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It's never too early to investigate tax strategies as a small business owner, especially relating to Self-Employment taxes. Running your own business comes with many rewards including freedom, flexibility, and the chance to build something meaningful. Unfortunately, it also comes with its share of financial responsibilities, including self-employment taxes. What are Self-Employment Taxes? These taxes you normally don't think about as an employee, as you pay them through your paycheck. They can be a surprise expense for many first-time entrepreneurs. They are a collection of both medicare and social security taxes that are taxed at 15.3% percent of your income. If you were an employee, you would be paying half, 7.65% on your income, and the other half was paid by your employer. As a self employed person, you will pay the full 15.3% and be able to take a deduction for the employer portion on your tax return. The good news for self-employed individuals? With thoughtful planning, you can take steps to reduce the impact of self-employment taxes. Here are some practical strategies small business owners can use to manage and potentially lower their self-employment tax liability: 1. Choose the Right Business Structure How your business is structured plays a significant role in how much self-employment tax you pay. Sole proprietors and partners must pay self-employment tax on all net earnings, but making an S Corporation election may offer savings. As an S Corp, you can pay yourself a reasonable salary, which is subject to these self-employment taxes, and treat remaining profits as distributions, which are not subject to self-employment tax. This strategy can create significant savings over time, especially if your business generates more income than you would reasonably pay yourself as a salary. However, with this entity you need to have more separation between your personal and business life, as well as an increase in costs, like payroll and tax compliance related to being compliant. It generally is recommended that this strategy isn't explored until the business is making at least $70,000 a year due to this increase in cost and complexity and seperation, as well as potentially losing out on the tax savings for the Qualified Business Income deduction at least through 2025 unless it is not extended. Classic cases of separation in this entity include if you use business assets for personal uses, that personal use is subject to payroll taxes, as well as if you pay expenses or drive personal vehicles, you need to maintain documentation that you were reimbursed timely by the S-corp. A way to frame it is that you're an employee of the company first before you are an owner. A small price to pay for potential tax savings. 2. Contribute to Retirement Plans Everyone should be saving for retirement, especially business owners who have the ability to diversify their holdings beyond their business. Retirement contributions not only help you save for the future but can also reduce your taxable income. Consider contributing to a SEP IRA, SIMPLE IRA, or Solo 401(k). These plans allow for high contribution limits, particularly the Solo 401(k), which lets you contribute both as an employee and employer. For example, in 2025, you can contribute up to $70,000 between your employee and employer contributions if you're under 50 (more if you're 50 or older with catch-up contributions). These contributions reduce your taxable income, thereby lowering both your income and self-employment taxes. Plus, retirement plans can be a valuable tool for attracting and retaining employees if you plan to grow your business. 3. Rent Personally Owned Real Estate to Your Business If you own property personally, you might consider renting it to your business. This strategy can shift income from self-employment earnings to passive rental income, which is not subject to self-employment tax. Common examples include renting an office, workshop, or storage space you personally own. It’s essential to establish a formal rental agreement at fair market value and document all transactions thoroughly, as well as making sure the space is relevant and actually being used by your business. This not only supports tax savings but also provides a clear audit trail. Keep in mind that rental income is still subject to income tax, and depreciation or maintenance costs can help offset it. Always consult with a tax professional to structure this correctly and avoid any potential pitfalls, such as the IRS reclassifying the rental arrangement. Final Thoughts Self-employment taxes are a large reality for small business owners, but with careful planning and strategic decisions, you can manage and even reduce your liability. Start with these tips, and consider making tax planning a year-round effort with a tax profesisonal rather than a once-a-year scramble. Your future self, your bottom line, and your accountant will thank you.

Introduction Payroll is one of the most time-consuming and error-prone responsibilities for small business owners. From collecting timecards and calculating wages to filing taxes and staying compliant with ever-changing laws, it’s easy to get overwhelmed. Luckily, modern payroll applications have transformed how small businesses manage payroll by making the process faster, more accurate, and easier to manage. What Is a Modern Payroll Application? A modern payroll application is a cloud-based platform designed specifically for small and medium-sized businesses. These tools automate complex payroll tasks like: Employee onboarding Time tracking Payroll tax calculations and filings Direct deposit processing Benefits administration With intuitive interfaces and integration capabilities, these apps reduce administrative burdens so business owners can focus on growth. Business owners can cut admin time by implementing a modern payroll system. Top 5 Benefits of Payroll Applications for Small Businesses 1. Time-Saving Automation Payroll software automates manual tasks such as timecard collection, tax withholding, pay stub generation, and year-end tax forms (W-2s and 1099s). Apps like Gusto  or QuickBooks Payroll  handle these behind the scenes, saving hours each month. 2. Built-In Compliance Support Keeping up with local, state, and federal tax laws is tough. Modern payroll platforms automatically update tax rates and filing deadlines, minimizing the risk of errors and penalties. Most can file taxes on your behalf, ensuring full compliance. 3. Employee Self-Service Portals Employees can complete onboarding forms, access pay stubs, and view tax documents through a secure online portal, without needing to contact HR or management. This improves transparency and reduces time spent handling requests. 4. Integrated Benefits Management Payroll apps often integrate directly with benefits providers. This means you can manage health insurance, 401(k) plans, and other benefits in one place, making it easier to attract and retain talent as your business grows. 5. Transparent and Predictable Pricing Most cloud-based payroll providers offer flat monthly rates plus a small per-employee fee. For example, Gusto’s base pricing starts at $79/month for a business with five employees ($49 base + $6 per employee). This makes it easy to budget and forecast payroll expenses for small businesses. Is a Payroll Application Right for Your Small Business? If you’re a small or medium-sized business owner looking for a scalable, cost-effective solution to manage payroll, a modern payroll application is likely the best fit. Most options offer: Flexible pricing Scalable features for growing teams Integrations with accounting tools like QuickBooks and Xero Final Thoughts: Let Pathfinder Help You Transition to Modern Payroll Whether you’re just starting out or managing dozens of employees, a cloud-based payroll solution can significantly reduce your administrative workload and increase compliance. Apps like Gusto and QuickBooks Payroll are great options but setting them up can still take time. That’s where we come in. At Pathfinder, we help small businesses set up, manage, and optimize their payroll systems. Whether you want full-service payroll management or just need help getting started, we’re here to support your business every step of the way.

