[Guest Post] 5 Money Management Tips for Solopreneurs

There’s no doubt that solopreneurship is on the rise. Solopreneurs are, of course, entrepreneurs, but because they’re often the only ones with real skin in the game, their money situation is typically unique. 

While there are lots of resources for managing small business finances, managing your money as a solopreneur has its own set of considerations. It’s particularly important that solopreneurs delineate between their personal finances and their business’ revenue. 

Moreover, solopreneurs don’t have designated team members to who they can delegate the “business side” of their business. This means that managing a business’ finances, on top of all other duties, falls squarely in their laps. 

Managing your money as a solopreneur may be tricky but it’s far from impossible. We’ve put together a list of 5 tips to help you get on top of your money. 

Tip #1: Separate Your Personal Bank Account from Your Business 

Banks, of course, are a key partner when it comes to managing your business’ finances. If you’re not already leveraging an online banking partner, it’s worth looking into. Even if you’re working from home, you can have direct access to your bank account, meaning you always have a line of sight into your business and expenses. 

That being said, we strongly recommend separating your personal bank account from your business’ bank account. Separating these transaction types will be crucial when it comes to tax time. You’ll need to quickly and easily understand what expenses need to be reported, which can become unnecessarily difficult when your personal spending is mixed with your business’ expenses. 

If you’re going to have multiple bank accounts, consider a mobile bank account without fees.  Separate and secure your personal finances from your business’, without paying to access your own money.

Tip #2: Track Your Expenses 

Personal finance experts always tout the importance of budgeting, but this advice applies to solopreneurs too. Tracking your expenses is essential to understanding your profit margins and cash flow. But for a lot of solopreneurs, this task can feel like housekeeping and easily fall to the wayside. 

As Spencer Barclay, CEO and Founder of Savology puts it, “Far too many solopreneurs will set up a spreadsheet to track their expenses, but then once they get involved in the daily grind, they end up never using it. The end result is that they have no idea where their money is going, which can lead to overspending or cause them to miss crucial deductions at tax time.”

But tracking your expenses doesn’t have to be a manual process. Take advantage of budgeting apps (like Mint) to automate tracking your cash flow. Instead of having to constantly update your budget on a spreadsheet or on paper, utilize an app that will give you a bird’s eye view of how money is flowing in and out of your business. 

Of course, using an automated solution for budgeting is much more straightforward when you have a dedicated bank account for your business. But regardless of your set up, it’s essential to understand money coming in and money going out. 

Tip #3: It’s Always the Right Time to Prepare for Tax Season 

As a solopreneur, preparing for tax season will need to become a part of your routine. In particular, making sure you’re ready to report your expenses will be key to filing in time for the tax deadline.

Staying on top of your expenses puts you in a great position to take advantage of itemized tax deductions. Receipts for expenses such as business lunches or office purchases need to be kept and carefully stored so that they may be submitted as proof for these deductions. Digital files are typically easier to store and export, and services like Shoeboxed will help you scan, digitize, and organize your receipts. 

Pssst… check out our guide to organizing your receipts for taxes (and maximizing your deductions). 

On top of making sure you’re fully prepared to report your expenses (with proof), you’ll also want to start saving for the possibility of owing taxes. FinancialBin recommends putting 20-30% of your earnings into a short-term savings account to cover state taxes, local income taxes, and self-employment taxes. 

Tip #4: Save For a Rainy Day

The importance of saving up for a rainy day cannot be overstated. Both in your personal and business life, having money put aside for situations where money could be tight is crucial for staying afloat. Did you know only 40% of Americans have enough money put aside for a $1,000 emergency? 

We recommend setting up two types of funds: an unexpected emergency fund and a sinking fund. With an unexpected emergency fund, it’s generally recommended that you have enough money saved for a situation in which your business is operating at a major loss for 6 months. 

