5 Helpful Tax Tips All Solopreneurs Should Know
Today, I am going to tell you 5 helpful tax tips all solopreneurs should know. As just about any self-employed person knows, tax season is incredibly stressful. Even if you hire an experienced accountant, tax season is a little different for self-employed people, which is what makes it so challenging.
These five tips can help the process go a bit smoother with fewer headaches. Let’s get started.
1. Estimate Income
The first tax tip for solopreneurs is to estimate your income. When you estimate income, you can also estimate how much you will need to pay in taxes. This will come in handy in case you need to file for quarterly taxes. It also helps you you can plan ahead. Currently, the self-employment tax is about 15.3%.
If you have been consistently working self-employed for some time, estimating your income will likely be pretty easy. If you're new to the game, it can be more of a challenge. Look at how much you are making now and try to factor in how much you expect to increase throughout the year.
2. Plan Ahead
As a solopreneur, you will need to pay a self-employment tax. These taxes go to paying Medicare and Social Security. All freelancers, small business owners, and independent contractors must pay self-employment taxes. Once again, this comes out to 15.3% of your earnings. It's important to plan ahead so that you are not left in the dust whenever tax season rolls around.
I recommend creating a separate savings account where you withdraw about 25% of each paycheck and stash it away for tax season. This will make it much easier to pay taxes without breaking into your savings.
3. Organize Receipts
Make sure to have a thorough receipt organization system. This includes physical receipts, email receipts, and other digital receipts. You will not be able to prove your earnings or expense costs if you do not have the proper receipts and documentation.
For earnings, make sure to keep the receipts, but also create an Excel spreadsheet. It's also a good idea to create an Excel spreadsheet about all of your expenses. This makes it much easier on you when tax season comes around.
It's also a great idea to automate as much as you can. Automation will ensure that everything is organized, even when you are a bit scatterbrained or too busy to focus on meticulous details.
4. Take Advantage of Tax Deductions
As a solopreneur, you get more tax deductions. This can include features of your home office and even your Internet and phone bills if they are used for your business. Even specialized publications, subscriptions, and car mileage can be tax deductible. Take advantage of these tax deductions to pay as little as possible in tax season.
I recommend looking online or talking to an experienced accountant who knows a lot about self-employment tax deductions to learn about exactly what can be deducted from your taxes.
5. Increase Retirement Contributions
Although IRA contributions are limited, you can contribute more to your retirement accounts by opening a SIMPLE, SEP, or profit-sharing plan. This is a great way to increase retirement contributions, even as a self-employed worker..
Final Thoughts
Tax season is stressful for anyone, but it is especially stressful for solopreneurs and other self-employed workers. Incorporate these tax tips into your tax plan so that you'll be more prepared and knowledgeable when tax season rolls around.
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