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Last Minute Tax Advice for the Solo Entrepreneur

Guest post by: Dominique Molina

Article Overview: If you’re like most solo entrepreneurs, you’ve put off dealing with your taxes as long as you possibly can. Now it’s year’s end (or, gasp, past year’s end) and you’re trying to figure out how to soften the blow as much as possible. So, what can you do at this late stage of the game to benefit yourself and your business?

Last Minute Tax Advice for the Solo Entrepreneur

You’ve spent the whole year building your business. Now it’s every solo entrepreneur’s favorite time of year. It’s time to wade through mounds of records, receipts, and other paperwork to figure out just how much of your income you get to pay out in taxes this year.

If you’re like most solo entrepreneurs, you’ve put off dealing with your taxes as long as you possibly can. Now it’s year’s end (or, gasp, past year’s end) and you’re trying to figure out how to soften the blow as much as possible. So, what can you do at this late stage of the game to benefit yourself and your business?

If you’re reading this before the end of December, here are some things you can do:

● Don’t shortchange your neighbor. There are numerous ways you can use your profits to benefit others and lighten your tax burden at the same time. Most of us give to charity. Deduct your gifts, including gifts of your time, talents and services.

● If there’s anything you need, you may want to consider purchasing it before year’s end. Laws regarding what you can and can’t deduct are likely to change (and not in your favor), so get what you can while you can still write it off.

● Remember the future. It’s difficult to sock money aside for your own retirement when you’re a solo entrepreneur. Difficult, but critical. You can defer the taxes on contributions to your own retirement accounts (up to specified amounts), so don’t pay Uncle Sam anything you could have paid yourself.



What to Do if It’s Already January

If you’ve let December come and go, don’t let it bother you too much. Even if you’re past the end of the year, there are some things you can do to help yourself during tax time. These tips will help you equally in December or January:

● Consider hiring a professional. Should every solo entrepreneur hire tax and bookkeeping help? Not necessarily, but most should. Most solo entrepreneurs aren’t even aware of many of the items they can and should be deducting on their taxes.

● Make sure everything you’re planning to deduct is legitimate and legal. It can be tempting to write off every salad bar you indulge in over the course of the year as a business expense. You’d better make sure you keep good records if you do, though. Before you claim any deduction, make sure it will hold water if you’re ever audited.

● Don’t shortchange yourself. You don’t want to claim anything that’s not permissible. But on the other hand, you don’t want to leave off any legitimate deductions. Go back over your receipts and pick them clean.

● Don’t forget to itemize R&D expenses. One of the most overlooked business expenses for a solo entrepreneur is R&D. Travel, materials, books, and even time are deductible if they relate to research and development.

● Don’t forget to capitalize on any losses you’ve suffered. Most of the time, we would just as soon forget about those projects that went south. But not during tax time. Make sure you’re prepared to claim every penny that every failed venture cost you.

● Start preparing now for what you’ll have to pay in. All too many solo entrepreneurs neglect to put anything aside over the course of the year. Some even fail to do so after they’ve balanced their books for the year and know what they need to pay in. If you’re going to have to write out a check in April, start preparing for it now.

● End of the year tax work is a great springboard for next year’s strategic planning. As you go through this year’s taxes, keep an eye out for areas where you could have saved more or earned more if you had done things differently. Incorporate those ideas into your planning.

Getting It All Together

If tax time finds you scrambling to piece together a reasonable facsimile of your fiscal year to turn in to the IRS, there’s still hope for you. There are many solo entrepreneurs with the same problem.

Nobody wants to pay late fees or interest to the IRS. When you find yourself in need of putting your records together fast, here are some things you can do:

● Enlist your banker’s help. Most banks will print out your whole years’ transactions for a minimal fee. In some cases, the records are readily available to you online.

● Use credit card records. If your books aren’t as tight as they should be, credit card records are often the easiest way to track your expenses and are readily available from your credit card company.

● Make a quick list of all major cash purchases. If you’ve used cash for business expenses, you won’t be able to remember all expenditures. Make sure to list the major ones, though.

● Create a system. There’s no need to go through this again next year. As you organize this year’s taxes, do so in a way that will help you keep better track next year.

● On time is better than perfect. You can always go back and claim deductions you’ve missed. Don’t file late just because you don’t have everything in perfect order. Put it together the best you can and file your taxes on time.

Don’t pay more in taxes than you need to. Be diligent about taking every advantage you can, and don’t make the same mistakes twice.

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Article Tags: 2011 tax tips, last minute tax tips, tax advice, tax tips



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