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Common Tax Mistakes Made by Solopreneurs
A businesswoman uses a calculator on a pile of papers, for SHG's blog post "Common Tax Mistakes Made by Solopreneurs"

As a solopreneur, you’re not just the brains behind your business; you’re also the accountant, marketer, and customer service representative (and more) rolled into one. With so many hats to wear, it’s easy to overlook critical aspects of running your business, including taxes. However, failing to handle taxes properly can lead to costly mistakes and headaches down the road. Tomorrow’s tax day, so we hope you’ve filed already or are about to. Either way, read the following list and make sure you haven’t made any of these common and easy mistakes.

Mixing Personal and Business Expenses
One of the most common mistakes solopreneurs make is mixing personal and business expenses. It’s tempting to use your business account for personal purchases or vice versa, especially when you’re just starting. However, commingling funds makes it challenging to track business expenses accurately and may trigger red flags during tax audits. To avoid this, maintain separate bank accounts and credit cards for your business and personal finances. Stick to them – don’t use your personal Venmo for one vendor, and your business PayPal to pay yourself back…keep it clear-cut at all times!

Failure to Keep Detailed Records
Keeping meticulous records of your income and expenses is crucial for accurate tax reporting. Without proper documentation, you may miss out on valuable deductions or overstate your tax liability. Invest in accounting software to track all business-related transactions, including receipts, invoices, and bank statements. Schedule regular time to reconcile your records and ensure everything is up to date.

Overlooking Deductible Expenses
Solopreneurs are entitled to various tax deductions that can help lower their taxable income and reduce their tax bill. However, many solopreneurs overlook deductible expenses or fail to keep adequate records to support their claims. Take the time to familiarize yourself with allowable deductions for your business, such as home office expenses, professional services, office supplies, and marketing costs. Keep detailed records of these expenses to substantiate your deductions in case of an audit. Some of our very own Sparklers deduct the cost of their Sparkle Hustle Grow subscription – check with your accountant to see if you can, too!

Ignoring Retirement Savings Opportunities
As a solopreneur, you don’t have access to employer-sponsored retirement plans like 401(k)s. However, you can still take advantage of tax-advantaged retirement savings options, such as a Solo 401(k), SEP-IRA, or SIMPLE IRA. Contributing to a retirement plan not only helps you save for the future but also reduces your taxable income for the year. Explore different retirement savings options and consult with a financial advisor to determine the best strategy for your business. We know, you may not be able to pay yourself every month, but when you can and have some money left over, invest in your future retirement!

Not Seeking Professional Help
While it’s commendable to handle many aspects of your business yourself, taxes are an area where professional guidance can be invaluable. A qualified accountant or tax advisor can help you navigate complex tax issues, maximize deductions, and ensure compliance with tax laws. Consider hiring a professional to prepare your tax returns or at least review them before filing. Investing in expert advice can save you time, money, and stress in the long run. The easy online tools are handy, but they might not get you the best results!

It’s easy to make mistakes when you’re busy doing everything for your business. It’s easier to make mistakes when it’s something you deal with once a year, like taxes. Just remember, proactive tax planning and attention to detail can pave the way for long-term success as a solopreneur. Sparkle on!

Carol Gavhane, owner of Sparkle Hustle Grow

I’m Carol Gavhane, Owner of Sparkle Hustle Grow. My team and I use this blog to share our favorite business tips, introduce you to thought leaders in our community and to feature products from SHG boxes.