Today we are chatting with Bethany Swartwood, a Tax Partner who focuses on helping consultants save 'tens of thousands of dollars every year'.
Taxes, accounting, business law... all the things most people dread... What makes you excited about working on this stuff?
It's almost like knowing a book of spells and incantations that's reserved for a select few. However, my goal is to democratize high-end tax planning; it should be available to people with names other than Musk and Bezos. It also allows me to play with both numbers and words.
Why did you choose the niche of helping freelancers in your accounting career?
I grew up in a household supported by a business-of-one (my stepdad's construction company). I didn't fully appreciate it at the time, but growing up in a house with a self-employed breadwinner significantly shaped my world views (e.g. I believe in universal healthcare, because as a child I saw my parents pay tens of thousands of dollars in self-employed health insurance premiums every year, and they still nearly went bankrupt paying for my little sister's medical bills when she had childhood cancer (don't worry, she's still here ).
I guess this is my way of 'sticking it to the man'. If Uncle Sam doesn't want to provide any safety net for small business owners (who are supposedly the 'backbone of America'), then allow me to tell the government to put its money where its mouth is on your behalf via tax planning.
What's one common mistake you've seen freelancers make that costs them lots of dollars? Along the same vein, what's an underrated tax saving tactic?
Being paralyzed by this unspoken fear of the IRS. Many business owners are incredibly conservative or hesitant in what they claim as expenses, deductions, credits, etc. on their business income.
Remember: 'don't ask, don't get', the IRS isn't going to give you anything out of the goodness of their hearts. (It also doesn't help that many self-employed people purposely tamp down their expenses to make their income look higher for mortgage purposes... lucky for everyone, we have a great partner that specializes in self-employed mortgages).
Favorite underrated tax savings tactic: 'research & development credits' for businesses-of-one.
What's are the 3 biggest opportunities for a consultant to minimize their taxes?
- Tax structure - there's a lot of LLCs that should be S Corps, and some S Corps that should be C Corps, and it's not always one-size-fits-all or that one structure is perfect forever
- Expenses - not writing off everything related to their business, if it's an ordinary and needed expense and related to your business, write it off!
- Maximizing any and all applicable tax savings plans - HSAs and FSAs are great to use for medical expenses, DCAP (Dependent Care Assistance Plans) for childcare expenses, etc.
How can a new consultant think about LLC vs S-Corp vs C-Corp?
- Schedule C (sole proprietor/single-member LLC) - all business income is reported in your personal return on Sch C, all income is subject to both social taxes (aka self-employment taxes, FICA, payroll taxes, social security & medicare) and income taxes.
- S Corp (file an S election with Form 2553) - while all business income is subject to income taxes, only a portion of the earnings are deemed to be 'earned wages' and are subject to social taxes (think $12,000 to $15,000 in savings for every $100,000 of profit). S Corps do have business tax returns that must be filed, but all the income and taxes due flow through to your personal return.
- C Corp (file an entity election with Form 8832) - C Corps are their own separate taxpayers, as such they file corporate tax returns and pay corporate income tax at a flat 21% rate. Distributions made to the shareholders (you) are made with net profit after corporate taxes paid, and are then taxed again in the hands of the shareholder as a dividend payment on your personal return.
Every Mylance team member has done consulting. We're experts, and we've seen what consulting enables: more time with our families, traveling the world, more time on passion projects, or to start that business we've been dreaming about.