If you’re a sole proprietorship and know the pain of owing thousands after filing your tax returns, an S Corp might be the answer. Here’s what that looks like, including a free ebook introduction to the best business structure you’ve never heard of.
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Hello, fellow business of one. Let’s talk about business taxes. Yes, the darn numbers game we all play. Because there’s the chasing-six-figures thing we all see and here about; and then there’s the practical numbers stuff that sometimes keeps freelancers from reaching those revenue goals—whatever they might be.
My quick math tells me there are least ten bazillion freelancers in world. And there are oodles of freelance writers embedded in the swarm. I wonder how many of them run sole proprietorships? More importantly, I wonder how many are wasting thousands on business taxes like I was just last year?
Six-Figure Sole Proprietorships: Fun Until Tax Time
Frankly, I thought I was cruising along swimmingly in 2021. It was my first full year as a full-time freelance writer. The client work kept coming and I made my quarterly estimated taxes payments on time. At the end of the year, I met my annual revenue goal. And then tax day 2022 hit my like a ton of bricks.
Even after those four estimated payments I made as a sole proprietor, I still owed a couple thousand dollars on my 2021 tax return.
The good news is that I did something about it. At the end of 2021, I changed my business to an LLC taxed as an S-Corp with the help of Collective. Here’s a comparison of my Q1 estimated tax payment this year, as an S Corp, versus what I paid in Q1 last year, as a sole proprietorship:
- 2021 Q1 Estimated Payment: $5,000
- 2022 Q1 Estimated Payment: $750
That’s a $4250 difference. If the trend holds for the rest of 2022, I’m going to save more than $10,000 on my 2022 business taxes.
How I Found Collective to Help Establish My S Corp
Obviously, I was doing something wrong while calculating my 2021 estimated taxes as a sole proprietor. To be honest, I was really just guessing, which is not surprising given my tenuous relationship with numbers. That’s why I was already planning to make a change to my business even before I got slammed with that exorbitant tax balance.
As my former accountant put it, “you have a legitimate business here. Time to treat it that way.”
Then I came across the Collective tax calculator and used it to calculate potential tax savings. The rest is history and so far so good. Now I have a bookkeeping and accounting service taking care of the nuts and bolts so that I only pay what I’m supposed to—nothing more, nothing less.
Today, my quarterly estimated taxes are based on the exact condition of my books at a given point in time. Here’s a couple of other benefits of using Collective that I’ve noticed so far:
- All-in-one platform with accounting, taxes, bookkeeping, compliance and business formation, in one interface
- $269/month (tax deductible) + cancel anytime
- Includes QuickBooks and Gusto for payroll
- Serves my state, California, along with: Arizona; Florida; Georgia; Massachusetts; Pennsylvania; Texas; Virginia; Utah; and Washington
- No guessing and no surprises come tax time
[Ebook] The Best Business Structure You’ve Never Heard Of
If you struggle with estimated taxes for your business of one, an S Corp could work for you. It’s certainly not a guarantee that you’ll experience the same savings that I have; but if you generate more than $80,000 in revenue annually, there’s a good chance you will. Try the Collective tax calculator to find out (P.S. if you use that link to sign up, you’ll get a month free on me).
Finally, I’ve included a little intro to forming an S Corp that I wish I had when I was starting out. It covers:
- Why setting up an S Corp can be such a power move (even if you have an established business)
- How to decide if forming an S Corp is right for you
- How S Corps are taxed differently from your sole proprietorship
- How an S Corp sets up your freelance business for the long term
- Tips for scaling a business of one
For your convenience, I’ve embedded the entire Collective ebook below. It’s called “The Best Business Structure You’ve Never Heard Of.” Take a look and feel free to revisit it, download it, and share with whomever might benefit.