As a small business owner, managing your finances efficiently can make or break your operations. The right accounting software simplifies bookkeeping, ensures compliance, and provides clarity on your financial health. But with multiple options available, choosing the best fit for your business can be overwhelming. In this post, we’ll break down the pros and cons of three popular accounting platforms: Xero, QuickBooks, and Wave. QuickBooks, Xero and Wave have been dominating the small buisness accounting game, but they have their differences. Xero This Australian new kid on the block of accounting software has been battling with QuickBooks in recent years for market share from small business owners, and it’s easy to see why. The app has more connections to third party applications than QuickBooks, and its price for growing companies is half that of QuickBooks. Pros: User-friendly Interface:  Xero is known for its clean and intuitive design, making it accessible even for non-accountants. Cloud-Based and Mobile Friendly:  Access your financial data anytime, anywhere. Robust Integration:  Connects with over 1,000 third-party apps, enhancing functionality. Cons: Pricing:  Monthly fees can be higher compared to competitors for smaller businesses who issue more than a few invoices a month, as its lowest tier option limits the number of invoices you can issue. Learning Curve for Advanced Features:  While basics are easy, mastering deeper functionalities may take time. No Phone Support:  There is no inbound phone number for customer support, limiting customers to ask for a callback. Users may find the phone service lacking, especially if they prefer speaking directly with a representative. QuickBooks Online The big dog, so to speak of small business accounting. This line of software has ruled the kingdom for the better part of 3 decades. There’s something to be said about being around for that long. In that time, QuickBooks’ parent company, Intuit, has amassed an impressive portfolio of add-ons, like Mailchimp, and TurboTax, allowing businesses to not only do their accounting, but their taxes, and marketing all in one place. Pros: Comprehensive Features:  Offers invoicing, expense tracking, inventory, payroll, and time tracking on one platform. Widely Used:  Its popularity means there's a large community for support and a wide availability of experienced professionals. Scalable: Suitable for a range of business sizes, with different tiers for growing needs. Cons: Cost: Can be expensive as your business scales, if you bundle multiple QuickBooks products like payroll and time tracking or require advanced features. Overwhelming for Beginners:  The depth of features can be intimidating without guidance. Limited Industry Customization:  Some industries may find the software may be limiting and not allow for customization that is required. Wave Wave is a little-known software among small businesses, but it is known among the freelancer and creative space due to its low cost and basic reporting. It was made for creative or service-based businesses who only issue invoices to clients and do not make transactions, like brick-and-mortar retail stores, through third-party software. It offers bank feed accounting for its pro plan, but there is limited integration outside of Wave’s other products. Pros: Free to Use:  Offers a basic set of features at no cost, ideal for startups and freelancers. Simple Interface:  Easy to navigate, great for basic bookkeeping. No Hidden Fees:  Transparent pricing for premium add-on services like payroll and payments.   Cons: Limited Features & Integrations:  Lacks some advanced capabilities like inventory tracking, integration with apps, and reporting. Features Pricing: For some basic features in other software, like bank feed integration, receipt snapping, or email support, be prepared to pay if you’re on the free plan, as these features are add-on’s and not included. Scaling Challenges:  As your business grows, you may outgrow Wave’s capabilities. Final Thoughts Choosing the right accounting software depends on your specific needs, budget, and future growth plans. If you’re just starting out and need a no-cost solution, Wave might be a great fit. For those looking for a feature-rich platform with strong scalability, QuickBooks is a top contender. Xero offers a good balance of usability and power, especially if collaboration and integration are a priority.   Before committing, consider taking advantage of free trials, assessing your business goals, and consulting with your accountant. The right tool should not only help you stay compliant but also empower you to make smarter financial decisions.

