A butcher, a baker, or a candlestick maker. There are many types of businesses or trades a solopreneur can go into. If you have developed an expertise in one area and can make a living doing this business or trade on your own, then you are in an enviable position because you can be your own boss however this does comes with added responsibilities of accounting for your own taxes.
Whether you are a contracted technology worker, solo jewelry designer or freelance writer, always remember you are a business. And as a business owner, you’ll need to maintain:
- Expense ledgers
- Profit and loss statements
- Accurate, up-to-date financial records
- A detailed record of the money you receive, so you’ll have a better idea of where your business stands financially
This way you’ll have the information needed to file your taxes.
Self-Employed People Must Pay Their Self-Employment Taxes
As a small business owner, you must pay self-employment taxes, including Social Security and Medicare. You must pay taxes on any income over $400 per year Self-employment are assesses based on a percentage of net earnings. To calculate this tax, and pay it, you must know your business net profits.
Schedule and Keep Current with Your Estimated Quarterly Tax Payments
We have a pay-as-you-go tax system. When you work for someone else, your employer withholds a percentage of your paycheck for your taxes and that money is sent to the taxing authorities on a regular basis. Employees don’t have to worry about their taxes until tax time.
As a solopreneur, you’re responsible for paying these quarterly estimated tax payments for your self-employment and income taxes. Failing to make these periodic payments or under reporting your income, may subject you to penalties and interest. Consider a top level tax preparation system Like Turbotax . I have personal experience with Turbotax Live and find having access to a CPA is well worth the cost when considering the time and headaches it saves and mitigates the chances of expensive mistakes should you ever get audited . We also have a range of deals at MyDealsClub that includes discounts for Turbotax Live . It does requires discipline to stay current with estimated tax payments so plot out the due dates and write out checks and sends them out on time, even if it hurts. This will make it easier at tax time.
Contributions to Retirement Plans are Tax Deductible
The government wants to help you fund your retirement. Retirement plan contributions are one of the top business breaks for a self-employed person, like a solopreneur. In fact, this may be one of the most valuable business tax breaks available to a self-employed person.
- If you own a business and have no employees, you should consider an individual 401(k) plan.
- You can contribute as much as $18,000 in pre-tax earnings to your 401(k) plan, If you’re 50-years old, or older, you can add an additional $6,000 to that amount.
You’re also able to contribute as much as 25 percent of your net self-employment income into a retirement plan like an SEP-IRA or a Simplified Employee Pension Plan. The maximum contribution is $53,000
Solopreneurs are able to write off more business expenses that an employee. You want to make sure you are taking advantage of every deduction you’re entitled to. You should learn about the various deductions available for self-employed people, in order to find out which ones are most beneficial.
The IRS defines a deductible expense as an expense that is necessary and ordinary for your type of business. Some common business deductions you don’t want to miss should include:
Business use of your home and related expenses, which includes:
- A percentage of the rent
- Internet service
- Other office expenses
- Use of your vehicles for business purposes, automobile expenses or IRA allowable mileage for the tax year.
- Depreciation of the equipment and property you buy.
Darren Tatch has been making a living online writing and posting deals, discounts and coupons to his website MyDealsClub since the global financial crisis of 2009 ,and now helps others make money online as digital solopreneurs .