As a solopreneur, I dread tax season. For the past five years, as soon as mid-February rolls around and Uncle Sam comes knocking at my door looking for his annual check, I run, tail between legs, to my parents’ house, begging them to help a sista out.
Now that I’m 31 (and my parents are moving to North Carolina), I finally need to put on my big girl pants and tackle taxes on my own. If filing your overwhelming pile of W-2 forms makes you sick to your stomach, here’s some advice from a chick suffering with the same struggle.
If you’re a side hustler, chances are you’re also self-employed. If you have an annual net earning of over $400, you’ve gotta suck it up and pay self-employment tax. This is an additional tax that usually equates to 15% of your income. My rule of thumb is to stash 30% of each paycheck away for self-employment tax.
If you’re using your apartment as a work space, it’s amazing what you can write off when you’re a solopreneur. To be able to deduct business expenses from your taxable income, you’ve got to keep paper or digital receipts of EVERYTHING you’re intending to write off in case you get audited. The easiest way to do this is to create an Excel spreadsheet to keep track of your expenses throughout the year.
This includes gas money if you’re driving out to meet with a client, portions of your electric bill you use to help you work, internet bills and even (gasp!) dinner receipts if you’re wining and dining clients.
As a solopreneur, you need to find out how to structure your business legally. Whether you’re a solo proprietorship, C corp. or S corp., will establish the degree to which your personal assets are protected from your business assets if you get tangled up in a lawsuit. Your biz’s legal structure also affects how much taxes you owe come April. My advice is to go as a solo proprietor, as this makes it easier to pay taxes.
Don’t wait until April 15th to file. The sooner, the better! This enables you to figure out any congruencies and gives you a time cushion if you get hit with a big tax bill (this happened to me last year when I totally forget about city wage taxes).
Don’t go wailing to your parents to help you out. Hire an accountant to help you file your taxes. TurboTax and H&R Block are both great options.