Are you a New York resident wondering if you qualify for the upcoming 2025 inflation refund? As part of the New York State fiscal year 2026 budget, over 8 million taxpayers could receive a direct payment aimed at offsetting the impact of inflation. Here’s what you need to know to claim your refund and how to make sure it doesn’t get lost in the mail. New York residents will be receiving aboost and counting cash come the end of the year. Who Qualifies for the NYS Inflation Refund? To be eligible for the 2025 New York State inflation tax refund, you must meet all of the following criteria: Full-Year Residency:  You were a full-year NYS resident in 2023. Filed 2023 Taxes:  You submitted a 2023 NYS resident income tax return (Form IT-201). Income Requirements: Single Filers: Up to $75,000 AGI: $200 refund $75,000.01–$150,000 AGI: $150 refund Married Filing Jointly: Up to $150,000 AGI: $400 refund $150,000.01–$300,000 AGI: $300 refund Head of Household: Up to $75,000 AGI: $200 refund $75,000.01–$150,000 AGI: $150 refund Not Claimed as a Dependent:  You were not listed as a dependent on someone else’s tax return. When and How Will You Receive Your Check? Qualified residents will receive a paper check by mail, even if your 2023 tax refund was direct deposited. The New York State Department of Taxation and Finance will begin mailing checks in mid-October, with distributions continuing through November 2025. If you’ve moved since filing your last return, log into or create an Individual Online Tax Account with the NYS Tax Department to update your mailing address and avoid missing your check. Additional NYS Tax Relief Programs for 2025–2026 The inflation refund is just one piece of a broader $4 billion affordability plan included in the state budget. Other key measures include: Expanded Child Tax Credit:  Up to $1,000 per child under age 4 and $500 per child ages 4–16. Universal Free School Meals:  Free breakfast and lunch for all students—potential savings of up to $1,600 per child per year. Middle-Class Tax Cuts:  Lowered income tax rates—the most significant reduction in 70 years. Stay Informed and Get Help with Your NYS Taxes Whether you’re seeking a refund, filing questions, or planning ahead for 2025, understanding these changes is crucial. If you're unsure about your eligibility or need help navigating the new tax relief programs, consider speaking with a trusted tax professional. Visit the official New York State Tax Department  for the latest updates and tools

Managing finances is a critical challenge for small business owners, and effective bookkeeping is the backbone of financial success. If you’re searching for practical bookkeeping tips for small businesses, one of the smartest moves you can make is opening a dedicated bank account for all your expenses. This simple strategy streamlines your small business bookkeeping, simplifies tax preparation, and makes tracking receipts effortless while giving you better control over your finances. For small business owners seeking practical bookkeeping solutions, we’ll explore why a separate account is a must and how it saves you time, reduces errors, and keeps your books in order. Why a Separate Bank Account is a Bookkeeping Essential Mixing personal and business funds might feel like a shortcut, but it’s a fast track to bookkeeping chaos. A dedicated business bank account keeps your small business finances organized, ensuring your bookkeeping process is clean and efficient. Whether you’re a freelancer, retailer, or consultant, this sets the stage for stress-free money management & bookkeeping. Here’s why it’s a game-changer for your books.   Streamline Your Small Business Bookkeeping Bookkeeping doesn’t have to be a nightmare. With a dedicated business bank account, all your business expenses, including office supplies to client dinners to software subscriptions, all flow into one place. No more digging through personal transactions like grocery bills or weekend outings to find what’s business-related. Your bank statement transforms into a clear, concise record of your small business financials, ready for categorization and reconciliation.   For small business owners using tools like QuickBooks, Wave, Xero, or FreshBooks; linking a business-only account means transactions import automatically, cutting down on manual entry and errors. This bookkeeping hack saves you hours each month. That’s time you can spend growing your business instead of untangling records. Handing clean data to an accountant? They’ll thank you for making their job easier through a lower price on your tax return.   Simplify Tax Prep with Better Bookkeeping Tax season can derail even the most organized small business owner, but a dedicated account is a bookkeeping hack that will pay dividends. When your deductible business expenses are isolated, spotting write-offs, like travel, marketing, or equipment costs—becomes quick and painless. You’ll file faster, maximize deductions, and avoid missing out on savings. Search “small business bookkeeping for taxes” online, and you’ll see why accurate records matter—a separate account ensures you’re covered.   If the IRS audits you, a business-only account shows your professionalism and keeps your books audit-ready. No explaining why personal expenses are mixed in—your records stand up to scrutiny. This strategy will help deliver peace of mind, a must for small business owners wearing multiple hats.   Track Receipts Like a Pro Lost receipts are a bookkeeping headache, but a dedicated account turns this into a minor inconvenience. Every transaction linked to your business debit card or online payment leaves a digital trail. Can’t find that $50 receipt? Pull up your statement, match the date and vendor (think Amazon or a local supplier), and look in your email or paper receipts to find them. Unfortunately, due to the IRS standard for substantiating expenses, bank feeds and statements alone are not enough under audit, so all receipts should be saved.  This receipt tracking tip for small businesses is a lifesaver for busy entrepreneurs who need to keep deductions intact without chasing paper slips.   Take it up a notch by snapping receipt photos with apps like Quickbooks, Expensify or Shoeboxed. Paired with a dedicated account, this creates a foolproof bookkeeping system, that keeps your records complete and holds up to an IRS audit. It’s a practice that all business owners should start, especially when they’re small, in order to build a routine.   Gain Control with Clear Financial Records A dedicated account isn’t just about tidying up, it’s about mastering your small business bookkeeping. When personal spending stays out of the mix, you can track cash flow, monitor profitability, and plan for growth with confidence. You’ll know exactly where your money’s going, whether expenses are climbing or revenue’s dipping, and be able to adjust on the fly.   This clarity empowers smart decisions, like investing in new tools or hiring staff. It’s a system that scales with you, from solo startup to thriving team.   How to Set Up a Dedicated Business Bank Account Ready to implement a business only bank account? Opening a business bank account is straightforward. Most banks offer small business checking accounts with low or no fees, which is ideal for budget-conscious owners. You’ll need your EIN, business formation documents, and ID (confirm with your bank). If you don’t have an LLC or corporation, just open a new personal bank account. Once it’s active, use it solely for business expenses and revenue. Link it to your accounting software and start digitizing receipts. This bookkeeping must have takes minutes to set up but delivers long-term rewards.   Before you bring out that card, make sure that what you're using it for alligns with the card's account. Personal purchase on business cards and vice versa lead to a bookkeeping headache for business owners who don't have the time to untangle it. Busting Excuses: Why Every Small Business Needs This Think your business is too small for a separate account? Even with a few transactions, the time saved and accuracy gained make it worth it. Worried about extra effort? It’s a lot less effort to do it now versus when you get large and open a business account then having to switch all your vendor payment accounts. Managing one clean account beats wrestling with a mixed one any day. Search “common small business bookkeeping mistakes,” and commingling funds is a top offender. Don’t fall into that trap, as it can take time to unwind, especially at tax time.

