Turn Taxes Into Opportunities: Expert Advice for Small Business Owners

Taxes as a small business owner can be stressful and confusing. To help make it a little easier, we tapped two seasoned tax professionals, Talibah Bayles, founder and CEO of TMB Tax and Financial Services, and Carolyn Walters, founder of Financial Solutions Accounting and Tax, to share their insights to make informed decisions about their tax strategy.

Here’s how these experts suggest you turn tax obligations into business opportunities. 

The Emotional Reality of Tax Season

"We probably all have one word that goes along with taxes: anxiety," Bayles notes. If you’re a small business owner, you can probably relate. Tax responsibilities can be overwhelming, especially those who are self-employed. 

Both experts emphasize that understanding the basics, particularly tax deadlines, is the  first step to managing this anxiety.

For individual taxpayers, including sole proprietors and single-member LLCs, April 15th is the most widely recognized deadline. However, as Bayles points out, S corporations and partnerships face an earlier March 15th deadline. 

"The reason why you have an earlier deadline is because of how you're filing those taxes,”  Bayles explains. “Information has to be distributed to your officers, your shareholders, and other owners." This 30-day buffer ensures stakeholders have sufficient time to incorporate business information into their personal returns.

Organization: The Foundation of Tax Success

Beyond deadlines, both experts emphasize the importance of systematically organizing tax documents. "Being organized is a big part of all of this," Walters stresses. She recommends establishing a dedicated place—whether a folder or file cabinet—specifically for tax documents.

Walters is particularly passionate about checklists. "I am a big proponent of checklists," she shared. "And I say this because oftentimes we run in to get taxes done and we forget things." 

She advises clients to create personalized checklists tailored to their specific situations rather than relying solely on generic templates. This attention to detail helps ensure that when tax time arrives, nothing falls through the cracks.

The experts reminded listeners that employers, financial institutions, and other entities must provide tax documents like W-2s and 1099s by January 31st. Having these documents organized and easily accessible makes filing not just timely but accurate. 

"Preparing your return as accurately as possible is definitely, most definitely something that we need to do," Walters emphasized.

Understanding Business Entity Options

Choosing the right business entity structure represents one of the most consequential decisions a business owner makes, with implications extending far beyond taxation. Walters walked through the progression of entity complexity, starting with sole proprietorships.

"The sole proprietorship is pretty much the most basic entity there is—your social security number is your tax ID number," Walters explained. For many starting entrepreneurs, this simplicity offers advantages, including fewer regulations and straightforward tax filing via Schedule C on their personal returns.

Limited Liability Companies (LLCs) have gained tremendous popularity in recent years. "It's a good thing because what it does is it steps us a level above sole proprietorship and can give us some protection from liability," Walters noted. Single-member LLCs are treated as "disregarded entities" by the IRS, essentially taxed like sole proprietorships, while multi-member LLCs default to partnership taxation.

When discussing S corporations, both experts highlight the unique advantage of this business tax structure. 

"The thing with an S-Corp that many people appreciate is that subject to self-employment tax (the same way) you are in a sole proprietorship, single member LLC and a partnership," Walters explains. She clarifies that S corporation owners who work in their business should be on payroll, with appropriate withholding and FICA contributions, potentially resulting in overall tax savings.

Bayles adds an important clarification about S corporations: "An S-corp is actually a tax filing status." She explains that LLCs or even C corporations can elect S corporation tax treatment by filing the appropriate forms with the IRS. 

"If you're starting your business, request it then," she advises, though she notes that existing businesses have "three years and 75 days from the date of formation at your state level" to make this election.

The Strategic Connection Between Taxes and Funding

For many small business owners, connecting taxes to their broader business strategy, particularly funding, is a light bulb moment. Business owners often don’t realize how taxes and funding tie together until their loan application is denied, Bayles observes. 

Many business owners focus so intently on minimizing taxes that they inadvertently harm their chances of securing loans or investments.

"Traditional lenders...they are going to look for two to three years of tax returns," Bayles explains. While minimizing taxable income might save on immediate tax obligations, showing continuous losses can make lenders hesitant.

Walters adds that S corporations offer unique validation advantages when seeking funding. "What is happening there is if you are a shareholder and you own the company, you should be getting a paycheck, a W-2," she notes. This creates a paper trail that lenders find reassuring. "That helps validate you because now for funding and for loans...they see you're getting on a W-2 from ABC company."

Even for sole proprietors, Walters recommends documenting regular owner draws. "If you're taking a thousand dollars every month, for example, document that every month because that also can show even though you don't have a W-2 that you are consistently receiving income," she advises.

Navigating Business Losses Strategically

Losses are common in early business years, both experts acknowledge, but caution against viewing them exclusively as tax advantages. 

"It's great to have losses because it helps reduce your taxable income. But if you're in a business that you want to work, work well and grow, and you're looking for funding, you're looking for other things to help you strategically get to that level, you want to consider these things," Walters notes.

She points out that during COVID-19, many small businesses discovered a painful reality: grant programs often required evidence of net income rather than losses. "A person can't qualify for those grants because you've been showing losses for the past five years," she explains.

Walters recommends regular strategic reviews of business operations if your business is continuing to lose money. "Are you spending more on supplies that you need? Are you being drained by the vendors (who may not be offering) the best price?" she suggests asking. She also emphasizes evaluating whether all products and services are truly profitable, advising owners to consider dropping those that consistently underperform.

Thinking Strategically About Entity Changes

When should a sole proprietor consider incorporating? Bayles encourages business owners to think about how taxes can work advantageously for their broader goals. "If this is this thing that I have to do because the IRS is expecting me to do this, then how can I leverage this and make this work for me?" she asks.

She specifically points to funding considerations. "If you were to say, I am going to start a business because I want to start building business credit... Well, now you have incentive to actually create an LLC because again, you want to begin that journey of separating your social from your EIN."

Walters adds another crucial consideration when deciding whether to form a business entity: liability exposure. 

"A big thing for me is liability. What are your exposures?" she asks, giving the example of someone who starts a home daycare. As the business grows from caring for one child to many, the liability exposure increases substantially, making entity protection more valuable.

When to Get Help

Working with professionals who understand not just tax compliance but tax strategy can give your business an added edge. 

"Just because someone does taxes does not mean that they are tax strategists and that they know how to work with business owners to understand the process of the link between your taxes, your financial statements, and that loan application," Bayles cautions.

Walters adds that ignorance is not a valid excuse with tax authorities: "The IRS is going to hold you accountable for the entity you have and no longer can you say, 'I didn't know.' That doesn't fly in this day and time."

The experts encourage business owners to shift their perspective: rather than viewing taxes merely as a burdensome obligation, see them as an integral component of business strategy that can help build credit, secure funding, and create a foundation for sustainable growth. 

By taking a proactive, informed approach to taxation, small business owners can transform what many consider a necessary evil into a strategic advantage.

Featured experts

Carolyn Walters, founder of Financial Solutions Accounting and Tax

Talibah Bayles, CEO of TMB Tax & Financial Services. 

Watch the full webinar with tax pros Bayles and Walters