Money and Finances

Small Business Taxes: What You Need to Know in 2025 and Beyond

Small Business Taxes: What You Need to Know in 2025 and Beyond

Money and Finances

As a small business owner, you have lots of projects and moving parts. From developing and delivering your products or services to tweaking marketing strategies and providing excellent customer support, there’s always something demanding your attention. And then, there are taxes. Which are a huge responsibility. To make things easy for you, read on for small business taxes: what you need to know in 2025 and beyond. Learn about all things related to small business taxes, including different types of taxes, relevant forms, available deductions and credits, and the importance of filing extensions. 

Small Business Tax Basics Every Entrepreneur Should Know

Whether you are starting out or an established entrepreneur, it is important to understand your business tax structure and requirements. Here is everything that you need to know about small business taxes in the US: 

Different Types of Small Business Taxes

Depending on your location and the nature of your business, these are the main small business taxes to track and report: 

1. Income Tax

Income tax is the fee charged on the total income your business generates within a specific time period. The tax is paid at both the federal and state levels, and the amount may depend upon your business structure (sole proprietorship, LLC, corporation, etc.).

2. Self-Employment Tax

Self-employment tax is a payment made by small business owners to cover Social Security and Medicare taxes. It is similar to the taxes withheld from the paychecks of regular employees. However, self-employed individuals are responsible for both the employee and employer portions. 

The current self-employment tax rate is 15.3% divided as follows: 

  • 12.4% for Social Security 
  • 2.9% Medicare 
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Source:

2. Sales Tax

As a consumer, it’s never fun to pay sales tax. As an entrepreneur, it may be your responsibility to collect and then remit sales tax to the government. This Sales tax is a consumption tax imposed by the government on the sales of goods and services. It’s usually a percentage of the purchase price and is added to the final cost. As a small business owner, familiarize yourself with local sales tax laws and apply for a sales tax permit.

Small Business Taxes

Four Most Relevant Small Business Tax Forms

Small business taxes are reported and document using various government forms. There are different tax authories, such as the IRS and local state taxes, so be sure to check for what is relevant for your small business. Some common examples include: 

1. Form 1040 - ES

Form 1040-ES is used by business owners to pay estimated income tax throughout the year.  It’s designed for taxpayers who don’t have taxes withheld from their income, such as those with self-employment income, interest, dividends, or rental income.

2. Form W2

Form W2 reports the annual wages of your employees along with the amount withheld from their paychecks (social security, insurance, or Medicare). These forms are submitted to the Internal Revenue Service (IRS) and the Social Security Administration (SSA).

3. Form 940

It is the annual Federal Unemployment Tax Return (FUTA) that employers use to report their federal unemployment tax liability to the IRS. This tax helps fund unemployment insurance programs that provide benefits to workers who have lost their jobs beyond their control. 

4. Form 1120

Form 1120 is also known as the U.S. Corporation Income Tax Return. It is a comprehensive document that reports a corporation’s annual income, losses, credits, and deductions. 

These are just a few examples of the many forms to report small business taxes. These will vary depending on your location, sector, and size of your business. For a better understanding of your tax obligations, consult an accountant or tax specialist for expert advice and guidance.

Documents You’ll Need for Tax Return

This is a basic checklist of the key documents you’ll generally need to file your small business taxes. The individual circumstances may vary on your business model or particular tax laws: 

1

General Information:

This includes your company’s legal name, address, and Employer Identification Number (EIN). 

in one place. Stop wasting time searching for solutions.

2

Income Statements:

  • Maintain detailed records of all sales transactions, bank statements, income from various sources, and rental income records.
3

Deduction Documentation

Gather receipts, invoices, and other supporting documents for eligible deductions (e.g., medical expenses, charitable contributions, business expenses). Don't forget vehicle mileage, business use of home, and meals which could be used to reduce small business taxes.

Common Tax Deductions and Credits

To incentivize taxpayers and encourage fair tax collection, small business owners can claim certain tax deductions  (lower the taxable income) and credits (directly reduce their tax liability) on their taxes. 

Small businesses can claim different deductions regarding employee wages, office rent, utilities, travel expenses, office supplies, and advertising and marketing expenses. Businesses can also deduct a portion of the cost of long-term assets (like equipment and vehicles) over time, reflecting their wear and tear. 