Emergency Funds 

A good way to prepare for this is to calculate your business expenses by month. If your business costs $1,000 a month to run, you should have at least $6,000 put aside to fund the business in a situation where it was earning $0 a month. It may not be fun to think about the possibility of needing to tap into your emergency fund, but it’s best to prepare for the worst.

Sinking Funds 

With a sinking fund, you’re not preparing for an unexpected loss. Instead, you’re putting money aside for any future liabilities on wasting assets—like items that need to be replaced every few years. While these types of liabilities are technically predictable, they’re not always top of mind. 

Unlike an emergency fund, with a sinking fund you’re putting money away that you know you’re going to have to spend within the next few years.

When used in conjunction, an emergency fund and a sinking fund will help prevent your business’ budget from falling apart and can also help you avoid needing to take out loans and go into debt. A sinking fund also prevents you from using your emergency fund on sinking costs, and vice versa.

Tip #5: Diversify Your Revenue Streams

For many people, solopreneurship started as, or still is, a side project used to earn extra money while working full-time. The “side hustle” is an example of diversified cash flow, or having multiple sources of income. If one of these sources of income were to drop out, people with side hustles would still be able to continue making money. 

Just like you can create a diverse portfolio of income for your personal life, you should try to diversify the revenue streams for your company to hedge your bets. This will help your company stay afloat in case one of your revenue streams is no longer earning money or starts operating at a loss.

For example, let’s say you run a career coaching business. Your primary “product” is client sessions. However, if you want to start adding new sources of revenue, you might think about creating content that only paying members can access. Or you can sell DIY workbooks to people who want to work with you but can’t afford weekly sessions. 

Launching new products isn’t the only way to diversify your revenue streams. We love this example: making your website/business more accessible. Making your business accessible is not only the right (and often legally required) thing to do, it opens up new customer segments who may have previously not been able to use your services. 

However you choose to diversify your revenue streams, finding new ways for your business to make money is never a bad idea. 

Conclusion 

Overall, managing your finances as a solopreneur is easier said than done, but that doesn’t mean you’re completely on your own. We hope these tips help you realize that not only is technology your friend in this fight but also that a little forward thinking about what could be around the bend for your business can go a long way.

Digitize Receipts on YOUR Schedule With Receipt Rollover by Shoeboxed

The Shoeboxed team is excited to announce an update to our annual plans: receipt rollover! Rather than having to plan around your monthly allotment of receipts, you can now digitize receipts when it’s convenient for YOU.

No more monthly maximums means no more stressing about whether or not you’ll get charged an overage for a particularly busy month!

Take a look at each plan’s annual receipt allotment:

Startup

  • 300 physical documents/year 
  • 600 digital documents/year 

Professional 

  • 1800 physical documents/year 
  • 1800 digital documents/year 

Business 

  • 36000 physical documents/year 
  • 3600 digital documents/year

And the best part? On top of increased flexibility, our revamped plans still give you the benefit of 20% off for paying annually. It pays to sign up for an annual plan. 

The Flexibility You Need, Just in Time for Tax Season

With April 15th just around the corner, an annual plan will help you catch up on your pile of receipts with peace of mind. The IRS and Canada Revenue Service accept digitize receipts from Shoeboxed, so you can rest assured that with us on your team, you’re audit-ready. 

Psssst panicking about April 15th? Check out our guide to taxes for small businesses. 

Who are Shoeboxed annual plans best for? 

Even if you’ve got tax season under control, receipt rollover can come in handy for lots of different reasons. 

  • If you’re a seasonal business, like a summer camp or a retail store, the flexibility of annual plans can help you stay on top of your busy seasons. 
  • Catching up on end of the year expense reporting can be a headache, but you won’t have to worry about being charged an overage with a Shoeboxed annual plan. 
  • Or if you just like to save money – annual plans save you 20%!

We know that you’re not always going to be able to anticipate how many receipts you’ll need to digitize in a given month, so our annual plans are now designed with your needs in mind. 

