Freedom. Independence. Autonomy. These are some of the tremendous advantages of being your own boss. The world is your oyster when you own your own business! But one dirty little word separates a passion or a hobby from a business. One word is what keeps most of us from drinking margaritas in our sweatpants all day. One word has somehow come to equate one’s value, contribution to their household, community, and society. That word, if you haven’t already guessed, is money, honey! 

When you are in charge of your business, you are in charge of keeping sound accounting. Beyond that, your personal finances are easy to comingle with those of the company if you are not careful. The chances are that if you are an entrepreneur, you are already very skilled at wearing all of the hats. That’s a good thing since you will likely have to manage your own bookkeeping, payroll, taxes, and debt, at least in the beginning. (You should seek professional counsel when needed, of course.) We have made a list of five hacks to help you manage your finances as a thriving office of one. Read on to learn more!

Save receipts for EVERYTHING, and track your mileage!

When you are an entrepreneur (or solopreneur), self-employed, or work as an independent contractor, you are entitled to many tax benefits. Everything you spend to keep the business running (and we mean everything) can be written off as a deduction. This includes obvious things, such as office furniture and supplies, but there may be some items that you may not think of. For example, petty cash expenses, research and development costs, business start-up costs, and costs for preparing documents are commonly overlooked yet eligible write-offs. Automobile expenses and mileage (if your vehicle is used for conducting your business) may also be included.

The law says that if an expense is both ordinary and necessary to conduct your business in the industry you’re in, it counts! That leaves a lot of room for variables depending upon what you do for a living. For example, if you are a personal trainer, your gym memberships to meet with your clients would be both ordinary and necessary to earn your living. If you run an after-school daycare service out of your home, the cost of providing snacks to the children could be an eligible deduction.

The key to claiming any write-off is to document each one carefully, and SAVE YOUR RECEIPTS. IRS workers are not the kind of people you want to be messing with. They are entitled to audit your tax records for seven years. Seven!! That is a long time and a lot of receipts. Good thing business-related storage is a qualified tax write-off! Luckily, many apps will make the documentation process much easier. We will touch on that a bit later. Since business-related mileage is an eligible expense, you must also track your mileage. You can do this with a ledger or calendar, or an app.

1. Consider forming a business and paying yourself as an employee. 

If your business is up and running and cash flow is steady, it may behoove you to consider meeting with a CPA to discuss your payroll options. Depending on how much your business is producing and whether or not you have a business partner (or group), it may make a lot of sense to form an LLC so that the business is a separate entity from yourself (as far as tax purposes go). You may be able to pay yourself as an employee on your payroll. At that point, you will be personally responsible for the taxable income paid. The LLC would be responsible for the tax owed by the business, and would be allowed some of the write-offs.

You will essentially be making the switch from earning income reported on a 1099 to a W2. If this is the case, you will have to consider the legalities and expenses involved in payrolled employees. For instance, your business will likely have to pay into your social security and unemployment. Consult with a CPA or tax professional to assess which option is best and most lucrative for you.

2. Having a home office can provide you more than working in your pajamas!

Who wouldn’t love to roll out of bed and start the workday without a commute or putting on uncomfortable professional attire? There is nothing better than taking that 9 am conference call in your sweatpants and slippers… except… saving yourself money while doing it!

The IRS laws state that to claim a home office deduction, it must meet two basic requirements. The first is that the designated area or room must be used exclusively to conduct business. Sorry, that guest room with a desk in it doesn’t count. It has to be only for the purpose of making the cash register ring… cha-ching! The second requirement to qualify for the home office expense deduction is that the space or room must be the primary business place. In other words, if you have an office in an executive suite that you work out of Monday through Friday, but you put a desk and printer in a spare room in your house in case something comes up on weekends, you are out of luck.

You must calculate the square footage of your entire house and the square footage of your home office. Calculate the percentage of your home that is solely for work. A portion of your rent or mortgage, plus a percentage of any utilities could count toward your write off. Beginning with filings in 2014 and later, the IRS started to offer a simplified option for the write-off, which equates to $5 per square foot of work-designated space, with a maximum cap of $1500 per year (or 300 square feet). As always, it is best to consult with a CPA or tax professional to make sure you are within your legal rights.

3. Prioritize Debt.

Not all debt is created equal. There are variables (such as interest rates) that can make some debt more challenging to pay off than others. While owing money can quickly become daunting and overwhelming, the best course of action to repaying it is to get organized.

Gather all of your statements and make a list of all of your debts that includes your balance, minimum payment, interest rate or APR (annual percentage rate), and your payment due date for each one. Now, take a highlighter and mark the balance and interest rate for each item on your list. Having a clear picture of what you are dealing with will help you devise a strategy that isn’t overwhelming and will be the least costly.

Mathematically, the fastest way to repay a debt for the lowest cost is to prioritize debt with the highest interest rate and pay it off the fastest. So, look back at your list and re-order it with the highest interest rates at the top and the lowest interest rates at the bottom.

4. Oh, there’s an app for that! 

It is 2020, and technology is so deeply interwoven with our lives, it is hard to even imagine a time before there was Google or social media. Luckily, for self-employed business owners and independent contractors, many apps have been designed with you in mind!

As we mentioned in numero uno, tracking your mileage is extremely important. The IRS standard mileage deduction for business use in 2020 is 57.5 centers per mile. While a ledger and pen in the old glovebox are better than nothing, why not use Stride? (Available on Google Play or the Apple App Store). It is free and will run in the background while you are driving to and from work engagements. You can customize the settings to either work manually or automatically.

Conveniently, the Stride app also has an expense logging feature. You can even add your bank account credentials and set the app to track the expenses automatically, or you can enter them in yourself.

Another app that we love is Square. If your business is not a brick and mortar location, you will love this portable POS system built into your phone. You will be able to process credit and debit card payments with a tiny square card reader that plugs into the charge port on your phone. (The company sends this to you for free when you sign up.) This is an ideal solution for anyone who offers portable products or services. If you are a personal chef, personal trainer, or any product merchant who does pop up shops (i.e., online boutique owner), this is a great way to make the mullah without dragging around a cash box or register. Before the pandemic, this was a popular way for promotors to handle door ticket sales for events and concerts. Nothing is handier than the cell phone you are already glued to!