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The Best Business Accounting Software for Sole Proprietors in 2020

As a business of one, these programs will help keep your finances on track.

2019-11-26

Business owner managing expenses with a calculator
Image via iStock.com/kitzcorner

As the sole proprietor of your business, you wear a lot of hats. You market your product, schedule your own calendar, and take care of your clients. That’s just everyday life when you’re the only employee. With that in mind, you’ll still want to track your finances as any other business owner would. This is especially important come tax season, when you can deduct a number of your business-related expenses.

The modern solution to tracking business finances is to use automated accounting software. These tools can help you sort your expenses, invoice your clients, and keep on top of due dates for payments. With the right software in place, you might just feel like you’ve hired your own personal Warren Buffett.

To help you understand your options (and why you should consider them in the first place), here’s your go-to resource for choosing an accounting software as a sole prop.

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Why Do Sole Proprietors Need Accounting Software?

From legal benefits to tax assistance, there are a few reasons why sole proprietors need accounting software. Here are the main points to consider.

Reason #1: For Separating Business & Personal Finances

You might be wondering, “If it’s all going to the same place anyway, why go through the trouble of separating my money?” For one, keeping your finances separate will make your life much easier come tax season. If you don’t separate your finances, you’ll find yourself having to go through your bank account line by line to determine what you need to report for your business and what’s simply a personal expense.
Additionally, keeping separate business and personal finances maintains the “corporate veil” and protects your personal finances from legal actions in case your business is the subject of a lawsuit. Separating finances, therefore, has logistical and legal benefits for you.

Reason #2: For Assisting With Taxes

From a business perspective, accounting software will help you to effortlessly keep track of your business expenses and your taxable income. In fact, certain accounting software options provide you with quarterly tax estimates. Some can actually pay your quarterly taxes for you and provide a tax guarantee, which means if you incur a tax fine after filing through the accounting software, the software company will cover that fine.

Reason #3: For Invoicing Clients

Beyond tax capabilities, most accounting software solutions also offer invoicing, which is especially useful for sole proprietors. With most of the top accounting software platforms, your invoices will automatically sync, which will make income tracking that much easier.

Reason #4: For Organizing and Filing

Some accounting programs can also handle expense-tracking, accepting payments, receipt capture and organization, and other crucial tasks that will help keep your business in the black.

All in all, accounting software automates processes that sole proprietors typically have to handle on their own. Although businesses with dedicated accounting professionals can certainly still benefit from accounting software, those business owners who manage the finances on their own have more to gain from implementing accounting software solutions.

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The Top Accounting Software Options for Sole Proprietors

Below are some of the best accounting software options for sole proprietors in 2020. You’ll want to keep in mind that welcome offers, discounts, rates, and fees for these software systems change, so they may or may not apply when you investigate them for yourself. Exact details are subject to change, as well, so make sure you read the fine print before signing off on any purchases.

1) For Sole Proprietors Focused on Tax Capabilities: QuickBooks Self-Employed

QuickBooks Self-Employed is an accounting software product that’s designed specifically for contractors and freelancers. If your sole proprietorship is a one-person show — and you could particularly benefit from having tax tools — then this accounting software could be the perfect fit for you. QuickBooks Self-Employed comes in three versions:

  • Self-Employed
  • Self-Employed Tax Bundle
  • Self-Employed Live Tax Bundle

Every version of this QuickBooks accounting software offers invoicing, invoice tracking, help with Schedule C deductions, automatic quarterly tax estimate calculations, and automatic mileage tracking.

If you want to pay your quarterly taxes online through your accounting software and access one state and federal tax return filing, you’ll need to upgrade to the Self-Employed Tax Bundle plan.

On the whole, however, if you think your business would benefit from an accounting software that focuses on managing your books for tax purposes, QuickBooks Self-Employed is going to be one of your top choices.

2) For Sole Proprietors With Growing Inventory Needs: QuickBooks Online

Despite its strengths, QuickBooks Self-Employed lacks some crucial capabilities that growing sole proprietorships might want to have in their toolbox. Plus, users can’t directly upgrade their QuickBooks Self-Employed account to QuickBooks Online as they grow. If you plan on needing greater accounting software capacity in the future, you should consider starting with QuickBooks Online.

Quickbooks Online is great for sole proprietors who manage a large (and ever-expanding) quantity of inventory. Whereas the other options on this list are more invoice-focused, QuickBooks Online can help you with a number of inventory-related tasks: This includes helping you keep track of your inventory and cost of goods, as well as sending you low-stock notifications when it’s time to stock up.

This accounting software solution comes in four versions:

  • Simple Start
  • Essentials
  • Plus
  • Advanced

At the most basic level, Simple Start, for example, offers income and expense tracking, receipt capture, tax deduction maximizations, invoicing, basic reporting, estimates, sales tax tracking, and 1099 contractor management.

Moreover, with all four versions of QuickBooks Online, you’ll also have the option to add on Self-Service or Full-Service Payroll capabilities for a monthly and per-employee cost.

3) For Sole Proprietors Focused on Invoicing Capabilities: Freshbooks

If your business is service-based and receives most of its payments through invoices to clients, you may want to look into Freshbooks, which has an expansive array of professional and customizable invoicing options.

Freshbooks’ invoicing software allows you to send invoices and automated payment reminders, schedule recurring invoices, assign late fees, set retainers, and much more. It also has a mobile app that allows you to work on the go.

Freshbooks also handles basic, essential bookkeeping and accounting tasks, such as running important reports and summaries — but invoicing is where it really shines.

4) For Sole Proprietors Who Want a Free Option: Wave Accounting

Maybe you’re just starting out and don’t have the funds to invest in an accounting software for your sole proprietorship. In this case, you should consider trying a free accounting software, and Wave Accounting is a favorite in this space. With it, business owners can track their finances, create custom invoices, and send those invoices for free.

Be sure to note, though, that you’ll need to pay a per-use fee if you want to offer online payments to your customers through Wave Invoices. The fees are typically industry-standard, and the ability to accept online payments could put you ahead of competitors who don’t.

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Accounting Software for Sole Proprietors: Next Steps

Perhaps every sole proprietor should have accounting software — but it’s up to you how much (or if) you want to invest in it. Keep in mind: Many accounting software solutions offer a choice of either a month’s free trial or a discount for your first months with the software. Therefore, if you decide to opt for the free trial option, you can try out most of the top accounting software platforms for a month without paying anything. Based on your experience with the different platforms, you can then decide how to proceed.


The views expressed in this article are those of the author and do not necessarily reflect those of Berxi™ or Berkshire Hathaway Specialty Insurance Company. This article (subject to change without notice) is for informational purposes only, and does not constitute professional advice.

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