I interviewed 10 small business CPAs to get their best tax advice for early-stage entrepreneurs & start-ups.

TDLR; here's the 80/20 on maximizing your tax savings without spending hours researching:

Live somewhere with no state income tax if possible, pay yourself as an employee of your business, and write off everything you can.

1. Where you live (save ~10%)

Aside from moving to Puerto Rico, if you can live somewhere with no state income tax like Texas or Florida, that's a big bonus (~10%). I wouldn't make living decisions based on this, but good to know as a variable.

2. LLC taxed as an S-corp (save ~15.3% on ~50k)

There's no difference between tax rates on an LLC vs. a Sole Proprietorship. An LLC is a passthrough entity, meaning the tax burden still falls through to the individual the same as it would be taxed in a sole proprietorship.

So what's the benefit of an LLC over a sole proprietorship?

The primary benefit is liability (legal) protection on your personal assets. For example, if the business were to get sued for some reason, they couldn't go after your personal assets. Now there's something called "the corporate veil" which people will argue about how that may or may not be pierced in certain scenarios allowing people to go after personal assets of an LLC owner in the event that person isn't running the LLC like a true business. Basically, you want to keep separate bank accounts, accounting, expenses, and legal documentation of everything to ensure you're giving a full faith effort that you're operating a true business.

Both sole props and LLC's have a 15.3% self-employment tax if you're taking profits from the business, paying yourself, & covering living expenses. The advantage of an LLC is that if you elect to be taxed as an S-Corp, you can pay yourself a "reasonable salary (~50k)" as an "employee" of the business and get avoid the 15.3% tax rate on that salary.

Any profits paid out as dividends beyond this would still get hit with the self-employment tax. This is worth doing once your business is making >50k and you're paying yourself at least that "reasonable salary" amount.

3. Write off all biz expenses you legally can

This one is obvious, but a lot of people don't track things properly and thus miss out on tax savings at the end of the year. Simply staying on top of their tracking and USING your business accounts when you actually should be will get you most of the way here.

Here's a quick list of some "less commonly known" business expenses that can be written off under certain stipulations. This is NOT tax or financial advice, look into these yourself & consult a CPA to see if any apply:

• Small % of mortgage or rent as home office

• Meals where you had a business convo

• Section 179, write off for vehicles >6,000lbs

• Travel & mileage for business

• 1031 exchange rolling over real estate to avoid capital gains tax

4. Have a good CPA that knows YOUR situation & business

Occasionally there are certain tax credits and savings that come up during different times. This means that having someone who's up to date with the modern tax codes/updates can help you take advantage of these one-off events. If you don't have someone who really cares about you, your business, or staying up to date on their own profession, you'll likely miss out on these. My advice when trying to find a good CPA is to look for boutique owner-operators who are in the weeds with the tax law and love this stuff. Bonus points if you can trust them like family or you have a great referral / mutual connection.

Recap

Outside of these 4, most of the rest of tax planning feels like a waste of time or seems like it's starting to bend the rules a little. ALWAYS pay your taxes, pay on time, and stay in compliance because the headache is going to cost you more than the taxes would :).

Tax savings are a marginal game. Meaning even if you did everything right, moved, and got every write-off in the book, you're only able to save a certain %.

Making more money, on the other hand, is an INFINITE upside game. Meaning you're not constrained to just go make 30% extra money this year. It's obvious that the wiser decision is to spend more time, energy, and focus on this bucket.

So in summary, do what you can, use the 80/20 here, & spend majority of your time focused on making a better product or service for the world to hopefully earn more income!

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