A tax credit is an amount directly deducted from the tax you owe. It can reduce the payable amount or decrease your refund. You may be eligible for credits based on various factors, such as your income level, having dependents, paying for higher education, investing in clean energy, or offering health insurance to your employees.  

Filing Extensions

If you are unable to collect all the required information before the annual tax deadline, request an extension. This grants you an extra six months to submit your return. However, it doesn’t buy you more time to pay your taxes. Always estimate and pay your taxes on time to avoid any possible penalties.  

Learn More About Small Business at The Hagstone Blog

Small business taxes are an important part being an entrepreneur. Failing to file or not disclosing everything to the tax authorities has huge consequences for entrepreneurs. From penalties to having a federal crime on your record, the risks are real. So put the systems in place to accurately record all business income and expenses. And file on time to avoid penalties and keep your small business in good standing. 

If you are a service business owner navigating the complexities of operations, customer service, or finances, stay connected with The Hagstone Blog for continuous growth, inspiration, and industry updates. 

Small Business Taxes: What You Need to Know in 2025 and Beyond Read More »

What is Pricing Strategy

What is Pricing Strategy

Money and Finances

You’ve done all the fun stuff, like building your branding kit. You know, all the creative stuff. Like picking out colours and fonts. And asking your friends which version of your logo they like better. For many entrepreneurs, marketing is the fun stuff because it makes real the vision you have for your business. But marketing can’t launch without putting a price to the products or services your business offers. Which is when, for most people, the fun stops. Because then it’s time to look at numbers. And decide what to charge customers. This is more than simple math. Pricing strategy is about market positioning, consumer expectations, and human psychology. Pricing strategy is also tied to marketing communication. So let’s get into what is pricing strategy and why it matters so much for your business.

What is Pricing Strategy

Essentially, pricing strategy is the methodology behind setting the prices you charge your customers. For a business selling products, this is mostly a function of per-unit price and mark-ups. For example, you buy 1000 widgets at $2 each and the standard keystone markup for retail is 100%, so you price your widgets at $4. 

However, if your competitors are selling the same widgets for $3.90, then it may be hard to sell yours. This is part of why market research is so important, because what your competitors are doing influences decisions you make in your business.

What to do now? Well, your pricing strategy could be to keep your price at $4 and differentiate with compelling branding or an engaging customer experience. Or, you can make sure that your marketing message includes the ways your widget is better than those other widgets. Promote all the reasons why it’s worth paying 10 cents more for your widget.

Another pricing strategy is to undercut your competitors, and sell your widgets for $3.85.

Pricing Strategy for Products vs Services

The pricing strategy explained above makes sense for businesses selling things. But what about for businesses that provide a service?  Service businesses have a whole other set of factors to consider when it comes to understanding what is pricing strategy. Basically, the math isn’t so simple when your business is providing a service. Because a service takes time, and it’s a variable that can be hard to measure.

For example, at a hair salon, one haircut isn’t the same as another haircut. The length of hair and the complexity of the style are factors into how long that haircut will take. Of course, there is also the level of expertise of the person providing the haircut, and their own expectations for what they will be paid for the work. An experienced stylist with many years of professional development will naturally expect to earn more per haircut than a junior stylist who just graduated. 

Similarly, doing a tax return isn’t a one size fits all thing. A student working part time in their first job has different needs than an entrepreneur with rental properties and multiple businesses.

This difficulty in quantifying output is part of the reason why running a service business is so unique. And since here at The Hagstone Blog we focus on service businesses, let’s set aside all that product pricing calculations and focus on what is pricing strategy for a business providing services to people.

6 Key Factors in Deciding Pricing Strategy

1. Cost of Goods Sold (COGS)

First, to understand what is pricing strategy, the following 6 key factors are important. And these apply to both product- and service-based businesses.

COGS is the price your business paid for the widgets you sell. For a service business, this is the cost of labour to provide the service AND the cost of any supplies required to complete that service. For example, a lawn care company may include the wages for their team and the cost of lawn bags and fertiliser used to complete a maintenance visit for a customer. Therefore, this is sometimes knowns as COS (Cost of Services) or COSP (Cost of Services Performed).

2. Market Demand

Remember economics class? The concept of supply and demand is tried and true through hundreds of years of change in our society. Quite simply, when there is less of something that people want, or the demand of something outstrips supply, then prices go up. Remember what happened to the price of toilet paper during the pandemic?

