Let’s unpack the difference and explore how to manage taxes more strategically.

Revenue vs. Profit: It Matters

The first big revelation comes from smart commenters explaining:

• Revenue (gross income) is the total amount you bring in, i.e. all the money from sales.
• Profit is what remains after subtracting business expenses from revenue.

If your LLC earned $36,000 in revenue and your expenses were $22,000, your taxable profit is only $14,000—not $36,000. So setting aside 43% of profit (≈$6,000) is very different from planning on 43% of total revenue (≈$15,000).

What Went Wrong?

What followed next made things clearer:

• The CPA likely meant “reserve 45% of profit” — not all revenue.
• A 45% tax rate on profit isn’t uncommon when combining federal, state, and self-employment taxes.
• But without clarity, this advice caused unnecessary alarm and financial strain.

Key Lessons and Best Practices

If you find yourself in the same spot, here’s how to correct course:

1. Clarify Terminology
Always double-check whether your advisor is referring to revenue, profit, or taxable income. A simple miscommunication can change everything.

2. Run Monthly Profit Forecasts
This helps you understand your net income over time — not just at year-end. It also ensures you’re saving appropriately and avoids surprises come tax season.

3. Keep Meticulous Expense Records
Equipment, mileage, travel — all add up. Document receipts and use the right categories so nothing slips through the cracks.

4. Reevaluate Your Tax Structure
An LLC taxed as an S-Corp may help reduce self-employment tax by enabling you to pay yourself a reasonable salary and take the remainder as distributions. However, S-Corp benefits often become worthwhile only when profit exceeds around $50,000 due to added administrative costs.

5. Work with a Proactive Tax Advisor
Your accountant should review your tax position quarterly, not just at year-end. If a tax-heavy return grosses you out, it may be time to look for someone who prioritizes planning and clarity year-round.

Final Takeaway

If you’ve been told to “reserve 45% of your income” for taxes, pause and ask: do you mean your profit or your total revenue?

Digging into your books, tracking your profit consistently, and planning ahead can help you keep more of what you’ve earned without compromising compliance.

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In addition to Form 1120-S, S corporations may also need to file other forms, such as Form 2553, Election by a Small Business Corporation, and Schedule K-1, Shareholder’s Share of Income, Deductions, Credits, etc.

To start, let’s review how to fill out form 1120-S.

Form 1120-S Instructions

1. Gather your information

• Business Details:
  • Name
  • Taxpayer Identification Number (TIN)
  • Address
  • Fiscal Year
• Financial Information:
  • Income and expenses
• Shareholder Information:
  • Names and addresses

2. Download the form

Download the latest Form 1120-S from the IRS website.

3. Basic Information

Pages 1-2: Fill in the corporation’s and shareholders’ identification details.

• Lines A-J: These lines identify the corporation and its shareholders. The information on these lines can be found in the corporation’s articles of incorporation, bylaws, and shareholder records.

4. Income and Expenses

Lines 1-27: Report the corporation’s income and expenses.

5. Schedule B: Distributions

• Lines 1-11b: Report accumulated earnings and profits (AE&P).
• Lines 12-15: Report distributions to shareholders.

6. Schedule K-1: Shareholder’s Share

Complete a separate Schedule K-1 for each shareholder, detailing their share of income, deductions, credits, etc.

Note: If you’re the sole shareholder, you don’t need a separate Schedule K-1.

7. Schedule L: Balance Sheets

Report the corporation’s assets, liabilities, and equity.

8. Schedules M-1 and M-2:

Reconcile book income to taxable income and reconcile retained earnings.

9. File Your Return

• Electronically: Use the IRS e-file system.
• By Mail: Send to the IRS address listed on the form.

Common Pitfalls to Avoid:

• Incomplete Information: Ensure all required information is provided.
• Calculation Errors: Double-check calculations to avoid mistakes.
• Filing Errors: Follow IRS instructions carefully.
• Late Filing: File your return on time to avoid penalties.

For Complex Situations or Questions, Consult a Tax Professional.

By following these steps and addressing common pitfalls, you can successfully file Form 1120-S and comply with tax regulations.

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In the United States, the Treasury Department already signaled that the tax returns for 2021 years in 2022 would be a challenge. The IRS department has assured us that you will receive your refund 21 days after you file your returns. If there are more delays, this is what to expect and when to reach out.

How Long Should you Wait for your Tax Refunds in 2022?

The Internal Revenue Service reported that on December 31, the unprocessed returns amounted to 6 million, a notable decrease from the backlog of 30 million. Although recording a higher backlog compared to the unprocessed returns is the standard at the start of any tax seasons.