As a taxpayer, you may be aware that when you don’t pay enough taxes throughout the year, you could face a large tax bill when filing your return. This is where quarterly tax payments come in. These payments allow you to pay your estimated taxes in four installments throughout the year every quarter. Not only does this help you avoid underpayment penalties, but it can also reduce your overall liability when you file your tax return. Here’s how it works and why you should consider it. Man calculating and filling out tax return for taxes due. What Are Quarterly Tax Payments? Quarterly tax payments, or estimated tax payments, are payments made to the IRS, or your state’s revenue department if you live in a state with income tax, on income that isn’t subject to automatic withholding. Taxpayers that these mostly affect are those who are self-employed, own rental properties or investments, or have side gigs. The goal is to spread out your tax liability, so you’re not hit with a large bill when tax season arrives. This doesn’t affect employees who only have a W-2, because their taxes are paid out through payroll as frequently as every pay period to every quarter. Why Make Quarterly Tax Payments? Making these payments throughout the year is essential for several reasons: Avoid Penalties and Interest The IRS requires that you pay taxes as you earn income. If you wait until tax season, you may face penalties for underpayment, in addition to the interest that accrues on those unpaid taxes. By making quarterly payments, you ensure that you’re staying on top of your tax obligations. Manage Your Cash Flow Paying your taxes in installments rather than a lump sum can make it easier to manage your business or personal finances. Quarterly payments are typically calculated as a percentage of your expected income for the year, so you can budget accordingly and avoid any surprises at year-end. Lower Your Year-End Liability By proactively paying taxes on your income throughout the year, you’re essentially prepaying your tax bill. This helps lower the amount you owe when you file your return, reducing your chances of being hit with a substantial balance due. How to Calculate Your Quarterly Tax Payments To calculate your estimated tax payments, follow these simple steps: Estimate Your Total Income for the Year Start by estimating how much income you expect to earn for the year, including self-employment income, dividends, and other taxable sources. For those who run their own business, it is essential to make sure your books are up to date to make sure that your calculation is accurate. Calculate Your Tax Liability Apply the appropriate tax rates to your estimated income. If you are a business owner, at a minimum 15.3% of your income from your business is self-employment tax. On top of that, you will have to calculate Federal and State Income tax If you’re unsure about tax rates, you can use IRS Form 1040 instructions , which includes worksheets to help calculate your Federal liability. Depending on your state, you may have to look for the instruction equivalent for your state. Divide Your Tax Liability Once you know your total estimated taxes for the year, divide this amount by four to determine how much to pay each quarter. Payments are due on April 15, June 15, September 15, and January 15 of the following year for individuals. How to Pay Your Liability There are multiple ways to set up quarterly payments. They can be done online through the IRS website and your state department of finance by creating an account for yourself and making the payments through the online portal . If you have your prior year tax return prepared by a professional, you could ask them to either efile estimates for you for the next year or print out estimate vouchers for you. Be aware that you will need to keep track of if you have enough money in your account when the payment is due if you have the professional efile. If you have estimate vouchers printed, you must mail the estimates in with either a check or money order. What Happens If You Don’t Make Quarterly Payments? If you don’t pay enough taxes throughout the year, you could face a hefty tax bill, penalties, and interest charges. The IRS may also require you to pay estimated taxes for the following year in advance, which can create financial stress. Conclusion Quarterly tax payments are a simple yet effective way to reduce your tax liability and avoid penalties. By planning ahead and making consistent payments, you can manage your finances more effectively, stay compliant with tax laws, and ensure that tax time is less stressful. Be proactive, calculate your estimated taxes, or ensure you have a professional who will keep you up-to-date, and remember to pay on time. It’s a smart strategy for keeping your financial house in order and ensuring you are not stressed out by the IRS or your state finance department. At Pathfinder, we’re able to help you navigate the tax complexities as well as bookkeeping to make estimates a breeze. See our tax planning  and bookkeeping services for more information.

