The tax season from January until April 15 could be one of the most stressful periods for many entrepreneurs. Unlike traditional employees, business owners must navigate estimated tax payments, deductions, and tax laws that may not be easy to understand for the general public.
According to Credit Karma, 46% of self-employed taxpayers say filing their taxes causes them more stress than paying their taxes. Meanwhile, a survey by Adobe found that only 1 in 3 people feel confident about filing taxes, highlighting the high levels of stress and uncertainty experienced during tax season.
This anxiety can often trigger a freeze response, leading some entrepreneurs to procrastinate or avoid dealing with taxes, resulting in missed deadlines, errors, or penalties. “Tax season stress is real, especially when you know you had a strong year and will owe a substantial amount. It’s the kind of stress that wakes me up in the middle of the night in early January,” Therese Waechter, Founder of Otto’s Grotto, told me. To help ease the burden, I spoke with different tax professionals about how entrepreneurs can better navigate this and future tax seasons, maximize deductions, and avoid costly penalties.
Can Entrepreneurs Count On A Tax Refund—And What Happens If They Don’t?
According to Credit Karma, 37% of taxpayers depend on their refunds to meet ends. However, although entrepreneurs could potentially receive a tax refund, “[they]
would have to pay self-employment taxes which pay in as the employer and employee throughout the year. And if they overpay, they can claim tax credits like child tax credit (CTC) or earned income tax credit (ETIC), or have enough tax deductions in their business that would allow them to get a refund,” Sandra Morno, MBA, and EA, tax strategist, said.
“If an entrepreneur overpays estimated taxes, they may get a refund. If they underpay, they will owe taxes plus possible penalties,” said Jamaal Solomon, EA and MST from J.S. Tax Corporation. “To prevent underpayment, working with an accountant and bookkeeper is highly recommended. Keeping all financial and legal professionals on the same page helps avoid tax issues down the line,” he added.
To summarize, the most effective way to reduce stress from the possibility of not receiving a tax refund is through year-round planning and working closely with financial professionals. They can guide you through the process, help you find the most adequate way of navigating it, or inform you about options you might not know.
Does Your Business Structure Affect Taxes—And Why Does It Matter For Filing?
As an entrepreneur, you may be figuring out different parts of your business while figuring out parts of your personal life as a business owner, so thinking about business structure affecting taxes may not be on top of your mind. However, it does affect tax liability and refund eligibility and it is something to consider even if you just have a side hustle. “My first time filing taxes as a freelancer, I was 22 years old and didn’t set enough money aside. It was a huge shock—I was devastated and completely unprepared to pay the amount of money I owed. Freelancing was just a side hustle at the time, and I was ignorant of how the system worked,” Kayla Ihrig from Writing From Nowhere told me.
Your business structure determines how your income is reported, how much you owe in taxes, and whether you are eligible for certain deductions or credits. For entrepreneurs experiencing tax anxiety, understanding how structure impacts taxes is one of the first steps to gaining clarity and control as it sets the foundation for informed decisions during filing season and in alignment with your future financial goals.
For instance, Solomon explained that “A Sole Proprietor or Single-Member LLC [limited liability company] reports business income on Schedule C of their personal tax return and must pay self-employment taxes (Social Security & Medicare). If they overpaid estimated taxes or qualify for deductions, they may get a refund.” For S-Corps and Multi-Member LLCs “[they] don’t pay taxes at the business level but pass income to owners through a K-1, which is reported on their personal tax return” he added.
What Are Key Tax Deductions And Credits That Can Increase The Chance Of A Refund?
The anxiety over taxes can lead to missed opportunities for maximizing deductions. If striving for a lower tax bill, understanding tax deductions beforehand is crucial so that you can support your accountant, bookkeeper, and tax professionals in the process. “Common deductions include home office expenses, vehicle mileage, business supplies, and retirement contributions. Credits like the Self-Employed Health Insurance Credit and the Qualified Business Income Deduction can lower tax liability and increase refunds. However, the key to increasing entrepreneurs’ chances of reducing tax liability or receiving a refund is consistent communication with their tax accountant throughout the year. You decrease your chances of receiving a refund significantly by only communicating with your tax accountant during tax season,” Solomon said.
Adopting a mindset that sees deductions as part of a broader financial strategy is key for entrepreneurs. You can start by making an inventory of everything you’ve used to run your business, then share that list with a tax or finance professional so they can help identify what’s deductible and guide you through proper documentation. Developing this habit throughout the year, not just during tax season, can reduce stress and support better financial decision-making.
What’s New For Tax Year 2024 That Entrepreneurs Should Be Aware?
Some tax credits, deductions, and income thresholds have changed, so entrepreneurs should check updated deduction limits and tax brackets. For instance “The IRS has adjusted tax brackets and increased the standard deduction to $14,600 for single filers and $29,200 for married filing jointly. Entrepreneurs should review how these changes affect their taxable income and estimated tax payments,” Solomon explained.
“The Social Security wage base has increased to $168,600, meaning entrepreneurs earning above this limit will no longer owe Social Security tax on additional income. However, they still owe Medicare tax on all earnings, plus an extra 0.9% Medicare tax on income over $200K (single) or $250K (married filing jointly),” Solomon continued. Additionally, “retirement contribution limits have increased, allowing entrepreneurs to contribute up to $23,000 to a Solo 401(k) and $7,000 to an IRA ($8,000 if age 50+), helping lower taxable income while boosting retirement savings. and for entrepreneurs investing in renewable energy it is important to check their eligibility for expanded tax credits under the Inflation Reduction Act, which includes incentives for solar panels, EVs, and energy-efficient upgrades.”
What Should You Do If You Have To Pay Taxes Instead of Getting a Refund?
If, instead of receiving a tax refund, as an entrepreneur, you find out you need to pay taxes, there are different ways you could tackle this. “[Entrepreneurs] can pay what they owe when they file to avoid extra penalties and interest. If they don’t pay right away, the IRS will send a letter with the balance due, but interest will keep adding up. If they can’t afford to pay everything at once, they can set up a payment plan at irs.gov/pmts to make smaller, manageable payments over time. The most important thing is not to ignore it. The IRS won’t forget, and penalties can add up quickly,” Morno said.
Although paying taxes instead of getting a refund may feel frustrating, a mindset shift could help navigate these times better. “If I owe taxes, it means my business made money. That perspective makes it a little easier to let go. Over time, I’ve become more proactive with tax planning to minimize surprises, but the emotional rollercoaster of tax season never really goes away,” Waechter said.
What IRS Tools and Resources Can Help Entrepreneurs Feel More in Control?
The recommendation is to go to the IRS website to get all the basic tax questions answered. Tools like “Where’s My Refund?” help check refund status, and the IRS Direct Pay tool is useful for paying taxes or checking balances. “The IRS Online Account also shows tax history, payments, and amounts owed. Every taxpayer should be comfortable with visiting www.irs.gov,” Solomon said.
Like many aspects of an entrepreneur’s life, taxes take time to understand and fully integrate into your routine. However, learning how your business structure affects filing, planning for deductions year-round, and leaning on professional support can reduce uncertainty and help you take back control, making this and future tax seasons more manageable and more strategic for you and your business.
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