How to Get Started

You can now sign up for an annual plan and start digitizing receipts on your schedule! Or you can try any of our plans for free.

Already on an annual Shoeboxed plan? Great news! All Startup, Professional, and Business annual plans can now take advantage of receipt rollover. 

Not sure an annual plan is right for you? Let’s talk about it.

The Guide to a Painless Tax Season

Do the words “tax season” make you shudder? You’re not alone. Over half of US adults say tax season stresses them out. And when you run your own business, your tax time heebie jeebies are bound to be even more severe. 

Tax season is faster and easier when your bookkeeping is organized. And our partners at Bench will handle all of your small business bookkeeping, and even file your taxes for you.

But if you’re filing your own taxes, read on. We’ll cover all of the forms you will need to file and any deadlines you will need to meet—plus how to file on time or get an extension. 

The documents you need to file taxes

When you file your tax return, you must be able to prove what you earned and what you spent —for the sake of reporting income, as well as claiming tax deductions. These records are not submitted with your return, but you’ll use them to calculate your total income and expenses for the year. However, you will need to have them on hand in the unlikely event you’re audited.

Basic info for filing small business taxes

  • Personal and business info: Your address, the address of your business, your full name, and your Social Security Number (SSN).
  • Last year’s filing: Having your previous return on hand makes it easier to complete this year’s return and keep track of info like depreciable expenses.
  • A Tax ID number: There are a variety of different numbers you may use as a tax ID number—from your SSN to your Employer Identification Number (EIN). Not sure which method to use for your business? This article on tax ID numbers offers a handy rundown. 

Records of small business revenue

  • Invoices you sent to clients: Keeping copies of any communications and paid invoices helps you track your revenue, and can support your case if your revenue or income are ever questioned by the IRS.
  • Records of goods sold: Cash receipts, or transaction lists from an online store or point of sale, can serve as a record of revenue you’ve earned.
  • Other sales records tracking revenue: It’s smart to hold on to any records of revenue you’ve received throughout the year.  In lieu of organized bookkeeping and regular income statements, you can use them to calculate your revenue for the year.

Records of expenses

By subtracting your expenses from your revenue, you get your total income for the year. That’s essential for filing. Also, many expenses are deductible—and if you make deduction claims, you’ll need to back them up.

Be sure to hold on to: 

  • Rent receipts
  • Office supplies receipts
  • Employee salaries
  • Mileage records
  • Other deductible expense receipts 

Annual financial statements

An income statement, balance sheet, and (if you use accrual accounting) cash flow statement for the year will make filing a return easy. Comprehensive financial statements give you all the info you need to file. If you haven’t made financial statements part of your business strategy, now may be the time to hire a bookkeeper.

Essential tax forms and deadlines

Once you have your documents in order, obtain the forms you’ll need to file your return. The exact forms you’ll use, and the deadlines for filing, depend on your business structure.

Tax forms and deadlines for sole proprietors

Filing Deadline: April 15, 2020 (the same as your personal taxes)

There’s no need to file a separate return for your business. Report your business income and expenses on Schedule C of your personal tax return. If you’re itemizing deductions, list them on Schedule A.

The IRS instructions will walk you through the process of tallying your expenses and revenue for the year, and determining your income. 

Tax forms and deadlines for LLCs

Filing Deadline: April 15, 2020 (single member)

Filing Deadline: March 15, 2020 (multi member)

If you’re a single member LLC, you’ll file your taxes the same way you would as a sole proprietor. 

If you’re a multi-member LLC, you will elect to file taxes as either a partnership or an S corporation.

Tax forms and deadlines for partnerships

The partnership files Form 1065, and each individual files a Schedule K-1 to report what they’ve made and lost during the year. Partners claim unreimbursed business expenses on Schedule E.

Partnership filings, and Form 1065, can get pretty complex. For this reason, we recommend working with a tax professional to file your taxes.

