5 Accounting Tips for Solopreneurs to Manage Business Effectively

Solopreneur is a term for business owners who run the business on their own. The business is a one-man show with the owner managing and running the business from a home office.

If you are a solopreneur, you need to get familiar with the dos and don’ts of balancing the books. Here are some tips that can help you to manage accounting and bookkeeping tasks when you are the only person running the show.

1. Know Your Tax Obligations

Every business owner needs to get a deep understanding of the responsibilities in submitting taxes. You must know about the forms that must be filed to pay the taxes.

The IRS requires every business owner to pay a self-employment tax. The tax rate was 15.3 percent in 2022. As per the IRS rules, 12.4 percent of this tax is for social security and 2.9 percent for Medicare.

You must submit Form 1040 to report income and expenses from business. The form consists of different schedules that help you figure out different aspects of your taxes.

Schedule A of Form 1040 allows you to know about expenses that you can deduct from your income to reduce the taxable income. Schedule C of the form allows you to report profit or loss from the business. Schedule F of Form 1040 is applicable if you own a farm business.

Form 1040-ES is submitted if you want to report estimated tax on earnings from self employment, rents, and other income that are not subject to withholding tax. Moreover, Form 1040-SR is submitted to report tax that is due on net earnings from self-employment.

Every solopreneur is also required to report specific transactions that increase the profit earning capacity by submitting Form 1099. This form is submitted to report buying or selling of secured property, income from broker or barter transactions, debt cancellation, investment income, accelerated death benefits, income from royalties, rent, and fishing boat.

Business owners are also required to submit Form 1099 to report issue income from taxable distributions from cooperatives, real estate sales, IRAs, insurance contracts, profit sharing plan, annuities, pensions, and health care benefits.

2. Not Mixing Personal and Business Expense

Solopreneurs must learn to keep the personal and business expenses separate. Keeping a separate record of business expenses will help you evaluate the financial performance of your business.

Combining personal and business accounts will create confusion. You will not be able to budget and manage business expenses when you don’t keep a separate record.

Consider creating a separate bank account for your business. You should also consider purchasing a separate credit or debit card for your business. Keeping the expenses separate may require some effort in the start. But it will be worth it as you can accurately gauge the growth of your company.

Keeping separate expenses will also prove invaluable when claiming business expenses. The IRS allows self-employed business owners to deduct certain expenses incurred in running the business. Keeping a separate record of business expenses will prove helpful in case the IRS requests an audit of your expenses.

3. Save Money for Taxes

A lot of solopreneurs don’t think about taxes when creating a budget. They invest all the money due to which they can’t pay the taxes. It forces them to take on costly loans that worsens the financial condition.

You must learn to rely on your own money for meeting tax obligations. Consider estimating the tax amount due at the end of each period and save accordingly. You should even consider creating a separate account for saving money for meeting tax liabilities.

4. Outsource Accounting and Bookkeeping Tasks

A major chunk of the solopreneur’s time is spent in keeping the books in balance. Trying to manage financial records while running the business can result in mistakes. This will prevent you from accurately reporting income and expenses when filing returns.

The IRS imposes a stiff penalty for submitting wrong income and expense figures. You can save time and ensure accurate reporting by outsourcing the bookkeeping and accounting task to professional accountants.

Experienced outsourced bookkeeping firms will handle all the tasks in maintaining accounting records. They will make bookkeeping entries in specialized accounting software. You will get the services of experienced accountants and also won’t have to pay costly subscription fees when you hire a reliable outsourced bookkeeping firm to manage your accounts.

5. Create a Budget and Stick to It

Creating a budget is essential for every business owner including solopreneurs. You should set a financial target for each period. The business budget should include expected income and expenses during a period.

After creating the budget, you must try to stick to it as much as possible. Creating a budget will allow you to maximize your savings. It will allow you to better utilize the funds for optimum financial outcomes.

Conclusion

Solopreneurs should outsource non-core tasks to specialized firms. Outsourcing bookkeeping and tax preparation tasks can save a great deal of time and effort. It will help you to get the help of experts in recording and reporting financial performance.

Getting the help of outsourced bookkeeping and accounting firms will allow you to ensure accurate filing of taxes. You will be able to file taxes in a timely manner and without mistakes that will help you avoid costly fines imposed by the IRS.

Maxim Liberty is an outsource bookkeeping service firm with a team of highly competent and qualified accountants. Our experienced accountants can prepare the accounting statement in compliance with GAAP rules and regulations. You can get in touch with us by dialing (703) 957-6938.