3. Competitor Prices

As explained above, what competitors are charging influences what you can charge. This is tied to customer expectations, which we get more into in a later section. Essentially, if house painting companies in your area charge $75 – 125 a room and you charge $300, it’s not likely that you will get any leads.

4. Brand Positioning

Branding is more than the logo and tagline. It’s the whole look and feel of the brand. And it’s the language and tone of messaging on your website, on social media channels, and all communication with your customers. Brand positioning is the feelings and values that consumers associate with your brand. For example, when you think of Apple, you think innovation and cutting edge technology.

5. Customer Segmentation

This is about knowing your customers. Not just their age and where they live, but also what they care about. What problem they are trying to solve, or need they want met. And then, aligning your messaging specifically for them. For example, a home decorating business may segment their customer list according to size of the home. Those with large homes would receive marketing for higher priced packages than the customers in smaller homes, who may be expecting to spend less.

6. Economic Conditions

Economic conditions impact pricing strategy. Because the larger world and events outside our control impacts us. Just think about the example mentioned above about toilet paper during the early days of the pandemic. Remember when shop shelves were empty because of the disruption to the supply chain? Those economic conditions disrupted the cost of goods and our expectations of pricing. So retailers needed to charge more, and consumers paid it. 

What is Pricing Strategy Economic Factors Covid

Consumer Expectations and Pricing Strategy

As mentioned in the examples above, consumer expectations have a huge impact on pricing strategy for a service business. Generally speaking, the higher the price for a service, the higher the expectation of what they will receive. And for a service business, it’s more than the value of the service, it’s also about the entire customer experience. Just think of what you expect if you go to an upscale spa for an expensive massage in a high-end area of town. You expect a professional, qualified massage therapist. But you also expect a warm greeting from the reception staff and the offer of tea or water. You expect the treatment room to be beautifully decorated with lush furnishings. And you expect the massage table to be comfortable, with clean soft sheets and blankets. 

However, if you booked a massage at half the price of what that upscale spa charges, you would not expect all those luxurious touches. It might be a student massage therapist with a temporary table set up in a spare room of their house.

The bottom line here is that when thinking about pricing strategy for your service business, understand that your customers will expect more when you charge more.

Learn more about What is CX

Brand Positioning

When it comes to understanding what is pricing strategy for a service business, brand positioning is very important because this is connected to consumer expectations. For example, when the service is being positioned as budget-friendly and affordable, then consumers expect low pricing. If the company name is “Budget Cleaning” then prices better be on the low-end of the market rates. 

On the other hand, say an event planning business is called “Gold Star Events.” And the brand positioning speaks luxury, customization, and personal attention. Then, the pricing strategy will be rates at the higher end of what competitors in the area are charging. Or if Gold Start Events has a special attribute or distinction, then they could charge a little higher than everyone else. For example, if they were featured on a reality show, or had planned a high-profile celebrity event. Winning awards can support a higher price point for a service business. Read Are Business Awards Worth it? 

Are Business Awards Right for You?

Read More

Last but not Least - Profits

Some service business entrepreneurs underestimate how long things take. Many also undervalue the worth of their time. Just recently I spoke to an entrepreneur with a language tutoring business. When we got talking about pricing strategy, I observed that the rate for her courses seemed low, and suggested doing some market research. She insisted it was fine and she didn’t want to charge more. But then I did the math. Considering the time she spent on planning and delivering classes, her hourly income was much lower than minimum wage. So now she is reconsidering. 

When it comes to setting out the pricing strategy for your business, be sure to run the numbers. Factor in the time required, and the cost involved in delivering the service. Going back to the first example of haircuts, you’ll notice that many salons set prices according to hair length and level of stylist. This makes sure their staff are paid appropriately AND the salon earns a profit. Because it’s great that you enjoy what you do and love your customers. But if your business isn’t making a profit, it isn’t sustainable for the long term.

What is Pricing Strategy: Putting it all together

Ok, we’ve covered alot here about what is pricing strategy for a service business. As a summary, let’s put it all together.

1

Costs

Find all the tools Calculate the cost of the service you offer. Be sure you know how long it takes, and measure it. Don’t estimate “maybe an hour” because it could be an hour and a half. And when it comes to paying staff to perform the service, that 30 minutes may make the difference between making a profit or just breaking even.

2

Know Your Customer

Who are your services for? Be specific. Where they live, what they care about, and what they expect from your services.

