If you’re a new entrepreneur, you’re probably pinching every penny you have – and for good reason. That’s because business ownership is one of the most costly endeavors out there.
If you receive a tax refund from the IRS, you should not simply take this cash and go on a shopping spree. Instead, it’s critical to be smart with any income that flows into your bank account.
Here are 5 smart moves you can make as an entrepreneur with any refund money you get back. It’s worth noting that the average tax refund is about $3,100.
1. Register your business as a formal entity.
If you are an entrepreneur with an informal or side business that operates as a sole proprietorship or general partnership, now’s the time to become formal. Take a portion of your refund to file the paperwork with your state to establish an S corporation, C corporation, or LLC.
Generally speaking, business registration fees are not too expensive. However, any business licenses you may need to acquire could cost you a bit more.
2. Invest in marketing.
Perhaps it’s a good time to start spreading the word about your baseball training center, management consulting services, or your handmade apparel for children.
Consider spending money on:
- Building a new company website
- Buying social media ads (Facebook boosted posts, sponsored Tweets or LinkedIn updates, etc.)
- Purchasing a digital billboard for your storefront
- Purchasing a mobile platform with apps, mobile marketing messages, etc.
- Save up for covering estimated tax payments.
Business taxes come with lots of unique requirements compared to personal tax responsibilities. Quarterly estimated taxes are just one example of this.Estimated tax payments are due four times throughout the year on:
- January 15
- April 15
- June 15
- September 15
Because you’ll likely have estimated tax payments coming up later in the year, set aside some of your refund money to help ensure you have enough cash in your bank account to make these payments.
In addition to quarterly taxes, you may be on the hook for payroll taxes, self-employment tax, and other business-related IRS and state requirements. All of these expenses are potential options on how to spend your refund.
4. Hire a contractor.
Perhaps you’ve reached the point of needing some assistance in your small business. This may be a great time to finally make your first hire. But to play it safe, consider finding an independent contractor to bring on board for either a project or for ongoing work.
5. Look for a new place to house your small business.
Ready to expand your retail business to a brick-and-mortar location? Looking to move your consulting firm from your home office to a rental workspace? Such a move can be budget breaking, but saving your tax refund for future business growth can be the first step to actually getting some new digs.
Of course, there may be equipment and other items you may wish to buy first before you take too big of a plunge into a new workspace.
1-800Accountant is the nation’s leading tax and accounting firm that specializes in providing cloud-based accounting services for small business owners across all industries and to individuals.