And then under the new law, there is an additional expense that you can deduct. So with that, you can fully deduct in some cases. Oh, that's great. Any others we should hit? Yeah, startup costs. So a lot of people out there are new with their businesses, so they should be aware that now they can deduct up to$5 ,000 in startup costs in the first year. Previously, you used to have to divide that up among years. And I should go back to the business equipment.

13:38It used to be like that for business equipment as well. You used to have to divide the cost up over the amount of years of the life of the equipment. And what are we defining startup costs as? Yes. So costs like your marketing, advertising, any research you're doing to find out, let's say, for instance, the right area to start your business or have your location. So anything like that. Oh, I see. Literally anything that you're spending as a means of getting the business off the ground. That's great. And Lisa, what about travel and meals? That's something people are always confused about. Yes. So travel, you can deduct your travel.

14:26Let's say you're going to a seminar that's directly related to your business and flying. You can deduct the flight, your hotel costs, or if you drove there, the mileage or actual costs as well. And then regarding meals, you can deduct half of the meals. So half of the cost of the meal. You can't deduct the full cost, but it would be half. And then especially business meals. If you're taking a client out, you're able to deduct those meals for half of the expense. Just make sure that you keep record of the date and the business purpose of your meeting. Is there a good way to do that? Like just write it on the receipt?

15:11Yeah, I would say write it on a receipt or you can keep track in a spreadsheet. Now, the same with mileage. If you're going to an appointment or something related to your business, you want to keep track of that. Now, as far as that goes, you know, you don't have to write it on a piece of paper. I know with our QuickBooks, we have a way to automatically track on an app. So you could track your mileage and that can import into your tax return. We've talked about some of the law changes already, but are there any other things that we should really hit upon in terms of new tax law changes a solopreneur should be aware of?

15:55yeah the qualified business income deduction that was permanently extended under the new law and that's 20 of your business income and then one thing people need to know if you're in what's known as a specified service trade which is what that's like a health professional a lawyer an accounting professional, there are thresholds. You can't make over a certain amount of income in order to get this. So if you're single, your income can't be over$197 ,300. Married filing jointly, it can't be over$394 ,600. I tell people, if you think you're going to go over those amounts, That's definitely where you want to maximize your business expenses to get your income lower.

16:51Right. So that you'll be eligible for that deduction. That's really helpful to know. Anything else we should know? Yes. Solopreneurs and small business owners, they can also immediately deduct any research and development that they've used for their business. So previously, that also used to have to be deducted over five years. But now you can deduct it fully in the year that you... Can you give me some examples of what that would look like for someone? Someone doing research on an improvement to their processes. So money that they spend on prototyping or anything that they're maybe trying to develop a new product and they're doing prototyping.

17:38prototyping and research or like customer research that will fall into that. Is there anything else we should know about the new law? Yes, under the new law, this isn't new, but there's been a lot of back and forth with 1099K reporting. So now 1099K, it's reverting back to over 200 transactions and$20 ,000. And the 1099K is the form that either you receive or that you have to send somebody if you did some work together, essentially, right? Yes. And if you worked with a third-party provider and had payments processed, like through PayPal, Venmo, you would receive a 1099K. So previously, they had passed that you would get one if you had transactions that totaled more than$600.

18:38Right, I remember that. Now it's reverting back to more than 200 transactions and$20 ,000. So you may not see one. That is the new law. Now, they did say some third-party providers may still send them under the lower thresholds. But just wanted to make people aware of that. You may not see one, but you still need to report your income. But don't forget your relevant expenses either. Right, right. TurboTax, you can actually snap a photo of your 1099k and the information will go to the right form automatically. So you don't need to manually input that. Oh, that's super helpful. I love anything that solves a thing that I find annoying.

19:19So that's excellent. Yes. it occurs to me and this might just be a dumb question but i'm gonna ask it because there are no dumb questions in taxes and also because i know people are asking which is i just kind of thought that anything that is a cost associated with the business is deductible and it's just like a blanket thing so it's been interesting to hear you identify these very specific things it's like, well, startup costs can now be extended and the research costs. And it's just making me realize that this is a lot more complicated and the categorizing of these expenses is a lot more complicated than I thought.

19:58In general, what you said is anything directly related to your business, you can deduct it. And these were deductions before, but these specific items, you had to divide them up over the years of their useful life. But in general, anything directly related to your business, you can deduct it. If there's any questions, that's definitely where our TurboTax experts come into play, that you can be matched to ones that are specific to your industry, and they can help you figure out a way to maximize your savings. And I'm sure they also agree there are no dumb questions in taxes. No, not at all. So Lisa, finally, for someone who's doing everything themselves in their business, sales, marketing, operations, you know, we said at the very beginning that taxes is a thing you should be thinking about and preparing for all year long.

20:58What does that really realistically look like? What does it look like to be organized for taxes all year long? So it looks like, you know, keeping track of your income, looking at, let's say you get income from third party providers, for instance, like a credit card company or PayPal or any of those third party providers. you want to reconcile and make sure that your documents or what you think your income is matches what they show as well as your expenses you want to track your receipts and make sure that you you keep track of them somewhere whether it's a spreadsheet whether you use quickbooks that lets you track your expenses you want to definitely track those and also one thing for business owners and especially ones that are just jumping into a business, you want to keep your personal and business expenses separate for easy tracking.

22:03So you want to have two different accounts, a business account and a personal account to make that easier for you. Yeah, that's exactly what I do. In my wallet, there's the personal credit card and there's the business credit card and never the two shall meet or else the IRS is going to come after me. Lisa, this has been so helpful. And I know it's just the very beginning of the kind of guidance that people can get if they work with a TurboTax. So tell me how they can do that. So they can go to TurboTax.com and there they can find our TurboTax business experts. And you can get a TurboTax business expert either virtually or you can come to our local stores.

22:51We have expanded our footprint for our local stores and we're expanding to 600 stores and then also 20 flagship stores. And in those flagship stores, you can come in there with intentions of doing your taxes yourself, but you can sit down with an expert and get help along the way. They have tax concierge that walk you through, you know, what forms you need. Because for many people, that's the biggest barrier to getting started is what forms to gather. So they would walk you through that process and match you with the right expert that has expertise in your industry. Amazing. Lisa Green Lewis, CPA and tax expert with TurboTax.

23:38I understand why you were your family's teenage tax guide. Really appreciate your time today. Okay, thank you. And that's our episode. Now let's keep the conversation going. I write a newsletter called One Thing Better, where each week I offer one new way to be successful and satisfied and build a career or company you love. You can find it at one thing better dot email. That's a web address, just plug it into a browser, one thing better dot email. And if you get one of those emails and reply, it goes straight to my inbox and I will get back to you. Problem Solvers comes out every Monday morning.

24:20So make sure you're subscribed so you don't miss an episode. The show is produced by Emily Holmes and Money News Network. My name is Jason Pfeiffer. See you next week.