Every Tax Filing Ever is Wrong. But they are Close Enough.
Do your best on your taxes as a sole proprietor.
This post is from a bookkeeper about accounting and bookkeeping, not tax strategy. Nothing in here should be construed as tax advice — talk to a tax advisor if you need tax advice for your situation. This is summary information of publicly available facts about how the IRS works and how tax penalties are applied.
Taxes are not all or nothing.
Most solopreneurs I talk to are worried that they are going to screw up their taxes so bad that the IRS comes after them and sends them to jail.
When it comes to screwing up on taxes, I always ask: What is the penalty? And the answer to that, it turns out, is not a mystery at all. It’s totally documented.
How this shakes out is as follows:
If you accidentally do your taxes 100% wrong, you will have 100% consequences — meaning you might end up owing a bunch of money that you should have paid in the first place and some penalties that will be a % of the amount you should have paid. If you accidentally do them 50% wrong, you will have 50% consequences. Half as big a mistake? Half as big a consequence. If you accidentally do them 5% wrong, you will have 5% consequences. Tiny Mistake? Tiny Consequence.
Oh and one other thing: if you Lie On Purpose, the IRS will FUCK YOU FORTY WAYS.
Where “Close Enough” is NOT good enough
Do not EVER lie in your bookkeeping or accounting or taxes. This is such a simple rule that will save you all the headache in the world. NO BUSINESS BECOMES A SUCCESS BY LYING ON TAXES, HIDING INCOME, OR CLAIMING FAKE EXPENSES.
NEVER, EVER try to pass off what is really a personal expense as a business expenses. NEVER try to make something you KNOW if personal into something you pretend is for business.
Dishonesty and intentional fraud is a huge fucking deal and the IRS will not have it. Don’t do it. No legit business does it pervasively. People fuck up in little ways all the time, but this is not how you get ahead with your business. That friend of yours who lies about a lot of shit on their taxes? They will not build a successful business.
Build your business in your products and services and operations, not by fucking with the IRS.
Do Not Lie To Them. Period.
Where “Close Enough” is More Than Enough
Getting your taxes 95% right removes 95% of your tax problems. Close Enough is literally close enough. A $1000 tax problem later is a $1000 problem, while a $50 problem is a $50 problem (thats 5% of $1000). This is not rocket science: Get it almost right, and your future consequences are manageable.
This is like the difference between getting a parking ticket and driving drunk and killing someone. A parking ticket, and a 5% accidental tax error, are minor annoyances that you have to manage by spending some money in the future. The consequences are knowable and manageable and you’re going to be fine.
Repeat that with me: You are going to be fine.
Because, again, you’re never going to lie to the IRS.
Every Single Tax Return is Wrong
Every return that anyone files has opinions on it that can be disagreed with by the IRS. The IRS is truly not out to get you. They just want you to be completely honest and report the truth. I have honestly never had a disagreeable conversation with an IRS agent. Some of the most reasonable people I’ve ever chatted with.
If they disagree with your perspective, you might get an adjustment that changes what you have to pay — this is like reading the price wrong on a product at the store and having to pony up more than you thought. It’s not a moral failing, it’s not criminal, and it’s not going to hurt you.
Every tax return is a person’s opinion, and you should do your best using TurboTax or some other free service to give YOUR honest take on what you spent and earned this year. That’s it.
If your business grows (most don’t), meaning you have payroll or you want an S-corp structure, do not file your own taxes. This blog (my entire fucking blog) is for sole proprietors, and only sole proprietors.
The Bottom Line
Your focus should be on managing your sole proprietorship, not agonizing over getting your accounting 100% perfect out of fear of the IRS. Whether you’re a hair stylist, tattoo artist, massage therapist, or any other solo operator, having a system that’s “good enough” for your needs is exactly what you want, combined with a commitment to be totally honest with the IRS about your expenses and income. By embracing a “close enough” approach, you’ll spend less time worrying about perfect bookkeeping and more time doing what you love—and that’s the real key to success.
If you want to have ALL your bookkeeping handled for your sole proprietorship, Nobooks does that. Come January, we’ll file your 1099s, and send you the Schedule C you need to file your taxes for free on TurboTax or wherever the hell.