In 2023, the federal government introduced an exciting opportunity for homeowners to save money while enhancing the sustainability of their homes. The Energy Efficient Home Improvement Credit offers a tax break for homeowners who invest in energy-efficient home improvements. If you’re considering upgrading your home, this tax credit can help reduce the cost of energy-efficient materials and improvements. What is the Energy Efficient Home Improvement Tax Credit? Homes are a large part of an American's wealth. Making Improvements can help not only in value and energy costs, but in tax benefits as well. Per the IRS , the Energy Efficient Home Improvement Credit allows homeowners to make qualifying upgrades to their homes and reduce their federal tax burden. This credit helps homeowners offset costs related to making their homes more energy-efficient, which can include upgrades to doors, windows, insulation, water heaters, and more. Starting in 2023, this credit makes sustainable home improvements more affordable. How to Qualify for the Energy Efficient Home Improvement Credit To qualify for the Energy Efficient Home Improvement Credit, your home must meet certain criteria: Location:  Your home must be located within the United States. Type of Home:  The property must be an existing home. Primary Residence:  In most cases, the home must be your primary residence. Landlords of residential property do not qualify for this credit. What Qualifies for This Tax Credit? This tax credit mostly only covers the costs of purchasing materials for energy-efficient improvements. The total credit is 30% of the costs of these materials and improvements. Here are some of the materials that qualify: Exterior Doors Must meet Energy Star requirements. Credit of up to $250 per door, with a maximum of $500. Exterior Windows and Skylights Must meet Energy Star Most Efficient certification. Maximum credit of $600 for all windows and skylights. Insulation and Air Sealing Materials Must meet the International Energy Conservation Code (IECC) standards that were in effect at least 2 years before claiming the credit. No stated maximum for materials, but the total credit is capped at $1,200 for insulation and air sealing. Home Energy Audits Includes a written report from a certified home energy auditor. Maximum credit of $150 for the energy audit. Energy Efficient Appliances (e.g., Natural Gas/Propane/Oil Water Heaters, Furnaces, and Central Air) Must meet or exceed the Consortium for Energy Efficiency (CEE) highest efficiency tier. Credit of $600 per item installed, including labor costs. Heat Pumps and Biomass Stoves Electric or natural gas heat pumps, heat pump water heaters, biomass stoves and boilers. Must meet same efficiency standard as energy efficient appliances above. Credit of up to $2,000 for these materials and installations. Maximize Your Tax Credit: What’s Covered and How Much Can You Save? The maximum tax credit you can claim per year is $3,200. Here’s how the credit breaks down: $1,200 for improvements like windows, doors, energy audits, insulation, natural gas water heaters or furnaces, and central air conditioners. $2,000 for high-efficiency electric water heaters, heat pumps, and biomass stoves. How the Energy Efficient Home Improvement Credit Can Help You Save Money Imagine you’re planning a major home improvement project—replacing insulation, installing new energy-efficient windows, and upgrading your exterior door. Let’s break down how you can benefit from the Energy Efficient Home Improvement Credit. For example, you decide to replace old insulation with high-efficiency insulation, install energy-certified windows, and upgrade your exterior door. You also replace your old water heater with an electric energy-efficient model. After applying the tax credit, your out-of-pocket costs for these improvements might be significantly reduced. Here’s how: The breakdown of costs and tax credits allowed for potential improvements of a home from the above example These upgrades will not only save you money upfront but also help lower your long-term energy costs. Ready to Make Your Home More Energy Efficient? Contact our professionals today to see if your home improvements qualify for the Energy Efficient Home Improvement Credit. Start saving money on your taxes and invest in sustainable upgrades for your home. With reduced energy costs and a lower tax burden, there’s never been a better time to make your home more energy-efficient.

As a small business owner, choosing the right business structure for your company is one of the most important decisions you’ll make. The most common legal structure that protects small business owners is the Limited Liability Company (LLC). The main benefit of starting an LLC is the legal protection it provides by ensuring that owner liability is limited to the business for anything that happens within the business. In this article, we'll explore the fundamentals of the tax structures of LLCs, and when and if it would be advantageous to elect to become an S-Corporation. By the end, you'll have a clearer understanding of how to optimize your business structure for tax efficiency and legal protection. What is an LLC? An LLC is a business structure that provides liability protection to its owners (called members) while allowing for pass-through taxation. Pass-through taxation means that the LLC itself does not pay income tax. Instead, profits and losses are passed through to the individual members' personal tax returns. For example, if you are the sole owner of an LLC with a default taxation structure and make $100,000 in profit in the year, you report that $100,000 on your personal tax return. You will pay taxes based on your personal tax bracket as well as self-employment taxes. Additionally, the LLC structure helps protect the personal assets of its members from business liabilities, such as lawsuits or debts. One of the most attractive aspects of an LLC is its flexibility. LLCs can be managed by the members themselves or by hired managers, and they can be treated as a sole proprietorship, partnership, or corporation for tax purposes. What is an S-Corp? An S-Corp is a tax designation granted by the IRS. It's important to note that an S-Corp is not a separate business entity like an LLC or a corporation. Instead, it is a tax classification that allows the business to benefit from certain tax advantages. The main benefit of electing S-Corp status is that it allows the business to avoid self-employment taxes on a portion of its income. Self-employment tax (which is essentially the Social Security and Medicare tax) is