A Tax Guide for Solopreneurs: Self-Employed Tax Tips

If you're filing tax returns as a sole proprietor (sole proprietorship), you may be unfamiliar with the tax rules for self-employed entrepreneurs. Here are some suggestions as well as tricks that will help maximize the value of your taxes.

If you file tax returns as an independent person, it is essential to keep precise financial information, pay self-employment tax, consider retirement contributions, and make use of deductions for business.

We will go over the most important aspects for entrepreneurs during tax time and how you can prepare and file taxes in a timely manner.

Tax Guide for Self-Employed Financial Records

If you're a single person-owned business, maintaining accurate financial records is crucial. This will aid in the tax filing process at tax time, and your future self will be grateful to you in the future. The record-keeping process is also an important process in the event that you are randomly being audited through The Internal Revenue Service (IRS) in the future.

Before you move forward, make sure that your documents are separated into business and personal folders. You should keep these distinct to avoid confusion or inaccurate information. Consider opening an account for your business with the use of a credit card or debit card in order to separate your financial transactions for a business.

If you have a lot of commercial transactions, you might think about using an expert record-keeping service or employing an experienced bookkeeper.

Important Documents for Tax Season

What should be kept in your documents? The most important thing to keep is receipts of gross sales as well as expenses that your company incurs. Some of these expenses can be deducted. Therefore, maintaining track of them will be essential. They can also comprise travel and transport for work-related activities.

The second part of the documents that you should keep is those that pertain to assets. This is where you record an annual depreciation, or gain/loss, in the event that you decide to sell your assets.

Self-Employed Tax Tips

When it's time to file tax returns, there are three major factors to be aware of, including self-employment tax, retirement contribution, and deductions.

Paying Self-Employment Tax

The IRS obliges every business owner and entrepreneur to pay self-employment taxes. In 2021, the rate was 15.3 percent (12.4 percentage for Social Security and 2.9 percent for Medicare).

As opposed to traditional filings for self-employment, the self-employment tax is due each quarter and due in the months of April, June, September, and January. It is possible to pay online, via phone, or through an app and find additional details via the IRS website.

With a well-organized record-keeping system, you can be able to keep track of your estimated quarterly tax payments all through the year. If you pay more than what you calculated in tax time, it could be possible to qualify to get a tax refund in April.

If you fail to make the quarterly tax payment or fail to pay these altogether, you'll get assessed a penalty to the IRS. The penalty begins at 0.5 percent of what you owe and could go to 25%, so make certain to pay your quarterly taxes.