As a taxpayer, you might be nervous and expect delays in 2022. IRS reports you should expect your returns 21 days after your filing. For additional credence, there are many taxpayers claiming to have already received their refunds.

In February 2022, the IRS issued 4.3 million returns worth $9.5 billion. Charles Rettig, the IRS commissioner, reports that millions of people are still waiting for their tax returns. Most of the delays in processing tax returns are still caused by the backlogs of 2020. The backlog grew tremendously at the start of the pandemic, and the ongoing slowdowns have been a result of this virus. This is also why it’s more important than ever to file your taxes on time.

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No matter what your tax situation, tax season can be a huge headache. The more complex your financial situation is, the more difficult filing your taxes can be. This can be doubly true if you’re a business owner; trying to handle all of the credits, deductions, and various incomes for a business can be absolutely overwhelming. One of the ways you can take charge of your tax situation is to hire a tax adviser. However, there are many tax advisers out there and many of them aren’t exactly reputable. This article will offer a few tips for finding a good tax adviser for yourself or your business.

What Will A Good Tax Adviser Do For Me?

 Before we get too deep into offering advice, we should define what exactly it is that a tax adviser does. A tax adviser – a good tax adviser, anyway – is someone highly educated in local and federal tax laws, preferably a credentialed CPA, who will file your taxes for you and minimize your risk of audit. While there are many people, in a variety of professions, who can bring a lot of tax knowledge to the table, you should look for someone with one or more certifications. The first thing you should look for is a Preparer Tax Identification Number, or PTIN. Anyone who prepares tax returns professionally is required by the IRS to have a PTIN, so this the most basic requirement when looking for a tax adviser. You’ll want someone who has more than just this, however; find a professional who is credentialed in some way. While a CPA is the best option, an enrolled agent or licensed attorney can also be good options. 

Do I Need One?

 Whether you need a tax advisor or not largely depends on how complex your taxes are. If you are simply filling out a 1040EZ form, chances are you can handle it on your own pretty easily. However, if it gets much more complicated than that, you will probably benefit from making use of a tax adviser. If you’re in business for yourself, it gets more and more critical that you make use of a professional to file your taxes. Whether you own a business, are self-employed, or own property that you rent out to paying customers, your tax situation can veer towards the confusing and having your taxes filed professionally can decrease your audit risk significantly.

How Much Will It Cost?

 There are a lot of untrustworthy people out there claiming to be tax advisers, while in fact they’re scam artists trying to swindle you out of your money and perhaps even make off with your tax refund. You’ll have to be cautious when looking for a tax adviser; one of the things that you should keep an eye on when looking for someone to prepare your taxes is the fee. A professional CPA will usually charge an hourly rate; if a so-called “tax adviser” wants to charge you a flat rate, or take a cut of your refund, then there’s a good chance it’s a scam.

How Do I Find The Best Tax Adviser Out There For My Money?

 Even after you filter through all of the tax advisers that are obviously scams, you’ll still be left with a lot of people claiming that they’ll do the best job handling your taxes. Choosing the best one involves a little research, and a willingness to vet anyone you’re considering. First, look for someone who specializes in your specific needs; for example, if you’re a business owner, you’ll want to find someone who is an expert in business tax. When you find someone who has the proper credentials, make sure you read reviews online and check their references. Finding out if your prospective tax adviser has a lot of other satisfied customers will go a long way toward your own peace of mind. Make sure whoever you choose is well versed in all of the IRS laws when it comes to filing; for example, they have to provide their PTIN number when they file your taxes. They should also e-file when they submit your return; not only should this be expected of any reputable tax prep company working in the modern day, it’s also IRS law for any preparer that files more than 10 returns and receives compensation for their work.

Check out our Google, Yelp, and Yahoo Reviews -or- Read our Self Employed Tax Guide.

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Single

Being single typically carries the most tax liability as you cannot claim the same credits or deductions that many of your tax counterparts claim. As your income increases, portions of it will be taxable under a progressive tax system, increasing the amount you owe as you progress in your career.

Head of Household

A single parent has the benefit of claiming dependents on his or her tax form, as well as certain deductions and credits which can significantly reduce their tax burden. However, a head of household is subject to the same progressive tax system as someone who is classified as single.

Married

Those who are married can file their taxes either jointly or separately, but this choice is largely dependent on which status will benefit them the most. There are some situations in which it is actually more beneficial for each married partner to file separately.

Widower

If you lost your spouse within the past two years, you can still file jointly for this year’s taxes and take advantage of the benefits which married couples may receive.

Discovering how to reduce your tax liability is the best way you benefit from your filing status.