typically applied to the total net income of a business owner. However, with an S-Corp, you can pay yourself a reasonable salary and distribute the rest of the profits as dividends. Dividends are not subject to self-employment tax, which can lead to substantial tax savings. To qualify for S-Corp status, the business must meet specific criteria, including having no more than 100 shareholders, all of whom must be U.S. citizens or residents, and having only one class of stock. LLC vs S-Corp: Key Differences for Small Business Tax Purposes While both LLCs and S-Corps offer limited liability protection and pass-through taxation, the difference lies in how income is taxed, as well as compliance and formalities. Self-Employment Taxes : LLC owners who are actively involved in the business must pay self-employment taxes (around 15.3%) on all the business’s income. In contrast, an S-Corp owner only pays self-employment tax on their salary, not on the profits that are distributed as dividends. Salary vs. Distributions : With an S-Corp, you can take a "reasonable salary" (which is subject to payroll taxes) and then take the remaining profits as distributions. The distributions are not subject to self-employment taxes, potentially saving you a considerable amount in taxes. On the other hand, an LLC owner pays self-employment tax on all profits, regardless of whether they are taken as a salary or distributions. Formalities and Compliance : S-Corps have more stringent operational requirements than LLCs. For example, S-Corps must issue stock to shareholders, hold annual meetings, and record meeting minutes, which can create extra administrative work. Costs for tracking owner’s basis and tax returns also go up when making this election. LLCs have fewer formalities and can be more flexible in their operations. Separation between Owner and Employee : Owners who make a habit of mixing personal and business expenses should be cautious with an S-Corp as you are treated as an employee first, not an owner. If you pay expenses with the business card, the amounts need to be reported in your wages, and you must personally pay taxes on fringe benefits of using the company card. The costs of hiring someone to keep up with these expenses can become a concern, especially if the business is audited by the IRS. When Should an LLC Elect S-Corp Status? Many small business owners operating as LLCs may wonder when it makes sense to elect S-Corp status. The key factor to consider is whether you can benefit from the self-employment tax savings that S-Corp status offers. Here are some qualifications and considerations in which it might make sense for an LLC to elect S-Corp status: When Your LLC Is Making a Profit - If your LLC  is profitable and you’re paying yourself a draw, you’re paying self-employment taxes on all of the business’s profits. This can add up quickly and eat into your income. By electing S-Corp status, you can take a portion of your earnings as distributions, which are not subject to self-employment taxes. This can result in significant tax savings. To maximize the S-Corp election, the business should wait until making at least $100k in profit. This allows you to take advantage of the tax savings of not paying self-employment taxes on wages, as well as still being able to take advantage of the 199A business deduction. When You Want to Reduce Your Self-Employment Taxes - One of the biggest advantages of an S-Corp is that only your salary is subject to self-employment taxes. If your LLC’s income exceeds a certain threshold, electing S-Corp status could reduce your overall tax burden. For example, if your LLC earns $150,000 in profit, you can pay yourself a reasonable salary (say $80,000) and take the remaining $70,000 as distributions, avoiding self-employment tax on the $70,000. An example of this tax savings scenario is found below for a business which makes $100k a year: Example of an S-Corp Election tax savings for a business making $100k. When You Meet the IRS Requirements - To elect S-Corp status, your LLC must meet specific IRS requirements, such as having fewer than 100 shareholders and having only one class of stock. If your business meets these criteria, electing S-Corp status may be an option worth considering. Costs and Considerations of Electing S-Corp Status While there are tax savings associated with an S-Corp election, there are also additional costs and administrative tasks to consider. Increased Complexity : An S-Corp requires more administrative work compared to an LLC. You’ll need to file additional paperwork with the IRS (Form 2553 to elect S-Corp status) and comply with other corporate formalities like issuing stock, holding meetings, and ensuring all expenses are properly accounted for and anything personal is taxed back to you, the employee. This leads to higher legal and accounting fees due to the increased formalities. Reasonable Salary Requirement : The IRS requires S-Corp owners to pay themselves a "reasonable" salary. If you don’t pay yourself a reasonable salary and instead take most of the profits as distributions, the IRS may reclassify the distributions as salary and impose penalties. Be sure to consult with a tax advisor to determine what constitutes a reasonable salary. State-Level Considerations : Some states may impose additional taxes or fees on S-Corps. Illinois charges a 1.5% replacement tax on the profits from an S-Corp. Make sure to check your state’s regulations to determine how they will affect your decision. How to Make the S-Corp Election To elect S-Corp status, you'll need to file IRS Form 2553, "Election by a Small Business Corporation," with the IRS. You must file this form within two months and 15 days of the start of the tax year in which you want the election to take effect. Once your S-Corp election is approved, it will apply to the current and future tax years. Conclusion Choosing whether to elect S-Corp status for your LLC depends on various factors, including your business’s profitability, the amount you pay yourself in salary, and your desire to reduce self-employment taxes. If you’re running a profitable business and are ready to take advantage of the potential tax savings, an S-Corp election could be a smart move. However, there are costs and administrative responsibilities associated with making the election. At Pathfinder Accounting & Tax, we’re able to help you evaluate whether this option is the best fit for your business. With careful planning, you can make the most of both your LLC structure and S-Corp election to optimize your business’s tax situation and financial success.

