Are you a small business owner with a dream — a dream as big as West Hollywood?
If so, you can likely relate to one of the entrepreneurs in our “Hobby Meets Hustle” video series. Suni Reid, the founder of Auntie’s Coffee, says they want to cultivate community, nurture the culture of Black Americans and create space for queer people to gather. But that’s not all Suni wants to accomplish.
“My goals with the company are to have a brick-and-mortar in West Hollywood,” they say.
That’s a big dream, yet not an impossible one. The key is to have a solid plan — and naturally, that involves understanding and anticipating potential other small business taxes and financial commitments.
Watch Suni’s episode of “Hobby Meets Hustle,” then come back here to learn more about how a good tax approach helps make small business dreams come true.
An Inside Look at Small Business Tax
From income and expenses to sales tax and the small business tax rate, Suni has a lot on their plate. Luckily, although they’re a single founder, Suni doesn’t have to tackle their dream alone. In “Hobby Meets Hustle,” the three experts — Niki Reynolds, Brittney Castro and Ashley Covarrubias — help Suni review their top business challenges and share tax tips and strategies to help overcome these hurdles.
Here’s what Suni learns — and what you can learn from them:
Challenges
To fulfill their dream of expanding Auntie’s Coffee into a brick-and-mortar establishment, Suni says they need to tackle three main things:
Physical Space
At the time of filming, Auntie’s Coffee operated through a series of pop-up stores. To have a permanent location in West Hollywood, Suni will need to buy or rent a physical store — which means they may be responsible for paying different state and local small business taxes or licensing. They’ll also need to think about the additional costs of a brick-and-mortar space, including furnishings, regular cleaning, permanent equipment and more.
Burnout
“The most pressing challenge I face is burnout,” says Suni. “Being a single founder, I find myself having to put on a bunch of different hats.”
Many small business owners are in the same boat — and to overcome burnout, Suni will likely need to hire one or more team members to help lighten the load. In most cases, that means paying wages and taxes for those salaries, including Medicare and social security. However, this can also create a tax deduction or two, depending on how Suni hires and pays their employees.
Inventory
“We do keep inventory,” says Suni, “but when we have big events, maintaining levels of inventory to meet that demand has been really challenging.”
To evolve into a physical business, Suni will need to keep more inventory on hand. Of course, buying/manufacturing and storing inventory represents a significant business expense. While it’s not a tax deduction, inventory may reduce taxable income.
Pointers for Small Business Owners
Suni has big dreams for their small business. Our “Hobby Meets Hustle” experts have plenty of tips to help them — and you — see real business income, navigate tax rules and more:
LLC
Suni uses a business structure called an LLC — a limited liability company. Niki points out that this is a particularly smart move. “I want to commend you on taking that step to protect your personal self from liability,” she tells Suni. An LLC helps protect individuals like Suni from the debts incurred by their business.
This corporate structure comes with some unique rules, too. For example, as Niki notes, Suni has an annual tax filing fee because they’re registered as an LLC in California; they must also file every year regardless of whether their business nets any income.
It’s important to know that LLCs like Auntie’s Coffee don’t pay taxes on their profits directly. Instead, profits are passed to owners, who then pay income tax within their individual tax bracket. That means generally LLCs get around what some refer to as the “double taxation” trap, which occurs when both a business and its owner are taxed.
Company Partnerships
Ashley tells Suni that there’s more than one way to have their brand in a physical location. As Ashley points out, partnerships with other small businesses — in this case, physical coffee shops that would roast and sell Auntie’s Coffee branded beans — can be beneficial to all parties. That’s not just for income, expense and tax purposes, but also for brand awareness, customer engagement and more.
Team Building
Suni knows they need to choose team members, but they aren’t sure whether a marketing expert or a salesperson would be a better investment for their business. Ashley recommends the latter, helping Suni see that it’s best to build teams around your business’s biggest needs. She also points out that Suni can pay salespeople on a commission structure. Paying employees on a commission structure could be beneficial because it would control labor costs. The more productive the salesperson is (creating more revenue for the business), the more they earn; the less productive they are, the less it would cost the business.
Small Business Tax: What Is Your Responsibility?
Suni was presented with opportunities to evolve their business. That also means evolving their business tax plan.
Here are some things small businesses owners should keep in mind when making changes that could impact their income, expenses or even withholding tax:
Profit
Small businesses are taxed differently depending on how they’re legally structured. However, small business taxes generally start with a profit or business income. You’ll pay more in taxes when you make more money, but you may also qualify for more deductions and credits.
You should also keep in mind that sales tax isn’t part of your profit. You’re gathering it on behalf of the state (and sometimes local) government. Depending on how much you sell, you’ll likely be required to make periodic payments to the state and/or city in which you do business.
Everyday Expenses
You’re likely already keeping a close eye on your everyday expenses — but as your company grows, so too do your opportunities to count those expenses as a tax deduction. For example, many types of employee compensation are tax deductible, which means an expanding team can help your bottom line in more ways than one. On the other hand, employees also create considerations, such as withholding tax or payroll tax, which can change your overall tax strategy.
Property
If you, like Suni, have dreams of owning a brick-and-mortar business, you’ll need to contend with the costs of owning or renting property. When you own your building, you’ll pay property tax on your real estate the same way you do on your home, and you can deduct some parts of this expense. If you rent your space, your rental fees, maintenance and utilities may all be tax deductible.
Why A Tax Plan Matters for Your Small Business
Whether you want to grow your company, move into a new location or just improve your business income in whatever way makes the most sense, it’s clear that finances — especially taxes — have a big role to play. If you want to make sure all those numbers balance out at the end of the day, you need to have a tax plan.
Here’s why:
1. You Won’t Be Surprised
The last thing you want is a big bill at tax time. When you know what you’re responsible for, you can think ahead and set aside a certain amount of your profit to pay your taxes. Depending on your deductions and returns, you might even get to keep some of the money you set aside.
2. You’ll Claim The Smartest Deductions
As Suni evolves Auntie’s Coffee, they’re sure to encounter new deductions — and if they don’t know where to look, they could miss those opportunities entirely. That’s why it’s important to brush up on small business taxes and know exactly what to claim on your income tax return.
3. You’ll Know How To Proceed
You can and should grow your business based on your passion — but when it comes to things like sales tax, tax rates, and deductions, you want a clear path forward. A tax plan helps you make strategy and structure choices now that will benefit you in the future, especially as your company continues to expand.
If you’re hoping to take advantage of all these benefits and more, you probably don’t want to rely on a spreadsheet. As tax laws shift and your small business sees more income, expenses and potential deductions, you’ll want tax software and expert assistance that can keep up with your changing needs — and that’s where TurboTax comes in. With automated import tools, expert help and more, TurboTax makes it easier to achieve your dreams.
Get Small Business Tax Help Today
“Participating in ‘Hobby Meets Hustle’ was a meaningful experience because I got hands-on feedback,” says Suni. “I’m excited to use it to help me grow.”
If you have big, bold dreams like Suni, you’re in the right place. Having a solid tax and financial plan is the first step toward confident growth — and TurboTax helps make it happen.
Don’t worry about knowing these tax rules. Meet with a TurboTax Live Full Service expert who can prepare, sign and file your taxes, so you can be 100% confident your taxes are done right. Start TurboTax Live Full Service today, in English or Spanish, and get your taxes done and off your mind.