All to often, entrepreneurs do not differentiate their company and individual income resources. After all, you are your company, nevertheless mixing up the 2 will eventually make a mess for you and your accounting professional at tax time.
Even if you're just beginning, it's necessary to break up these 2 parts of your monetary life. Treat your company, small or large, like a living entity. That begins with tracking your expenses in your company separately from your home funds. While at first it may seem like they are one in the same if you are a one-man entity.
Here are a few ideas to show you how to separate your company from your individual financial resources.
Open a business bank account
Begin with your banking institution. Open a business checking account. If there's ever a concern relating to whether it's a pastime or a business, the IRS wants to see if you have a separate bank account.
If you use Quicken or Quickbooks see to it you have 2 distinct accounts: one for home and one for the business. Having 2 bank accounts is tax-smart and it will likewise help you manage your company better.
At the end of the year, all your revenues and costs will remain in one place, making record keeping and tax filing a lot easier. If you attempt to split up all your documents in March or April, you will not have the capability to appropriately keep in control all the cash movements from the previous income tax year. Maintaining good records all year-long will help be you organized and you will have the ability to stay on top of any problems before they get to be big ones.
Apply for a business credit card
Credit is always needed in any small business. Try to get a credit card for your company as soon as possible. Like a different checking account, a charge card will help your record keeping and provide you with something to show the IRS if you're ever audited.
Your business credit card might offer you an additional tax reduction too. If you need to keep a balance on a business credit card, that's the only charge card interest that's tax deductible as an overhead expense.
Keep it legitimate
Think about establishing a limited liability company (LLC) or an S Corp for your business. Seek expert consultants (we suggest this group contain lawyers, Certified public accountants and insurance representatives) and identify which entity makes the best sense, how this company will affect your taxes, monetary practices and precisely what insurance you need.
These types of legal entities will offer you a better level of liability defense, which will be very helpful to your company if ever litigation is taken against it.
When it's income tax time
Keeping bookkeeping accounts, charge cards and record keeping software programs assigned entirely for your business will provide you exactly what you need to send for your income taxes and to show to the IRS that your company in fact is a business. However there are other factors to think about, too.
If you use an office to run your operations from, you've qualified for a deduction, but only if you do this right. Even then, you maybe in for an audit.
This is simple if you are a corporation, but is recommended even when you are a sole proprietorship. Allow yourself a salary. Don't go over that amount by paying for personal expenses. Exceeding it just lures you to skim company funds to pay your ongoing grocery or lease bills.
When income tax time rolls around, each of these 5 methods will make filling out forms simple and headache-free. Your company's accounts will be well-organized, enabling you to have a clear peek of how it is doing, where the weak spots are, and where it is prospering.
We truly hope these suggestions help you separate your company and individual financial resources. If you have any additional ideas or recommendations, please provide them in the comment area listed below or on social media networks.