How to Stop Donating Money to the IRS: The Tax Mistakes Solopreneurs Make

If you’re a solopreneur, you already know taxes are a big deal. But what if you’re overpaying without realizing it?

Every year, countless self-employed professionals—freelancers, consultants, creatives, and coaches—leave money on the table simply because they don’t know how to minimize their tax burden. Instead of legally keeping more of their earnings, they end up making avoidable tax mistakes that cost them thousands.

The good news? You don’t have to be one of them.

Not Setting Aside Money for Taxes

One of the biggest mistakes new solopreneurs make? Forgetting that taxes aren’t automatically withheld. Unlike a traditional job where your employer takes taxes out of your paycheck, solopreneurs are responsible for paying their own taxes.

The Fix: Make Quarterly Tax Payments

The IRS expects you to make estimated tax payments every quarter (April, June, September, and January). If you don’t, you could face penalties and interest.

💡 Solution: Set aside 25–30% of every dollar you earn in a separate savings account for taxes. This way, you won’t be scrambling when tax time rolls around.

Ignoring Tax Deductions (You’re Probably Missing Some!)

Many solopreneurs overpay on taxes because they don’t take full advantage of deductions. If you’re only writing off obvious expenses (like office supplies), you’re likely missing out.

Commonly Overlooked Deductions

• Home office deduction – If you work from home, a portion of your rent, utilities, and internet may be deductible.
• Business meals – Meals with clients or business partners can be 50% deductible.
• Mileage and travel expenses – If you drive for business or travel for work, keep track of your miles and expenses.
• Health insurance premiums – If you pay for your own health insurance, it may be tax-deductible.
• Software and subscriptions – Adobe Creative Suite, Zoom, website hosting—these all count as business expenses.

💡 Solution: Keep detailed records and track every business expense so you don’t miss valuable deductions.

Paying Self-Employment Tax on ALL Your Income

Self-employment tax is 15.3% (for Social Security and Medicare), and many solopreneurs end up paying it on their entire income—even when they don’t have to.

The Fix: Structure Your Business Wisely

If you’re earning a significant income as a solopreneur, it might make sense to adjust how you’re taxed. For example:

• By default, sole proprietors and single-member LLCs pay self-employment tax on all profits.
• However, an LLC that elects S-Corp taxation allows you to pay yourself a salary and take additional profits as distributions—which aren’t subject to self-employment tax.

💡 Solution: If you’re earning $50,000+ per year, talk to a tax professional about whether an S-Corp election could save you money.

Mixing Business and Personal Finances

Many solopreneurs use the same bank account for everything, which can lead to tax confusion and missed deductions.

Why This Costs You Money

• It’s harder to track deductible expenses if they’re mixed with personal purchases.
• It can create tax headaches if the IRS audits your finances.
• It may hurt your business legitimacy when applying for loans or funding.

💡 Solution: Open a separate business bank account and credit card to keep finances clean. If your business is growing, consider forming an LLC to further separate personal and business finances.

Not Taking Advantage of Retirement Savings

When you’re self-employed, you don’t have a company-sponsored 401(k)—but that doesn’t mean you should skip retirement savings.

Why Retirement Contributions Reduce Your Tax Bill

• Money contributed to a Solo 401(k) or SEP IRA is tax-deductible.
• Saving for retirement lowers your taxable income, meaning you pay less in taxes now.

💡 Solution: If you have extra income, put it into a retirement account instead of overpaying the IRS.

Filing Taxes at the Last Minute

Waiting until April to figure out your taxes is a mistake that can lead to:

• Missed deductions.
• Unnecessary penalties for underpayment.
• Rushed decisions that cost you money.

💡 Solution: Keep track of income and expenses year-round. Consider using tax software like QuickBooks or hiring an accountant.

Not Getting Professional Tax Help

Many solopreneurs try to do everything themselves—but when it comes to taxes, DIY can be expensive.

Why Hiring a Tax Pro Saves You Money

• They know tax laws and how to legally reduce your tax bill.
• They can help structure your business to maximize savings.
• They can identify deductions you might miss.

💡 Solution: If you’re earning $50K+ per year, hiring a tax professional could save you more money than it costs.

Stop Giving the IRS More Than You Owe

Taxes are one of the biggest expenses for solopreneurs—but they don’t have to drain your bank account.

By avoiding these common mistakes, you can keep more of your hard-earned money while staying compliant with tax laws.

To recap, here’s how to stop overpaying:

• ✅ Set aside money for quarterly taxes.
• ✅ Track all deductible expenses.
• ✅ Consider adjusting your business structure to reduce self-employment tax.
• ✅ Keep business and personal finances separate.
• ✅ Use retirement savings to lower taxable income.
• ✅ Work with a tax professional to optimize your tax strategy.

The less you waste on unnecessary taxes, the more you can reinvest in your business, your lifestyle, and your future.