A Tax Guide for Solopreneurs: Self-Employed Tax Tips

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

If you file taxes for a self-employed person, it is important to keep complete financial information, pay self-employment tax take into account retirement contributions, and benefit from deductions for business.

We will go over the most important issues for business owners during tax season and how you can prepare and file taxes properly.

Tax Guide for Self-Employed Financial Records

If you're running a one-man or woman-owned business, maintaining accurate financial records is essential. This will aid in the filing process when tax time, and in the future, you will thank for it later. It is also a crucial procedure in the event that you're randomly investigated through the Internal Revenue Service (IRS) in the future.

Before you move forward, make sure that your documents are divided into business and personal folders. You should keep these distinct to avoid confusion or inaccurate information. Consider opening an account at a bank for business using a credit or debit card to completely keep your business's financial transactions in a separate location.

If you have a lot of commercial transactions, you might be interested in utilizing an expert record-keeping service or employing an accountant.

Important Documents for Tax Season

So, what information should be kept in your documents? Most important are the gross receipts for purchases and other expenses that your company incurs. A lot of them can be deducted, so maintaining track of them will be crucial. They can also comprise travel and transport to work-related events.

The next section of documents to keep includes those pertaining to assets. This is where you record gains and losses each year in the event that you decide to sell your assets.

Self-Employed Tax Tips

When it's time to file your taxes, there are three major things to consider: the payment of self-employment tax, retirement contribution, and deductions.

Paying Self-Employment Tax

The IRS demands all business owners and entrepreneurs to pay self-employment taxes. In 2021, the rate was 15.3 percent (12.4 percent for Social Security and 2.9 percent in the case of Medicare).

As opposed to traditional filings for self-employment, self-employment tax is paid each quarter and due in the months of April, June, September, and January. It is possible to pay online or by phone or through an app, and you can get more details at 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, you could be eligible to receive a tax refund in April.

If you fail to make an installment on a regular basis or don't pay the payment altogether, you'll be assessed a penalty from the IRS. The penalty begins at 0.5 percent of the amount you owe. It can go up to 25%, so make certain to pay your quarterly taxes.