Needless to say, running a one-person show as a solopreneur can be incredibly rewarding, but it also comes with a mountain of responsibilities—like making sure your finances are in tip-top shape. Basically, you need to do everything you can to keep your business organized, and as a one-person show, it’s not really the easiest thing to do. So, while keeping your business afloat is always the priority, it’s crucial not to forget the lurking presence of tax authorities.
Now, there are more than enough references to the tax authorities in pop culture, like the gang from It’s Always Sunny in Philadelphia getting audited, the Joker in the animated Batman even making a joke he would never dare mess with the IRS, and, of course, there’s Breaking Bad which constantly references the IRS (and seems to be far scarier than the DEA).
So, it’s clear that businesses, regular people, and criminals alike are far more fearful of tax authorities. So, getting on their radar can lead to audits, fines, and a lot of unnecessary stress. So how can solopreneurs avoid these pitfalls and ensure smooth sailing when it comes to taxes? Well believe it or not, it’s simpler than you might think.
Stay Organized, Stay Safe
One of the most common mistakes solopreneurs make is poor record-keeping. Sloppy paperwork or missing documents are red flags for tax authorities. They want to see that you’re on top of your game, and if you can’t produce records on demand, it might look like you’ve got something to hide—even if you don’t.
So, be sure to keep your receipts, invoices, bank statements, and any financial records in order. Digital tools like QuickBooks or Xero can make this task less daunting. A well-organized financial system shows that you’re serious about your business and compliant with tax regulations.
Avoid the Temptation of Mixing Business and Personal Finances
It might seem convenient to occasionally dip into your business account for personal expenses or vice versa, but this is a surefire way to catch the eye of the taxman. Yes, even though your business is your livelihood, blurring the lines between personal and business finances is one of the most common mistakes solopreneurs make, and it’s a big no-no in the eyes of tax authorities.
It really can’t be stressed enough that you’ll need to open a separate business bank account and use it exclusively for business-related transactions.
Know What Deductions You’re Entitled To
Deductions are the silver lining of tax season. They can significantly reduce your taxable income, but claiming the wrong deductions—or failing to claim the ones you’re entitled to—can raise red flags. So, be sure to proceed with caution.
Don’t DIY Your Accounting
Sure, doing your own accounting might seem like a money-saving move, but it can cost you more in the long run if you get it wrong. That’s actually the scary thing, because accidents or not, you’ll get into trouble. So that’s why it’s a good idea to instead just look into outsourcing like Cook CPA. You don’t even need to hire an accountant (as those are expensive), and outsourcing is incredibly cheaper and there’s usaully more benefits doing it this way too.
Keep Up with Tax Changes
It’s so important to understand that tax laws aren’t static; they change frequently, and what worked last year might not apply this year. So that’s why staying updated with the latest tax regulations can help you avoid mistakes and ensure you’re taking advantage of all available benefits. Plus, this is why you’re better off outsourcing your because they’re going to keep track of all of this.