3

Know Your Competitors

What are other businesses doing in your area? What do they offer, and what are they charging? This data is so important for making decisions around pricing strategy, positioning, and marketing message. How can you effectively stand out in the market when you don’t know what is out there?

4

Alignment

Finally, alignment. Meaning, align pricing strategy with your customers, your brand, and your messaging. Bespoke service with high-end branding can support a higher price point. 

Pricing Strategy Guide

When setting pricing for your services, consider these questions. Use these as a guide for making these important decisions for your business.

  • How do I want to stand out against my competition? Is it on price, value, quality, or customer experience?
  • What do competitors charge for similar services?
  • Who are my target audience and what do they expect to pay?
  • Does my branding and messaging align with my prices?
  • Will the customer experience match the prices we charge?
  • What are the profit margins for my pricing, and will this meet my personal financial goals for my business?

What is Pricing Strategy Read More »

What are KPIs

What are KPIs?

Books & Resources, Leadership, Money and Finances

We just love to take shortcuts. As humans. Why say 3 words when we can just rhyme off the first 3 letters as though it were a word itself? Acronyms are everywhere, especially in marketing. All entrepreneurs should understand what are KPIs, and how to apply them in a meaningful way.

Why?

Because the information that comes from tracking the right KPIs can help make better business decisions. Basically, it can mean the difference between a good year and a bad year. So this article will explain KPIs, how to use them, and what KPIs should be tracked for different kinds of businesses.

Key Performance Indicators

KPI means Key Performance Indicator. There are countless data points in running a business. Just looking at finances, customer service, and marketing can yield dozens of measurements. Profit margins, response time, customer satisfaction surveys, click-throughs and orders from a social media campaign – the list goes on and on! 

Specifically, the purpose of using KPIs is to cut through mountains of data to focus on the measurements that matter most to a business. And what metrics matter the most? It depends. It depends on how long a business has been operating, its size, its sector, and its strategic plan. A plumbing company will want to track different information than a hair salon; an e-commerce business won’t care about the metrics that matter to a law firm. Accordingly, a new business with one employee won’t get value from tracking the information that a huge corporation does. 

The top KPI categories are:

  • Finance KPIs
  • Operations KPIs
  • Marketing KPIs
  • Sales KPIs
  • Performance KPIs

Benefits of Using KPIs

First, let’s look at the benefits of using KPIs to understand the importance of tracking key performance indicators.

The quote “what gets measured, gets managed” has been attributed to Peter Drucker, though this may just be paraphrasing his work. The point is, information matters. Being successful in business without tracking important metrics is like asking a pilot to land on the runway while blindfolded. And this is the thing about numbers. They tell the truth. Because people are prone to emotion and interpretation. 

Additionally, tracking and analyzing KPIs provides direction and accountability. If the goal is to grow, then by how much? Set a specific target. Monitoring the metrics on a regular basis gives entrepreneurs the information they need to know exactly what is working, and what is not.

Example of Using KPIs

Benefits of KPIs

Here is an example of why KPIs are important to a business. The owner of a retail shop calls in on Sunday afternoon to see how things are going. Staff say it’s very busy and they are run off their feet. The owner rightly thinks that means sales are booming. Based on that bit of information, what decision might she make? Perhaps ordering more stock, or scheduling extra staff the following weekend.

However, a look at the KPIs tell a very different story. Daily sales reports show that revenue was 3% lower than the previous weekend. Sales per employee ratios show that one person booked almost zero. When armed with this information, the owner asked staff more questions. She learned the store was busy with many customers returning a particular item. Several people browsed and chatted with staff for ages, before leaving without making a purchase. 

Therefore, with this information, the shop owner will be making very different business decisions. This is the power of data and KPIs.

How to Use KPIs

As mentioned above, the right KPIs for one business may not be right for another. There are 3 main steps to follow for using KPIs.

Know Your Strategy

It all starts with the strategic plan for your business. KPIs measure the aspects of performance that have the biggest impact on reaching goals. If the priority is to increase audience, then social media and marketing KPIs like reach, follows, and signups must be tracked closely. If the focus is to increase sales, then sales per employee and conversion rates matter most.

Share and Engage

Don’t keep KPIs a secret from your team. Share and collaborate. Engage them in the reasons why this information is being tracked. This may be a strong motivator for improving their own performance, when KPIs are tied to compensation, bonuses, or perks. At the same time, keep an open mind for ideas that come from your staff.

