Transcription
If I were starting a new business tomorrow, knowing everything I know from a decade of dealing with the IRS, here are the top three tax items that I would focus on.
This isn't theory, fluff, or some Dreamland version of how taxes should work. This is based on real tax law and how the IRS actually operates, so you can prevent making mistakes that I see business owners do all the time, costing them thousands of dollars.
And if you don't know me, I'm Jasmine Deluchcci. I'm a tax attorney, CPA, and enrolled agent. My day-to-day is actually running my CPA firm and my tax law firm. But I started posting on social media and created a free tax law community after a decade of practicing tax because real tax help with actual tax law should be available to everyone.
The first thing I would do is keep it simple. Okay, so here is what I would not do. I would not start a C corp because I saw someone on TikTok say that billionaires use them. I would not file an S corp election with zero dollars in revenue. And I would not spend three weeks debating whether I need a Wyoming LLC and a Delaware holding company when I live and run my business from Texas.
What I would do is form a simple LLC in my home state and keep the default tax classification at first, because when you have no revenue, you don't need complexity. You need clarity. That way, you've got all tax entity options available for your LLC, but you don't increase your costs and administrative burden before you've even started.
I've worked with thousands of businesses over the years, and from what I've seen, the business owners who stay small tend to overanalyze their setup before they have a real business. And the business owners who grow large businesses focus on having the legal and tax basics and put all the rest of their energy into growing the actual business income first.
Here's a few good litmus tests, okay? You should not be considering extra entities in compliance until: first, you are fully informed of all the ongoing fees associated with maintaining the entities, which include the annual filing fees, registered agent fees, bookkeeping costs, and the cost of the tax returns; and two, you understand the benefit of additional entities and you're sure that those benefits exceed the costs; three, if you have multiple business activities, then you want to make sure you have enough cash in each entity and separate enough operations that you're able to avoid comingling transactions between the entities and you're ready to keep a separate set of books for each entity.
This list is quite literally the bare minimum for there to be any value at all to having multiple entities, since the whole point is to benefit from the complexity. And one of those benefits is usually separate legal protection, which you do not get if you have co-mingling, under capitalization, no books, and missing compliance like defunct entities with the state. Business is complex enough as it is. The great business owners keep it simple in the early stages and allocate their time and money toward activities that will increase their revenue and profit.
Number two is hire someone good for tax and accounting or learn it yourself. I've seen way too many people treat accounting and tax like an afterthought. If I wasn't going to hire someone qualified to do my bookkeeping or file my returns, then I would learn enough to protect my business and do it myself.
The reason it makes sense to hire someone good is because they have substantially more expertise than you, okay? But no one will care more about you than you. So to state the obvious, you do not want to outsource your tax and accounting to someone who has little to no advanced expertise, because that combined with them caring less about you and your return and books creates some of the biggest disasters I've seen.
If you don't know this, you should. Tax and accounting services do not require a license. Let me say that another way. Your hairdresser is required to have a license. Your nails lady is required to have a license. Your tax preparer and accountant are not required to have a license to file a federal tax return or do your books.
The most severe IRS issues and tax bills I see are not when people do their own accounting and tax, though that can also be bad. But it's when I see underqualified preparers or accountants do the books or returns because the business owner decides that they don't need to be involved or review the information, and then the underqualified accountant makes careless mistakes that leave you wasting years untangling a mess with the IRS and leaving a lot of money on the table.
And if you're thinking, "Jasmine, I have no idea where to learn this stuff," you probably haven't visited my free tax community where I give all the information for free at actualtaxlaw.com. So there are no excuses. And my personal opinion is that you should know enough tax and accounting to have a pulse on your business finances, even if you're going to just hire someone else to do it.
Here's what happens when people don't make sure their tax and accounting is handled: First, they get an IRS notice 2 years after filing, adding income to their return with penalties and interest when it could have been prevented by reviewing their IRS transcripts. And if you don't know what that is, there is a free training in my community. Two, they trigger a taxable event and have no clue they did it, like moving real estate or a vehicle out of a corporation or exercising stock options with an AMT adjustment. Both of those situations give you a tax bill even though you didn't receive any cash. And for most people, that's a huge problem. And three, they take illegal deductions and then they miss out on legal ones, creating high exposure for an IRS audit. Good tax and accounting helps you actually save tax, prevent IRS penalties, save time and energy in dealing with the IRS, and it gives you real data to run your business.
All right, number three, open for business fast. This one is so underrated. You don't get to deduct business expenses just because you bought something and plan to open a business. You have to actually be in business. The IRS doesn't care that you've been building your brand for 6 months or paying a business coach. If you haven't actually launched anything, your expenses would be treated as startup costs or worse, as non-deductible hobby losses. So, if I were starting tomorrow, I'd do a soft launch, a bait round, anything that shows I'm actively selling something or offering a service. Because once you have an active trader business, you can start taking deductions under IRC 162A, ordinary necessary business expenses.
So, if I were starting a business tomorrow, I would keep it simple with an LLC and start with default tax treatment until there's revenue. Two, get real tax and accounting help or set it up properly myself. And three, go live fast so I can deduct my business expenses.
Starting your business with the right tax setup isn't about doing what's trendy. It's about doing what's smart based on the law. And if you want more of that kind of advice from someone who's actually a tax attorney and CPA and not just someone with a ring light and an opinion, then join my free actual tax law community where I do live workshops, Q&A, and I walk through real tax rules. And as always, for more actual tax law from a tax attorney, subscribe.