When it comes to owning a business, no matter how small or large, tax season will be one of the least exciting times of the year. In fact, it’s something that happens year-round and must be taken seriously throughout that entire time. With the right assistance along the way, however, your next tax season can be a walk in the park.
One of the toughest things new businesses will struggle with is separating their personal expenses and their business expenses. Some people aren’t aware of the difference between the two, while some won’t follow the best practices throughout the year to properly keep a record of everything.
While a certified public accountant can help take this responsibility off your hands, there are things you can do as a business owner to make this much more accurate for you and your accountant. Let’s take a look!
Make Your Business Official
Before many small businesses make the leap to file as an LLC, C Corp, S Corp, or whatever type of business they need, owners will have their personal belongings, property, assets, income, and expenses all under the same roof. As a result, these people run the risk of losing anything under that roof when lawsuits, debts, and losses roll around.
When you officially file as a business entity, you will protect all of your personal gains by making them completely separate from your business gains. You’ll also receive an employer identification number (EIN) to file taxes with.
In a way, this will force you to have to separate your expenses in order to avoid being audited by the IRS.
Open a Business Account
One of the easiest ways to separate your business expenses from your personal expenses is to open a business bank account. When you have two separate cards in your wallet or purse, you’ll be able to delegate which card is used for which expense. Every month you’ll have a statement of any and all expenses ran through that card.
While you’re at it, it’s also a good idea to apply for a business credit card. This will prevent you from having to use your personal credit card when you don’t have your business bank card with you. Of course, with an extra set of cards and typically with larger limits, you’ll have to practice to fight temptations of intermingling the two.
This will also allow you to start building a better business credit score by making on-time payments when you owe money. A better score will help you in several ways, including when you apply for small business loans.
While becoming an official business and opening separate bank accounts or credit cards for your business will give you a great start to keeping expenses separate, there are plenty of other things you can do like pay yourself a salary (and stick to it), keep a record of all receipts, and most importantly be honest with yourself.
If you ever need help when going through your monthly or yearly expenses and separating them, a certified public accountant will be able to give you all the help you need. Contact us today to learn more about what we can do for your business!