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Don't Get Lost in the (Tax) Maze

Author

Lauren Wambold Patel
May 14, 2024

Welcome back to The 2x2 - the ultimate newsletter for independent consultants! We're here to ignite your imagination, empower your expertise, and make this Twosday an unforgettable day of discovery.

Get ready for a double dose of awesomeness in this week’s email:

  1. Why an S-Corp Might Be Right for You

    You might be missing out on a lot of benefits while paying taxes. Our suggestion? Set up an S-Corp with the IRS. Check out our guide to make the most out of your tax planning.

  2. 10 Minutes with Leslie Elliott

    For my close friend Leslie, it helps to surround yourself with peers and brainstorm ideas as you grow your startup. She’s a long-time consultant and an executive who left it all to start a pool cleaning business, Poolie – now PE-backed and continuously growing.

1. Why an S-Corp Might Be Right for You

You can run your consulting business as a sole proprietor under your personal income tax filing. But in doing so, you may be missing out on a lot of tax deductions. 

Our solution? Register as an S-Corporation with the IRS.

Working as an LLC with an S-Corp tax election makes your clients see you more professionally. It reflects your commitment while taking advantage of tax benefits and liability protection.

When you operate with an S-Corp tax election, you get a multitude of benefits for a better financial future, like:

  • Substantial reductions in self-employment taxes: Limit your payroll taxes to a “reasonable salary.” This way, you can avoid additional FICA tax on the income that exceeds your “salary.” 

Want to see how much you’ll save? Pop in your estimated income into this S-Corp calculator and see the difference. 

For example, if you are a married S-Corp owner living in Texas with a net income of $100k this year, you’d save $7,594 in taxes. 

And with a legal entity, you’ll be able to…

  • Maximize tax deductions: An S-Corp maximizes allowable expenses for small businesses such as home office expenses, office leases, transportation expenses, and more.

  • Maximize your retirement savings: Solo 401(k)s and SEP IRAs are both great retirement options for S-Corps. Both offer almost the same financial returns. But more importantly, both significantly exceed the amount of savings you can save as a W-2 employee with a corporate 401(k).  Both the Solo 401(k)s and SEP IRA allows you to save $69,000 in pre-tax income in 2024, vs. just $23,000 for a ‘normal’ employee 401(k) 

Setting up an S-Corp is just the tip of the iceberg. Check out our guide for more tips on how to prepare your new business for success.

2. 10 Minutes with Leslie Elliott

Transitioning to a small business can be quite the adjustment. Especially if you’re used to helping Fortune 500 companies and industry giants reach their goals. 

In this 10-minute interview with Leslie Elliott, we talk about the struggle and success of starting a new business.

Here are some of my favorite takeaways from this exchange:

  • Take advantage of what you’re good at. For Leslie who likes to build, it started with a company to buy and some investors to create Poolie.

  • Go to the data. You might end up finding a huge market opportunity literally in your backyard.

  • Find a business building partner, especially during the first year of your business. Someone to help you sort your stuff and bounce things off, over tacos or pedicures.

Watch our full interview here:

10 Minutes with Leslie Elliott

Remember, the path to success is paved with continuous learning and embracing fresh perspectives.

Let's stay connected, share ideas, and elevate your consulting business.

Stay curious, friends.

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