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Use IRS Free File

If you have earned $62,000 or less for the 2015 tax year, you can use IRS Free File. There are forms available right on the IRS website that can be filled out online. You can also file for an extension, even though you are late, giving you until October 17, 2016 to file. Filing through Free File is one of the most secure online options and is a faster delivery option to the IRS.

Accept the Penalty for Filing Late

Even if you miss the tax filing deadline by one single day, you will have penalties and fees for being late. You just have to accept it and be prepared to pay it, because, forgetting or not being prepared comes with consequences. Figure out what your penalties may be and put funds aside or send them in as a partial payment.

Final Word

Filing late really is not that big of a deal. Yes, it comes with penalties, but they are not as stiff as you might expect. It is best to work with the IRS and make a payment plan so that you can pay what is owed, if that is the case. Also, accept the reduced refund minus late payment fees/penalties.

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View Credits for the Upcoming Tax Year

It is important to be aware of the tax credits and deductions available for the upcoming tax year. This helps you plan which items you want to take advantage of such as home improvements or an environmentally friendly vehicle. Create a list of items you wish to take advantage of in the upcoming tax year.

Quarterly Assessments

Rather than waiting until you have all of your tax documents in your hand to file, do quarterly assessments with an accountant. Not only can this be adjusted as the year goes on, it gives you an idea of which tax bracket you will end up in. You will also determine your expected tax liability.

Plan Capital Losses and Gains Offsets

The best way to minimize your tax liabilities and prepare for the upcoming season is to offset capital gains and losses. It will actually save you money in the end. Plan these offsets with a financial adviser to ensure that they are done properly.

Begin a Savings Account

If you know that you will owe the IRS, start a savings account. Divide your expected liability by 52 weeks. Set this sum of money aside and put it into a savings account for the specific purpose of paying off your tax liability.

Final Word

These simple tips will help you get ready for upcoming tax seasons. Consider using a receipt scanning device to organize your receipts by category on your computer. This also helps with preparation.

Image credit: Anka Albrecht

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Overseas Accounts

If you own a business or are a regular stock trader or investor, having an overseas account may be a good idea. However, you must be a registered resident of the country you wish to hold the account in. The business must also be registered in that country.

Frozen Assets

Freezing your assets is also known as gifting them to family members (children). This helps you avoid paying federal estate taxes. Essentially, it removes any appreciation value from the assets which prevents it from being taxed at higher rates.

Shell Companies

A shell company is one that exists only on paper. You can funnel money through this shell company through sans taxes. The company should be legal and should only provide a couple of services, if any. In most cases, shell companies are used for international operations to avoid paying taxes on profits.

Final Thoughts

Be careful when using these strategies. One false number or missed paper trail cover-up and the fun is over. The IRS will be on you and an audit will be almost immediate. If you plan to use any of these strategies, procure a financial planner and skilled accountant. They will make sure that your paperwork remains legal and your assets are protected.

Image credit: Kurtis Garbutt

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Online Tax Estimating Software

Nearly every online tax preparation service has a refund estimate tool available. If you have filed online with a specific service for multiple tax years, the information from previous returns is likely saved in the system. This information will help you complete the refund estimate quicker.

Use the IRS.gov Website

The IRS website is the most secure option for completing a tax refund estimate. A tool is available directly on their website and will use information from recent pay stubs and last year’s tax return. The tool will let you know if you will owe or obtain a refund with approximate amounts.

Complete a Test 1040 Form

You can take the old way and complete a test 1040 form. This can be printed from the IRS.gov website. It will give you an idea of what your estimated refund or payment would be based upon last year’s return, if your wages have not fluctuated much.

Estimating your tax refund is not necessary, but is helpful for those that have struggled with finances. It is also helpful for families that wish to plan a special vacation or major purchase. You can make changes to your withholdings from income if it does not appear that your refund will be what it needs to be.

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Qualified Organizations Only

The organization that you donate to must be a 501-3c to qualify for a tax credit. These are verified as non-profit organizations. The IRS also offers an IRS Exempt Organizations Select Check search option on the IRS.gov website so that you can see if your organization of choice is there.

Keep Receipts

Keep all of your receipts and make sure to get one. Get receipts for cash donations as well. This is proof of your donation to the organization should disputes of validity come into play.

Avoid Incentives

Any time that an organization or charity event advertises gifts for donations, the value of those gifts may offset the donation amount. In some cases, the entire donation amount can be disqualified if an incentive was received. It is important to deduct the value of the incentive received from the donation amount.

Document Values of Donated Goods

Every item has a value. Document the value of the goods being donated and have those values reflected on a receipt. You may also have an organization representative sign an itemized list of goods and their values.

It is important to be aware of the status of the organization you wish to donate to. You may think that you are helping a great organization and will receive a tax credit and end up discovering otherwise. Do your homework before making a charitable donation.

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