As we are closer to the tax season deadline, both businesses and individuals need to stay alert to make sure they have made all of their income tax filings. Missing these dates can result in penalties, interest, and unnecessary anxiety. An understanding of the tax timeline allows for effective planning and ensures compliance with tax duties. This article details important tax deadlines for 2025, along with practical tips for managing them efficiently. Key Deadlines for Individuals For individuals, the deadline to file tax returns for the previous year is April 15, 2025. This marks the main deadline for most taxpayers. To avoid last-minute stress, begin gathering necessary documents early. Typical items include: W-2 forms from employers 1099 forms for freelance, gig work, or investment accounts 1098 forms for student loan interest expense Proof of relevant deductions such as mortgage interest or charitable contributions if you itemize If you need more time, you can request an extension by filing Form 4868. This extends the deadline to October 15, 2025. However, remember that this extension is for filing only; any tax owed must still be paid by the original April deadline. For instance, if you owe $2,000, you still need to pay that amount by April 15 to avoid penalties. Tax Deadlines for Businesses Businesses have their own set of important deadlines. For calendar-year corporations, the deadline to file Form 1120 (corporate income tax return) is April 15, 2025, just like the personal tax return. If filing an extension, corporations can push this deadline to October 15, 2025. Partnerships and S-Corps are required to file earlier with a deadline of March 15 for filing either Form 1065 or 1120-S. Similar to every other entity, partnerships and S-Corps can extend this deadline by 6 months to September 15 if they file for an extension. Keeping track of these dates can help avoid penalties; for example, corporations and individuals can face a minimum penalty of $510 for not filing either an extension or tax return within 60 days of the deadline. Close-up view of a calendar with important tax dates highlighted Estimated Tax Payments Both individuals and businesses often have to make estimated tax payments throughout the year. These payments are typically due in quarterly installments on the following dates: April 15 June 15 September 15 January 15 of the following year If business owners do not submit these payments, it can lead to potential underpayment penalties. Thus, it's critical to calculate and make these payments accurately and on time. State-Specific Deadlines In addition to federal deadlines, states often have their own tax filing dates and requirements. It's wise to check with your local tax authority to find crucial deadlines that could affect your overall tax strategy. For example, Illinois may offer a different deadline compared to Missouri. Tips for Staying Organized To prepare effectively for the upcoming tax season, consider these practical strategies: Create a Checklist : Make a detailed checklist that includes all required documents and deadlines. This approach helps keep you organized and minimizes the chance of missing important items. Engage a Professional : Think about hiring a qualified tax professional or accountant. They can assist you in navigating the complexities of tax filings and may help you uncover potential savings. Save a portion of any money received : Depending on what industry your business is in, save between 10% if you're in a low margin business like a restaurant, to 25% if you're in a high margin business like consulting, for taxes for quarterly payments. Navigating the Tax Landscape Being aware of tax deadlines is essential for both individuals and businesses. By tracking these important dates, estimating payments, and implementing organizational techniques, you can keep everything running smoothly during tax season. Stay proactive, plan ahead, and consult experts as needed to handle the complexities of taxes with confidence.

Wait Staff reporting tips. When these are reported, the employer has to pay their portion of the payroll taxes. Restaurants are able to take a credit for these taxes paid above the federal wage of $5.15 an hour. As a restaurant owner, you know that tips are a significant part of your employees' compensation. What you may not realize, however, is that you could be eligible for a valuable tax credit known as the FICA Tip Credit . This credit is designed to help offset the employer’s portion of Social Security and Medicare taxes on tips received by employees. By taking advantage of this credit, restaurant owners can lower their overall tax burden, putting more money back into the business. In this blog post, we’ll explain what the FICA Tip Credit is, who qualifies, and how you can take advantage of it to reduce your tax liability. What is the FICA Tip Credit? The FICA Tip Credit  is a tax credit available to employers who have employees that receive tips as part of their compensation. FICA stands for the Federal Insurance Contributions Act, which is the law that governs Social Security and Medicare taxes. Typically, employers are required to match the Social Security and Medicare taxes that employees pay, which are withheld from their wages. When your employees receive tips, these tips are subject to FICA taxes. However, the IRS recognizes that tips are often underreported or may not be fully accounted for. As a result, the FICA Tip Credit allows restaurant owners to claim a credit for the employer’s portion of Social Security and Medicare taxes on the tips paid to employees. Who is Eligible for the FICA Tip Credit? Restaurant owners and employers in similar service-based industries can claim the FICA Tip Credit if: The business is subject to FICA taxes : This typically applies to restaurants, bars, hotels, or other establishments where employees are likely to receive tips. Employees receive tips : To qualify, the employee must earn tips that are reported to the employer and subject to FICA taxes. The employer pays Social Security and Medicare taxes : The restaurant owner must be paying the employer’s portion of Social Security and Medicare taxes on the tips. The tips are properly reported : Employees must report their tips to the employer, and the employer must document and account for them correctly. If these conditions are met, the restaurant owner can claim the FICA Tip Credit, which can lead to substantial tax savings. How is the FICA Tip Credit Calculated? The FICA Tip Credit is calculated based on the amount of tips reported by employees and the employer’s FICA tax liability on those tips, past the federal wage per hour of $5.15. The credit is equal to the employer’s portion of Social Security and Medicare taxes on the tips. Here ’s how it works in practice as an example: Your tipped employees work a total of 2000 hours in the year. The Federal wage not subject to this credit is $5.15 an hour, for an exclusion of $10,300 ($5.15*2000 hours). The reported wages and tips for the tipped employees in the year is $15,000. The tips eligible for this credit are $4,700 ($15,000-10,300). This amount you will multiply by the employer portion of payroll taxes, 7.65%. The final credit that the employer can claim is about $360 ($4,700 x 7.65%). The credit reported can be used as a credit against the owners taxes when it comes to do their personal tax return. It is a great way to help out owners decrease their tax liabilities in an industry that already is known for razor-thin margins. How to Claim the FICA Tip Credit for Restaurants To claim the FICA Tip Credit, you’ll need to file IRS Form 8846 , titled "Credit for Employer Social Security and Medicare Taxes Paid on