Hey Sellers,
This week we’re talking taxes, with an article from Forbes reporting on increases in US federal income tax payments for private businesses of all sizes. I’d love to hear your thoughts and how businesses from other markets are handling tax bills in the comments below.
Forbes: Private Businesses Reach Their Tipping Point Over Increased Tax Bills
According to the report, certain US businesses that have had no profit changes are seeing a higher taxable income and larger tax payments for 2023. Forbes states that the increased payments aren’t coming from any new legislature, but rather kicking in from the 2018 Tax Cuts and Jobs Act. The big changes are decreases on tax deductions from: research and experimental expenses, interest on financing and loans, and purchases on certain assets that qualify for bonus depreciation. The loss of these savings can have a big impact, and can get worse in 2026 when the next set of changes kick in.
When I had my shop, we paid our tax bills quarterly, and it was always stressful. We would mostly be able to guess how much we would owe, and we used a separate business savings account to stash it away. We tried to have it as early as possible so we would have it ready no matter what extra expenses came up, but it was a challenge and always tight. And of course every now and then the bill would end up being more than we expected. It was all so scary and stressful, and we had to scramble a bit to reallocate funds by the time it was due to come out of our accounts. We had a decent amount of business loans each year, and losing any deductions from that interest would have definitely hurt us a bit.
What’s your perspective:
- Did you notice an increase in tax payments so far this year where you are based?
- What can you do to make sure you will be prepared to pay your tax bills, with or without increases?
Can’t wait to hear your thoughts!
Pesso
Interesting topic, @Pesso. Here’s our situation.
First, this is a reason that all of our businesses are LLCs — either partnerships or single-member ones. Federal tax laws, as well as those of most states, treat LLCs as something called pass-through entities. This means that all profits (or losses) are passed to us via a Schedule K-1 and is then taxes based upon our personal rate for that year. That personal rate is usually much lower than any standard corporate rate.
This also allows us to keep our CPA/tax advisor in the loop, since he prepares our rather complicated personal returns and advises us on quarterly payments we should make for the next year, etc. Each quarter we review the P&Ls for each LLC and start setting aside the necessary funds to pay both the federal and state taxes on those come tax time. Since all of our businesses are combined for this analysis, quite often that one business that is struggling can help eat up some of the tax liability for the ones that are doing well. It’s a win-win.
Anyway, since we’ve always used LLCs because they make sense for most small businesses like ours, we don’t care about corporate tax rates, and such.
Beautiful @Bronze_Palms. Square savings is how I “force” myself to do three things — set aside funds to cover the off-season bills, give me a cushion for the unexpected, and ensure a reasonable owner draw each month.
Like you, I don’t notice it usually. Sometimes I have to raid it when the unexpected is more unexpected than I planned for. Lol. But, overall. I sleep so much better at night knowing that money is there.
Before Square savings, I tried a dummy accounting entry on my books to “hide” funds. Of course, it was just a little too easy to get to when I got the urge. Automatic Savings is more of of sight, out of mind for me now.
