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Daily Capital

Lessons Learned About Tax Prep as an Entrepreneur

Stressing about taxes? Download Your FREE Guide: “5 Tax Hacks for Investors”

Tax season is always stressful.

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Compiling all your paperwork, crunching numbers, staying organized. There’s a reason most people put it off until the last minute.

But if you’re a solo entrepreneur, tax season can be even more daunting. Whether you’re filing as an LLC, sole proprietor, or something else, here are some best practices to prep for tax season.

1. Set aside 30% for taxes before you do anything else.

When you’re your own boss, you’re responsible for paying your own taxes — as opposed to a W2 employee, where your taxes are automatically taken out. I see too many entrepreneurs going into debt or dipping into their savings to pay their taxes, because they didn’t set them aside as they made money.

To ensure that I have enough to cover my taxes and make sure my money is working for me, I set aside a portion of my tax money in a high-yield account (like this one, from Personal Capital) before “paying myself” an income. If you’re an entrepreneur or have a side hustle, it may be worth it to do the same.

Staying ahead of the game by automating a portion of my earnings to a high-yield savings account means I don’t have to worry about quarterly or annual taxes sneaking up on me — why not make some interest off it at the same time?

2. Do the heavy-lifting throughout the year

To save yourself from a last-minute panic (trust me, this was me last year), make sure you’re keeping track of your profit and loss throughout the year. Know where your money came from, how much you paid contractors, and more.

I also use this amazing spreadsheet from my friend and fellow entrepreneur Mallory Rowan to keep track of where all my money is going for my business (and it always gives me a fun little buzz when I get to enter an invoice!) It splits my income into expenses, taxes, owner’s comp, and more – so I know exactly what should be in every account.

3. Invest in an accountant.

Yes, you could do it yourself. And if you feel confident enough to do that, go for it! But back when I was working a day job AND running my business as a side hustle, I invested in an accountant. It was the best decision I made.

I spent about $400 a year to have someone do my taxes correctly, get me deductions I didn’t even know existed, and help me optimize my SEP IRA contributions. (Bonus: it’s a business expense, so I get to write it off next year.) I’d rather pay an expert to know something this important was done right — and, if I get audited, he’s there to guide me through the process and advocate for me.

Overall, staying organized is the best gift to yourself during this stressful time. If filing your 2019 taxes isn’t going as smoothly as you expected, put good habits into place throughout 2020 to prep.

Download Your Free Tax Guide: “5 Tax Hacks for Investors”

Personal Capital compensates Tori Dunlap (“Author”) for providing the content contained in this blog post. Additionally, in a separate referral arrangement between Author and Personal Capital Corporation (“PCC”), Author is paid $70 and $150 for each person who uses Author’s webpage (www.HerFirst100k.com) to register with Personal Capital and links at least $100,000 in investable assets to Personal Capital’s Free Financial Dashboard. As a result of these arrangements, Author may financially benefit from referring potential clients to Personal Capital and/or be incentivized to present blog content that is favorable to PCC. No fees or other amounts will be charged to investors by Author or Personal Capital as a result of the Referral Arrangement. Investors that are referred to PCC and subsequently subscribe for investment advisory services provided by PCC’s affiliated adviser, Personal Capital Advisors Corporation (“PCAC”) will not pay increased management fees or other similar compensation to Author, PCC or PCAC as a result of this arrangement. Additional information about PCAC is contained in Form ADV Part 2A available here.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Tori Dunlap is a millennial money and career expert. After saving $100,000 at age 25, Tori founded Her First $100K to fight financial inequality by giving women actionable resources to better their money. A Plutus award winner, her work has been featured on Good Morning America, New York Magazine, Forbes, CNBC, and more. An honors graduate of the University of Portland, Tori currently lives in Seattle, where she enjoys eating fried chicken, going to barre classes, and attempting to naturally work John Mulaney bits into conversation.
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