By Samantha M. Besnoff, CPA, Podcast Influencer, & Independent Life Insurance Agent, Owner of Your Financial Maven® LLC

A Business Solutions feature piece from our Spring 2025 issue of the Lancaster Thriving Publication.

There are many financial essentials that a small business owner should be aware of. I’ve been in the accounting field for thirty years, a CPA for twenty-three, and have spent the last eleven and half of them working with small business clients not only for their accounting and tax work, but to provide them with insights and guidance on the financial side of things. Below is information that I share with my own small business clients or potential clients.

Small Business Tax Matters

When it comes to understanding the tax side of your business, there are distinct requirements that you need to be aware of. I will be touching on only the federal side of taxes at a high level of understanding for Sole Proprietors, Partnerships, S Corporations and LLCs:

• Sole Proprietor- The simplest of business structures and the one that gives the owner a lot of flexibility, but also the highest of liabilities. The tax form that gets filed is called a Schedule C and is part of the small business owners personal 1040 tax return. This is because as a Sole Proprietor, you are the employer and employee. You do not pay yourself a wage, rather you distribute the money out of the business to you personally. The self-employment taxes you pay are the employer and employee portions of social security and Medicare. In addition, when you file your personal 1040 return, your business income or loss will be used to determine your taxable income.  Another thing to note is, when you take money out of the business, you can use it for whatever you need. This distribution out of the business is not taxable to you since you are already paying self-employment taxes on any profit you make from your business.
• Partnership- the tax form that gets filed is called a 1065. Since this business structure is a pass-through, it may not pay taxes directly, but instead it is passed through a form K-1 to each partner, based on their ownership percentage. It will go on the personal 1040 return on schedule E and is considered self-employment income. Partners in a partnership are not allowed to take any compensation as taxable wages. Monies from the partnership are distributed to each partner based on their percentages of ownership.
• S Corporations- the tax form that gets filed is called an 1120S. Similar to a Partnership, each shareholder, based on their ownership percentage, receives a K-1 to file on their personal 1040 tax return. There is no self-employment income for the shareholders. However, the shareholder-employee must be paid by the S Corporation a reasonable wage for their services, which is subject to employment taxes. In addition, distributions of profit may still occur, but again it must be reasonable to the shareholder-employee to what they are getting paid for their services. One of the other important things to note is that an S Corporation may not have more than 100 shareholders.
• Limited Liability Company (LLC)- I saved this for last, because this is the one business structure that I see a lot and so much confusion. LLCs are a legal structure only and are a tax structure. Meaning there is no particular tax form related to an LLC that gets filed. Instead, the treatment of the LLC is either a Sole Proprietor, Partnership, or Corporation. You would use the tax form that relates to these business structures. Something else to note is that if you are a Sole Proprietor LLC, you are by default, a single-member LLC and treated as a “disregarded entity.”

Keep in mind that this is just an overview, but there are some intricacies with each business structure as it relates to the tax reporting.

Other Small Business Insights to Keep in Mind:

• It is important that you keep your personal and business bank accounts separate from each other. Especially when you are just starting out. Tracking your business income and expenses will be easier if you do this. And, if you are other than a Sole Proprietor, there are complexities if you don’t separate them as it relates to Partnerships and S Corporations.
• It’s a good idea to review your financial reports- Profit & Loss, Balance Sheet, Aged Receivables and Payables monthly. Sometimes even your cash flow. These reports help you figure out how your business is doing and give you insight into where you could take your business. It’s also a good idea to reconcile your transactions with your bank statements monthly to ensure deposits and checks have cleared and that there are no suspicious transactions. Having a full understanding of what goes in and out of your business helps you be more efficient and financially empowered.

As mentioned, there are so many things that a small business owner needs to be aware of when it comes to their business, like what service or product should I sell, advertising, HR matters, and financial matters. If you are interested in learning more insights into what makes up some of the financial essentials for a small business contact me.

Samantha M. Besnoff

CPA, Podcast Influencer, & Independent Life Insurance Agent

Owner of Your Financial Maven® LLC

smbcpa@yourfinancialmaven.com

www.yourfinancialmaven.com

The information provided in this document is for general informational and educational purposes only and does not constitute professional accounting advice. While every effort has been made to ensure the accuracy of the information, it is not guaranteed to be free of errors. Readers of this article should consult with a qualified accounting professional to obtain specific advice tailored to their individual small business circumstances. The author and distributor of this document are not liable for any errors, omissions, or damages arising from its use.

Bio:

Samantha Besnoff, CPA, is the founder of Your Financial Maven® LLC, specializing in financial education empowerment for entrepreneurs and small business owners. With over 30 years of accounting experience across public, private, corporate, nonprofit, and government sectors, she began her career as an auditor for the Pennsylvania Department of Revenue after earning a BS in Business/Accounting from the University of Pittsburgh. In 2013, she co-founded Mittman Besnoff Agency, focusing on tax, accounting, and life insurance services. Rebranding to Your Financial Maven® LLC in 2022, Samantha expanded into podcasting, launching the Your Financial Maven® Podcast in April 2023. She holds certificates in Nonprofit Management, Women in Entrepreneurship, and Leadership & Ethics from Gratz College, Cornell University, and Lebanon Valley College, respectively. Recognized as one of the Women to Watch by the Pennsylvania Institute of CPAs in 2023, Samantha is also a certified QuickBooks Online ProAdvisor and Xero Certified Accountant.

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