As a sole proprietor, not only are you entirely in charge of your business, you are also fully responsible for your taxes. It is important that you complete your taxes correctly and avoid making the same mistakes that other sole proprietors make on their taxes.

Track All Expenses

One of the biggest mistakes that sole proprietors make is not properly tracking expenses throughout the year. You should not have sitting down and figuring out what your expenses were at the end of the year; this is something that you should be doing throughout the year.

You should have a file system set up where you store all the physical receipts that you generate for expenses for your business. If you are in doubt if a purchase counts as an expense, it is always better to save the receipts and information related to the purchase and allow your accountant to figure out if it is a valid business expense.

Keep in mind that many small purchases count as business expenses, such as buying envelopes and stamps, paying for web hosting, and paying for computer programs and apps that help your business. Also, remember that big picture ticket items like your business cell phone and your health insurance premium are also business expenses.

Help yourself out by setting up a system for this new year that allows you to keep track of all your expenses. Be sure to set aside time at least once a month to go over your receipts and make sure that you are properly documenting all business expenses.

Know The Difference Between Supplies & Equipment

Next, you need to learn the difference between supplies and equipment. Supplies and equipment are claimed different on your taxes. With supplies, you can deduct those as expenses for your business. With equipment, you are able to write off a certain amount per year based upon the depreciation value of the equipment.

A good rule of thumb is that supplies are things that get used up and bought repeatedly throughout the year, such as ink for your printer. Equipment are things that you pay a significant amount of money for and expect to last for multiple years, such as a printer. Keep in mind that items such as furniture and even software with long licensing terms count as equipment, not supplies. 

Get help from a tax service looking over your books and set-up. You want to make sure that you have everything set up in a way that allows you to do your taxes properly and you want to make sure that your business is set up correctly in a legal manner.