“Three Tax Tips For The Solopreneur” is an article written by our very own, Karla Dennis for Forbes article! If you want to check out that original article, click here! Often times being an entrepreneur can seem like a lonely, hectic, and crazy business. Most of all, you’re usually on your own with so many roles to play, it can be daunting. So what can you do to make your life as a solopreneur easier? We’re bringing you 3Â tax tips that are easy and viable for any solopreneur!
3 Easy Tax Tips for the Solopreneur:
The first tip for any solopreneur is to S E P A R A T E:
This step may seem like an obvious one, but surprisingly enough, many folks do not know this tip. First, as a business owner, you must make sure you have a separate bank account for your business. In order to have a way to charge business expenses and track that income/outcome, you need to first have a separate checking account or credit card for that business. Why is it so important? If you want to make the IRS happier, and your life easier, it’s a better way to do your bookkeeping if all business charges are easier to keep track of on their own.
Again, this step may seem obvious, but you would be surprised at how many business owners are commingling their personal and business expenses. If you needed another reason to be convinced of this, the law actually says that businesses must have separate and accurate records. Therefore, business owners who do not keep their accounts separate can run into difficulties when they receive an IRS tax audit. In case this may be you, do not fret because we have some ways to help! Now, in case of an audit, following our next tip will smooth the process and help you receive all the write-offs you deserve.
The second tip is for solopreneurs to Simplify!
The second tip is easy and simple. Simplify the way you track your expenses, and ALWAYS keep track. If you haven’t been tracking your business expenses already, or it consists of a shoebox full of papers, it’s time to move forward! How can you track expenses more easily? After all, it’s just you right? Many solopreneurs feel like so much work can’t be done by just them, but work smart, not hard! Take advantage of the technology available to you and use it to your advantage. Link your business accounts to a bookkeeping app that can automatically log your expenses into categories for you.
There are plenty of apps that you can download to your phone or tablet, and keep track of it there. If your daily expenses are being tracked in your app, all you have to do is set aside an hour each week to review the week’s expenses and input details about each expense. You should be able to keep notes of each expense to clarify why it is a business expense so you don’t run into problems in the case of an IRS audit. Now, let’s discuss what you need to keep in mind to have an expense qualify as a tax write-off. This may be one of the best parts of being a solopreneur!
The third tip for solopreneurs is to Strategize!
This may be the biggest question we often get from all kinds of business owners and solopreneurs! The major questions always have to do with write-offs. The best way we can put it in this way; when you are thinking of your business write-offs, ask yourself the following questions to clarify what is a business expense:
Am I in the pursuit of income when I am generating this expense? Am I trying to make money with this particular action or choice? Will this expense help me gain more customers or business? Will this expense help me advertise? Will this expense help me make a sale? You have to link the expense to the pursuit of income. That is key to what constitutes something as being in the pursuit of income.
The law states that you must be in the pursuit of income and make ordinary and necessary expenses to get there. For example, let’s say you want to look for a property for your business. Are you going to look at the property over the internet or in person? Will you have to travel in order to conduct this business? Will you have to drive and/or take a plane to look at that property?
If you have to do all of those things and can link those expenses to the pursuit of income for your business, all of the above can be tax-deductible. After you pay for the internet, car, and plane ticket bill, simply charge your business card and track the expenses in your app. Make a note in your app for each expense on your weekly tax planning hour, what it was for, and call it a job well done.
Solopreneur, your tax strategist abilities are benefiting you
Another key to this business is remembering that as a business owner, you have the law on your side to legally reduce your tax bill. Most importantly, remember that tax planning does not have to be a hard thing to do if you make your system easier. As long as you understand the philosophy behind receiving tax write-offs, maintain a separate business account and keep accurate records, you will ensure you get that tax write-off every time.
Spend some time studying the tax code to see what other expenses qualify for a tax write-off in your industry. Do your due diligence and keep up on the tax changes coming network and connect with other solopreneurs. There are always more ways to grow, learn, and read useful tips for small business owners, taxpayers, and those who are self-employed.
