Starting a business is exciting.
Revenue starts coming in, opportunities expand, and for the first time, you’re fully in control of your income. But there’s one part of that transition that catches many new business owners off guard:
Taxes.
As shared in a recent discussion:
“If you’re profitable and haven’t planned for it, your tax situation could be way worse than anybody working a W-2.”
And that’s not an exaggeration.
At FJ & Associates, we regularly work with new business owners across Kaysville, Layton, Roy, Farmington, Riverdale, and Ogden who experience this exact situation—strong first-year profits followed by an unexpected and overwhelming tax bill.
Let’s walk through why that happens and how to avoid it.
The Biggest Shift: You’re No Longer an Employee
When you were a W-2 employee, your taxes were handled for you.
Your employer withheld taxes from every paycheck and paid a portion on your behalf. The system was automatic.
But once you start a business, that system disappears.
As shared by one of our CPA’s
“You’re no longer an employee… you now have to save your taxes throughout the year.”
This is the most important shift to understand.
No one is withholding taxes for you. No one is making payments on your behalf.
That responsibility now falls entirely on you.
Why First-Year Taxes Feel So Much Worse
The issue isn’t just that you owe taxes—it’s how those taxes accumulate.
When you’re profitable as a business owner, you’re responsible for:
- Income taxes
- Self-employment taxes
- Potential state taxes
- Estimated quarterly payments
And if you haven’t been setting money aside throughout the year, those obligations hit all at once.
That’s why first-year tax bills often feel overwhelming.
The Most Common Mistake: Not Saving Enough
From the discussion:
“You’ve got to save your taxes… that always comes back to bite people.”
This is the pattern we see most often.
Business owners assume that because money is coming in, they’re doing well financially.
But without setting aside a portion for taxes, that income is overstated.
By the time tax season arrives, the cash isn’t there—and the liability is.
Why Profitability Can Actually Create Risk
It sounds counterintuitive, but being profitable without planning can be risky.
Many business owners assume that profitability automatically leads to better financial outcomes.
But without tax strategy, it can lead to:
- Large, unexpected tax bills
- Cash flow strain
- Penalties and interest
- Stress and uncertainty
As noted:
“Business owners don’t always get the best tax situation… people think they do.”
The difference isn’t the income—it’s the planning.
Why Early Guidance Makes All the Difference
The good news is that this situation is completely avoidable.
There’s more information available today than ever before.
From the transcript:
“There’s plenty of knowledge out there… AI can help… but calling an accountant is probably the best place to go.”
While tools and resources can provide general guidance, nothing replaces personalized strategy.
At FJ & Associates, we help new business owners:
- Estimate tax liability early
- Set aside the correct percentage of income
- Make quarterly payments
- Identify deductions
- Build systems that prevent surprises
Because taxes shouldn’t feel like a setback—they should be part of the plan.
Key Takeaways
Starting a business changes your tax responsibility completely.
Without planning, profitability can lead to unexpected tax burdens.
Saving throughout the year and working with a CPA early can prevent stress, penalties, and cash flow issues.
FAQs
1. Why are first-year business taxes so high?
Because no taxes are withheld automatically, and you’re responsible for both income and self-employment taxes.
2. How much should I save for taxes?
Typically 25–35% of income, depending on your situation.
3. Do I need to make quarterly payments?
Yes. Most business owners are required to pay estimated taxes throughout the year.
4. What happens if I don’t save enough?
You may face a large tax bill, plus penalties and interest.
5. Should I talk to a CPA in my first year?
Absolutely. Early guidance can prevent costly mistakes later.
Author Bio
Missy Dennis, CPA
Partner | FJ & Associates, PLLC | Kaysville, Utah
Missy holds a Master of Accounting degree from the University of Utah and is a licensed Certified Public Accountant.
She is committed to providing clear, accurate, and actionable guidance so clients can navigate complex financial decisions with confidence.
With more than twenty years of public accounting experience, Missy Dennis specializes in:
- Tax preparation and tax advisory
- Bookkeeping strategy alignment
- Estate and trust taxation
- Audit and consulting services
- Low-income housing tax credits
- Non-profit accounting
- Small- and mid-sized business advisory
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