Monitor Regularly

Just having KPIs are not enough, just like having a gym membership isn’t enough. Likewise, you have to show up, pay attention, and do the work. So monitor your metrics regularly. This could be 30 minutes weekly or an hour a month. Then, on a quarterly and annual basis, set aside time for a deeper dive and analysis. This information you gather is valuable for forecasting, setting targets, and making decisions for the coming year.

In general, all entrepreneurs should track revenue, expenses, profits, quality, customer satisfaction, staff performance, and the effectiveness of marketing activities. In addition, here are KPIs for specific sectors.

KPIs for Service Businesses

Service businesses don’t sell things – they sell time and expertise. This ranges from house cleaning, painting, landscaping, pet grooming, graphic design, tutoring, nutritionist, fitness training, and more. Though these may operate out of a brick and mortar office, half of the businesses in the United States operate from home. 

Without inventory to track and a storefront to maintain, here are the top KPIs for services businesses:

  • Customer satisfaction rate – valuable to use in marketing!
  • Service delivery time – important for scheduling and controlling labour costs
  • Acquisition cost – the marketing spend to land a new customer
  • Referral rate – how many customers are here from word of mouth?
  • Retention rate – how many customers return?
KPIs for Service Businesses

KPIs for Retail Businesses

Obviously, running a retail business is not what it used to be! Now that ecommerce has changed shopping habits. But there are still locally owned shops, especially in niche markets. Businesses like hair salons, barbers, massage therapists, and nail salons have a storefront, employees providing services, and may be also sell products to their customers. The top KPIs for retail businesses are:

  • Sales per product and Gross profit per product – to monitor what sells best and earns the most
  • Walk in traffic – how many customers came in without an appointment
  • Repeat customers
  • Product sales per employee

KPIs for ECommerce Businesses

Shopping online has been growing since Paypal started in 1998, but then the pandemic lockdowns seriously changed our buying habits. And many e-commerce entrepreneurs are home based and use drop-shipping to manage inventory and fulfilment. So, these KPIs are all about inventory and tracking the pennies on every product.

  • Sales per hour, day, week, month, quarter, year – to know the peaks and valleys to prepare for the future
  • COGS – cost of goods sold, by SKU (stock-keeping unit)
  • AOV (Average Order Value) – valuable for making marketing decisions
  • Shopping cart abandonment rate – to direct email campaigns
  • New vs returning customers
  • Conversion rate – how well is the site converting visitors to buyers?
  • Product affinity – what products tend to be ordered with other products? Can drive cross-promotion.
  • Inventory levels – to know what sells fast and what isn’t moving
  • RPV (revenue per visitor) – how much on average does each site visitor spend?

KPIs for Professonals

Next, the professionals. From accounting to tax advisors to mortgage brokers to lawyers, these businesses are often legislated and overseen by a professional body. Therefore,  running a professional corporation requires a close eye on details. Accordingly, here are specific KPIs for professionals:

  • Number of customers per professional 
  • Billable hours and non billable hours per professional per month – to monitor performance
  • Overhead costs as a percentage of gross revenue – to ensure these expenses don’t grow unless the income does
  • Average fee per client
  • Length of accounts receivables – to ensure customers pay on time
  • Conversion rate per professional – to see who closes more leads
  • Cancellation rate – how many customers cancel appointments?

KPIs for Trades

Though lots of tradespeople work solo, many are entrepreneurial and establish a brand with employees working for them. Also, there are franchise systems in furnace repair, plumbing, and electrical. In all cases, tracking time and workflow is important for customer satisfaction and to maximize profits. Here are important KPIs for trades.

  • Average service time per tradesperson – to benchmark performance and set schedules 
  • Completion Rate – percentage of customer requests completed on time
  • Service response – average time between customer request and booking the service call
  • Variable costs as percentage of gross revenue – especially for costs of equipment and maintenance
  • Complaint rate per services completed – to measure quality and performance
  • Complaint resolution rate – how well are issues being fixed?
  • Quote acceptance rate – of quotes given, how many customers book the work?
  • Net profit per job – tracking revenue against cost of labour and supplies

Conclusion

Basically, knowledge is power. As a result, knowing the facts about strategic elements of their business can show what is working, what is not, and what changes to make. Therefore, understanding what are KPIs for their business gives entrepreneurs specific targets to focus on. So stepping away from the day to day to monitor and analyze key performance indicators is especially important for entrepreneurs. 

What are KPIs? Read More »

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