Tax forms and deadlines for C corporations

Filing Deadline: March 15, 2020

In addition to your personal tax return, you’ll file a separate return for your corporation using Form 1120. This form is similar to Schedule C of your personal tax return, but more complex—and separate from your personal finances. Most business owners hire an accountant to help with Form 1120. 

Tax forms and deadlines for S corporations

Filing Deadline: March 15, 2020

You’ll file a Form 1120S for your corporation, and each shareholder will need to report their profits and losses with Schedule K-1. Similarly to a C corporation return, most S corps get help from an accountant to file taxes

Tax forms and deadlines for businesses that hire contractors

Filing Deadline: Sent to recipients by January 31, 2020

If you’ve paid $600 or more to a contractor, you need to file Form 1099. One copy of this form goes to the IRS, for the sake of filing your own taxes; another copy goes to the contractor, so they can use it to file their taxes.  If you’ve hired more than one contractor you will need to file a separate Form 1099 for each contractor.

How to file taxes online

Gone are the days of filing paper returns. The most efficient (and popular) way to file taxes with the IRS is online. 

To file your taxes online, you have two options: Free File, or Free File Fillable Forms.

IRS Free File

The IRS has partnered with 13 providers who offer free versions of their accounting software that you can use to file your taxes online. You’re automatically enrolled in Free File once you sign up with one of these providers— there’s no need to sign up through the IRS website.

Most providers offer a basic software package for free. These typically aren’t able to cover all the needs of a business—such as filing itemized deductions. You’ll need a paid version for that; the packages recommended for sole proprietors range from $54.95 (1040.com) to $94.99 (H&R Block).

IRS Free File Fillable Forms

Essentially, Free File Fillable Forms lets you complete IRS forms online, through the IRS website. These forms will do basic calculations for you, but they don’t check for errors.

Fillable Forms will automatically calculate your tax refund, and you can elect to have your return transferred directly to your bank account. You can also resolve any taxes due online.

If your business is small and relatively simple—like a sole proprietor—and you’re already experienced with filing taxes for your business, Fillable Forms may be a good choice. 

Otherwise, the process may intimidate you, and you run the risk of making errors. In that case, you may be better off having someone file your taxes for you.

BenchTax

If you’re short on time and energy this tax season, and don’t want to wade through the depths of filing by yourself, consider BenchTax. With BenchTax, a team of professional bookkeepers will review and proof your books up to the current month; Next, they’ll work with tax experts to get your taxes filed accurately and on time while taking advantage of as many itemized deductions as possible.

How to get an extension

If it looks like you’ll be late filing taxes, file for an extension ASAP.  An extension will save you from IRS late filing penalties, and requesting an extension is pretty straightforward.

Filing a tax extension for your sole proprietorship or single-member LLC

If you plan to pay your taxes online, you can get a six month extension through the IRS payment portal.

Otherwise, you can request an extension by filing IRS Form 4868.

Filing a tax extension for your multi-member LLC, partnership, or corporation

You can file for a six month extension using IRS Form 7004

File early, rest easy

If you can, file your taxes early—meaning, well before the deadline. This may take some prep, but it has advantages.

First, you’ll get your tax refund earlier. Remember, a tax refund is your money—you just happened to overpay it to the IRS, and they’re holding on to it. Your money isn’t collecting interest while the IRS holds it. The sooner you get it back, the sooner you can put it to work for your business.

Second, you’ll have the info you need to start planning your estimated taxes for the coming year—you can check one more item off your tax to-do list.

To file early, you’ll need tip top books. The more organized your books, the easier it is to get the numbers you need to file your return. The best way to stay organized is to do your bookkeeping throughout the year, rather than handling it all in one mad scramble come January.

Ready to get your books in order? Check out Bench. They’ll do one month of bookkeeping for you, free.

Tax time doesn’t have to be stressful. And it won’t be, so long as you have everything you need to approach it in an organized way. Your filing date, and the forms you need, vary according to your business structure—so make sure you know what’s needed before the deadline comes.