Employee Tips." This form allows you to report the total tips your employees received, as well as the amount of FICA taxes you paid on those tips. Form 8846 is filed with your regular business tax return (or Form 1040 for sole proprietors) and must be submitted by the due date of the return, including extensions. Be sure to keep accurate records of all tip reporting and FICA tax payments. The IRS requires employers to maintain detailed records for at least four years to support any claims made on Form 8846. Key Benefits of the FICA Tip Credit Lower Tax Burden : The FICA Tip Credit directly reduces the employer’s tax liability by allowing you to offset the cost of Social Security and Medicare taxes on tips. This can result in significant savings, especially for businesses with many tipped employees. Increased Cash Flow : By reducing your tax liability, the FICA Tip Credit frees up cash that can be reinvested in your business. You can use the savings for other operational expenses or invest in growth opportunities. Encourages Accurate Tip Reporting : The credit incentivizes employers to ensure tips are properly reported and documented, which can lead to better compliance with IRS regulations. No Cap on Claimable Amounts : While there is a minimum threshold for the credit, there is no maximum cap on the amount you can claim. This means the more tips your employees report, the more you can benefit from the credit. Common Pitfalls to Avoid While the FICA Tip Credit can offer valuable savings, there are some common mistakes that restaurant owners should be aware of: Failure to Report Tips Accurately : Employees must report their tips to their employers, and the employer must accurately report those tips to the IRS. Inaccurate or incomplete tip reporting could disqualify you from claiming the credit. Not Filing Form 8846 : Many restaurant owners fail to file the necessary form to claim the credit. It’s essential to file Form 8846  by the tax deadline to take advantage of the FICA Tip Credit. Missing Documentation : Proper documentation is key to substantiating your claim. Keep detailed records of employee tip reports and any related FICA taxes paid. Final Thoughts The FICA Tip Credit is a great opportunity for restaurant owners to reduce their tax liability and maximize savings. By understanding how the credit works and ensuring proper reporting and documentation, you can take advantage of this valuable tax benefit. If you’re unsure whether you qualify or need assistance filing the necessary paperwork, consult with our CPA and setup a meeting before the tax deadline to ensure you're getting the most out of this credit as a restaurant owner. Taking the time to claim the FICA Tip Credit could result in significant savings for your business, allowing you to focus on what matters most: running a successful restaurant.

An accountant diligently fills out a financial form, using a calculator for precise calculations at a modern office desk. As a business owner, the last thing you want to think about is how and when you have to pay money to the government. Some business owners are under the impression that taxes are a one-and-done process during tax season. Unfortunately, there are many situations where the business needs to remain compliant beyond the annual tax return. These include: Quarterly returns for payroll Quarterly tax estimates for income tax and replacement taxes Monthly returns for sales tax The taxes that apply to you depend on multiple factors, including your industry, whether you have employees, your expected income, and your entity structure. Below is a deep dive into what taxes may affect your business: Payroll Taxes If you have employees, or you are considered an employee in an S-Corp or C-Corp, you will need to pay payroll taxes related to your employees' wages. Most payroll processing services will file your payments and quarterly returns on behalf of the business. State Requirements: Depending on your state, but the state of Illinois requires payments either monthly or semi-weekly with a quarterly return filed. Federal Requirements: Federal payroll taxes are paid monthly, semi-weekly, or quarterly with a quarterly return filed. Note: Unless the business is taxed as an S-Corp or a C-Corp, the owner cannot be a W-2 employee with these payroll requirements. Sales Tax If your business sells products to customers, including food, clothes, or any other tangible items, you will have to pay sales tax to the state where the products were sold. Complexity: This area is often the hardest to determine depending on your industry, especially for service-based businesses like plumbers, electricians, mechanics, or handymen. Payment and Return: Normally required monthly for the previous month. Quarterly Estimates To avoid interest and underpayment penalties, businesses and owners need to make quarterly payments based on expected income. Entities: S-Corps and C-Corps may be subject to a replacement tax depending on your state, as well as C-Corp Federal income tax Business Owners: Subject to self-employment taxes and income taxes. Conclusion Staying on top of your business's tax obligations is crucial to maintaining compliance and avoiding costly penalties. While the annual tax return might seem like the main event, it's important to remember that taxes extend throughout the year. From payroll taxes to sales tax, quarterly estimates to replacement taxes, each requirement depends on your specific business situation. The complexity of tax rules can vary based on your industry, business structure, and whether you have employees. It’s always best to work with a knowledgeable accountant, like us here at Pathfinder, to ensure everything is in order. By keeping track of your tax deadlines and responsibilities, you can focus on growing your business with peace of mind, knowing your taxes are taken care of.

The US Supreme Court partly cleared the way for Benficial Ownership Reporting The Supreme Court on January 23rd, 2025 made a decision to grant the federal government a motion to stay for the case, Texas Top Cop Shop, Inc. v. McHenry —formerly, Texas Top Cop Shop v. Garland, which was one of two cases pausing the requirement for Beneficial Ownership Reporting as part of the Corporate Transparancy Act, or CTA, which was due to start racking up eye watering fines for the federal government at the beginning of 2025. The CTA was signed into law back in 2021 to combat money laundering, tax evasion, and trafficking to name a few. The information that is submitted to the Financial Crimes Enforcement Network (finCEN) is meant to only be disclosed to authorized government authorities and financial institutions.  The required information would have been used to disclose the owners of more than 25% of any business, or a beneficial owner. Most small business entities which have filed with their Secretary of State, mostly Limited Liability Companies and Corporations, would have been required to file this report and to keep them up to date in case of any ownership changes, including address change of any owners within 30 days of said change.  The US Supreme Court granting the motion to stay means nothing in the immediate, as there is a separate case, Smith v. U.S. Department of the Treasury, that also paused enforcement of this reporting, which has yet to be decided. It does mean the federal government is one step closer to enforcing the Beneficial Ownership Information requirements though. Businesses can still file these reports voluntarily to ensure that they are not caught offguard if the second case is decided in favor of the federal government. All businesses are able to do this reporting themselves and FinCEN even provides a guide on how to do it: