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Most solopreneurs don’t get into financial trouble because of one big mistake. They get there from a dozen small ones—the wrong entity structure, expenses that never got tracked, a tax implication nobody noticed until it was too late.
That was the throughline of Diane Kennedy’s “Build Your Business the Right Way” session at Lettuce’s recent Solo Summit. A CPA and strategic tax consultant with more than 30 years of experience helping business owners keep more of what they earn, Diane walked through seven decisions solos tend to make by default in their first couple of years—each easy to shrug off in the moment, and expensive later. “When I say cost you a lot,” she said, “that’s money, time, and emotional drama.”
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Take Quiz7 Early Tax and Legal Mistakes Solopreneurs Make by Default
Most of these mistakes don't look like mistakes when you make them. They're the small, default choices that feel fine in the moment and compound quietly over time. Here's what to watch for:
1. Mixing Your Business and Personal Money
The simplest fix, and the one most people skip, is a dedicated business bank account and a card used only for the business, set up even before your LLC exists. Mixing the two (“commingling”) creates two problems. The first is that tracking falls apart.
Diane described a client who refused to open a separate account and instead built a giant spreadsheet to split his expenses by hand; one line item charged to the business turned out to be a queen-size bed that had nothing to do with it. She’s certain business expenses slipped into his personal account, too, and those deductions were simply lost.
The second problem is more serious: commingling can put your personal assets at risk in a lawsuit, because the business starts to look like what she called an “alter ego”—“just you in another pocket.” Keep the entity genuinely separate, and it can protect you. Blur the line, and that protection erodes.
Do This Next:
Open a separate business checking account today, even if you’re not ready to form your LLC yet; the bank can help you transition it later. If you can’t get a card in the business’s name, dedicate one personal card to business use and keep the streams clean from here forward.
2. Letting Your Bookkeeping Slide
Nobody loves bookkeeping, so it gets pushed to “later”, usually tax time. The cost is bigger than it looks. “A delayed deduction is a missed deduction,” Diane said: wait until April to reconstruct the year, and you’ll forget expenses, second-guess the ones you can’t document, and pay more tax as a result. Delay also leaves you blind to your estimated taxes and your retirement options.
She described a client whose books weren’t finished until August of the following year; he’d already contributed to a Roth IRA, but once the numbers were in, the business had actually run a loss—so the whole contribution had to be clawed back, with a pile of paperwork to match.
This is exactly the kind of ongoing work Lettuce is built to take off your plate while keeping your books current so the picture is there when you need it, and so the strategies that depend on it (taxes, retirement contributions, proactive planning) are actually available to you.
Do This Next:
Don’t wait on last year’s return to start this year’s books. Get current now and stay current, so you know roughly where you’ll land before the year closes, while you can still do something about it. Consider using an AI booking solution, like Lettuce.
3. Forgetting The Assets You Already Own
When you start out, you usually do it on a shoestring:the laptop, cell phone, desk, chair, and printer you already owned and paid for personally. Those are “contributed assets,” and most solos forget they can put them to work.
Make a list, set a fair market value as of the date you started using each item for the business (check Craigslist or Facebook Marketplace, not what you originally paid), and have the company reimburse you. Because you now have separate accounts, the business can write you a check or send an ACH. The result is money back in your pocket that’s tax-free to you, plus a deduction on the business side. And it’s not too late: even a couple of years in, you can still capture assets that were never written off.
4. Not Tracking Your Vehicle
Don’t forget your car, either. You may not think you drive for business, but trips to the bank, the post office, and the office-supply store all count.
To maximize the deduction:
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Track your business miles
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Photograph your odometer on January 1 and December 31
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Keep your actual vehicle costs (payments or lease, gas, repairs, tires) so your tax pro can pick the better method at filing time
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Concentrate your business driving on one vehicle — spreading it across several shrinks the deduction
Do This Next:
Build your contributed-assets list this week and have the business reimburse you. Then pick one car to be your “business” vehicle and start logging miles. An app or a plain pen and paper both work. Lettuce has a built-in Business Use of Vehicle feature and uses a couple of inputs to calculate your deduction through a simple experience.
5. Picking the Wrong Entity
For most solos, an LLC elected to be taxed as an S Corp is the sweet spot: real tax savings plus asset protection. Two things trip people up. The first is timing, and Diane was candid that she’d move earlier than the usual rule of thumb. The numbers clearly favor it at $100,000 of net income and often start showing up around $60,000, but beyond the math, forming an S Corp signals you’re serious, makes you more credible to a bank, and gets your protection in place.
One more warning: be skeptical of “magic” structures. Dynasty trusts only make sense at serious wealth; running your business “through a church” doesn’t work, and forming a Wyoming LLC or Nevada corporation won’t dodge the taxes you owe where you and your business actually reside. “Good intentions don’t replace tax law,” she said — and with states getting more aggressive, where you file matters.
6. Treating Your Entity Like It Exists in Name Only
The second is that an entity “in name only” won’t protect you. You have to follow the corporate formalities:
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Keep business and personal money separate
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Sign contracts in your title and on the company's behalf — Diane shared a case where a single email signed only with a personal name cracked open a business's liability shield and led to a seven-figure settlement
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Hold a documented annual meeting, which can double as a legitimate write-off if held somewhere like Lake Tahoe
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Keep an accountable plan so reimbursements like home-office rent stay clean: receipts kept and paid within 60 days
Do This Next:
If you’re committed to your business, talk to a pro (or to Lettuce, which sets up the S Corp and runs payroll for you) about electing S Corp treatment now rather than “someday.” If you’ve already commingled, don’t panic.—Fix it going forward and document the cleanup in your minutes. As Diane put it: “You don’t have to be perfect. You just have to be consistent.”
7. Asking the Wrong Question About Deductions
Coming from a W-2 world, solos are used to having almost no write-offs, so as business owners, they often under-claim. The fix is to change the question. Ask a CPA, “Is this deductible?” and the easy answer is no. Ask instead, “How could this be deductible?” The test, straight from the code, is whether an expense is “ordinary and necessary to the production of income,” and that depends entirely on your business.
Diane pointed to a client who reviews products and writes marketing scripts; because he can show it’s genuinely tied to his work, even his sports and mountain-climbing gear is deductible. Start from where you already spend money and work backward to whether and how it connects to how you earn.
Do This Next:
For your next handful of expenses, swap the question. Instead of “Can I deduct this?” ask “In what case would this be deductible?” — then keep the documentation that makes the answer yes.
Costly Solopreneur Decisions: Frequently Asked Questions (FAQs)
Entity setup, bookkeeping, contributed assets, commingling: here are the questions solopreneurs ask most.
When should a solopreneur make the move to an S Corp?
The numbers make a clear case at $100,000 of net income, and you often start seeing benefits around $60,000. But there's an argument for not waiting for a magic number at all. Forming an S Corp early signals you're serious, makes it easier to get bank loans, and gets your asset protection in place before you need it. If you're committed to the business long-term, starting as an S Corp from the jump may be the better answer.
Can I still claim assets I bought before starting my business?
Yes. Items you personally owned and contributed to your business when you launched — a laptop, phone, desk, printer — are called contributed assets, and you can have the company reimburse you for them even a few years in. You'll need to use the fair market value at the time you started using them for the business, not the original purchase price. Check Craigslist or Facebook Marketplace for a comparable figure.
Is electing S Corp treatment worth it if I plan to stay a solopreneur forever?
Yes. An LLC on its own defaults to sole proprietorship treatment for tax purposes, but you can elect to be taxed as an S Corp without changing your legal structure. As a solopreneur, you actually have more flexibility than you would with a partner. You can customize benefits like retirement plans and health insurance entirely around your own needs. The tax savings kick in around $60,000 of net income and become significant past $100,000.
I've been commingling my business and personal accounts. Am I permanently at risk?
No. Fix it going forward, set up the proper structure, and document the cleanup process in your first set of corporate minutes. Tax law generally rewards people who establish a procedure and follow it consistently. There's also a statute of limitations on liability, so past mistakes don't follow you indefinitely. The key is showing that you recognized the issue and took steps to correct it.
Does using my home address for my business bank account count as commingling?
No. Many banks require a personal address to open a business account due to Know Your Customer regulations, and that alone does not create a commingling problem. What matters is keeping the actual transactions separate: business income and expenses go through the business account, and personal income and expenses stay in the personal account. The address on file is not the issue.
Build the Foundation Now, Not Later
None of these are dramatic moves. They’re the small, early decisions that quietly compound — either into missed deductions and unnecessary risk, or into a business that’s protected, organized, and ready to grow. The whole point, as Diane framed it, is to make the choices now that spare you the money, time, and emotional drama down the line.
Learn more by watching Diane’s full session or check out the complete video library to get more insights from the other experts at Solo Summit.