Glenda Moehlenpah photo with Financial Bridges logo

Glenda Moehlenpah CPA, CFP®

 

Financial Bridges

12975 Brookprinter Place, Suite 140, Poway, CA 92064

 

Phone: 858-486-0100

 

Email: glenda@financialbridges.com

Website: www.FinancialBridges.com

March/April 2024

Tips for Sole Proprietors

Tips for Sole Proprietors

As a sole proprietor, you’re responsible for everything from filing taxes to setting up your retirement plan.


First Up: A Retirement Plan
A solo 401(k) plan is a popular choice for sole proprietors. The business owner contributes to the plan as both employer and employee, up to the annual contribution limit for 401(k) plans.

A SEP (Simplified Employee Pension) IRA is another option for sole proprietors or small businesses with only a few employees. Only the employer is allowed to make contributions to the plan. The same percentage of compensation must be contributed to employee accounts as the employer contributes to his or her account.


Line Up Your Deductions
With a sole proprietorship, all business income and tax deductions are reported on your individual income tax return. Health Insurance. You generally can take an above-the-line deduction for the cost of health insurance for yourself, your spouse, and your dependents. The amount of your taxable income limits the deduction.


Business Expenses. Deductible expenses include utilities, subscription services, travel, and capital assets. You may be able to take the home office deduction for a portion of rent and utilities if an area of your home is dedicated exclusively to your business.

Self-employment Tax. Sole proprietors must pay both the employee and employer portion of self-employment tax (Social Security and Medicare.) You are allowed to deduct half the tax on your return.


A Different Business Structure
You may consider a different business structure offering liability protection as your business grows. An LLC (limited liability company) is the simplest way to structure a business and protect your assets. An S-corporation eliminates your liability and allows you to save on unemployment taxes. However, your Social Security benefits could be reduced. Your financial and tax professionals can help you with all of these strategies.


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