So you’ve started a new business, or you’re working as a 1099 contractor. It’s important to know that the IRS is going to tax you based on whatever you report to them at the end of the year. So how you track and report your activity will make a huge impact on how much you pay in taxes. Let’s look into these three tips:

1. Track all of your income

2. Track all expenses that are related to earning your income

3. Compile your transactions as you go in an easy-to-follow format

Let’s talk about when paying yourself a higher salary can actually save you money. Small business owners love S corporations. There are many reasons for this, the biggest one being that it is a great way to lower your self-employment tax. Income from sole-proprietors and partnerships is generally subject to a 15.3% self-employment tax (on top of the income tax), while income from an S corporation is not. There is a catch, however: an active owner of an S corporation must pay themselves a reasonable salary which is subject to the same 15.3% tax rate. While it is not possible to eliminate employment taxes completely using an S corporation, it is a great way to drastically reduce the amount owed each year. Our clients save thousands of dollars every year (individually) using this strategy.