A Simple Guide to Managing Small Business Income for Military Spouses

Jan 7

Starting a small business as a military spouse can be both exciting and challenging. Whether you’re running a side hustle or a full-time venture, managing your income and staying on top of taxes and financial planning is essential. Here’s a straightforward guide to help you succeed.

1. Understand Your Business Structure

The type of business you operate determines how you report income and pay taxes. Common structures include:

Sole Proprietorship: Simplest structure; income is reported on your personal tax return.
Limited Liability Company (LLC): Offers legal protection for your personal assets and flexibility in taxation.
Partnership: For businesses with multiple owners.

Consult a professional to choose the structure that fits your needs.

2. Track Your Income and Expenses

Keep Accurate Records: Use software like QuickBooks or Wave to track income, expenses, and invoices.
Save Receipts: Keep receipts for business expenses, like supplies, advertising, and travel, as they can be deducted from your taxable income.
Separate Finances: Open a dedicated business bank account to simplify tracking.

3. Understand Your Tax Obligations

Self-Employment Tax: If you’re self-employed, you’ll need to pay Social Security and Medicare taxes in addition to income taxes.
Quarterly Estimated Taxes: To avoid penalties, estimate your taxes and make quarterly payments to the IRS.
State Taxes: Check if your business income is subject to state income tax, especially if you’ve recently moved.

4. Leverage Military-Specific Benefits

As a military spouse, you may qualify for tax benefits:

Military Spouse Residency Relief Act (MSRRA): If your service member is stationed outside your home state, you may not have to pay state income tax on your business income in the state where you currently reside.
Tax-Free Installations: Some states exempt military spouses from certain business-related taxes.

5. Plan for Retirement

Solo 401(k): A great option for self-employed individuals to save for retirement and reduce taxable income.
SEP IRA: Simplified Employee Pension plan, ideal for small businesses with no employees.

6. Budget for Irregular Income

Small business income can fluctuate, so plan accordingly:

Set Aside Taxes: Save 25-30% of your income to cover taxes.
Build an Emergency Fund: Set aside three to six months of living expenses to handle slow months.

7. Get Professional Help

Hire a Tax Professional: An accountant familiar with small businesses and military families can help you maximize deductions and ensure compliance.
Work with a Financial Planner: They can assist with long-term goals, including retirement and saving for your family’s future.

8. Prepare for PCS Moves

Frequent relocations are part of military life, but they don’t have to disrupt your business:

Online Options: Consider e-commerce or virtual services to keep your business portable.
State Licenses: Check requirements for transferring or obtaining business licenses in new states.

Final Thoughts

Running a small business as a military spouse is rewarding and flexible, but it requires careful financial planning. By staying organized, understanding your tax obligations, and leveraging the benefits available to military families, you can build a thriving business that supports your goals.

Tanner Hockley