You may not think it necessary to separate your business and personal finances when you first become an entrepreneur because your business is so small. This is a common mistake. Failing to separate business and personal finances creates a lot of unnecessary stress, especially at tax time. Whether you are just starting a business or have been self-employed for a while, we hope the tips below will help you manage both types of finances as efficiently as possible.
Start by Opening a Separate Checking Account for Your Business
The most basic way to keep your business funds separate from your personal funds is to establish a checking account for each of them. When you have both accounts at the same bank, you can easily transfer funds between the accounts when necessary, such as when you pay yourself a salary.
Writing checks and using a debit card against your business checking account allows you to get a clear picture of the financial health of your company without having to determine which expenses are business and which are personal. When it’s time to file your tax return next year, all you need to do is review your bank statements.
Obtain a Business Credit Card to Help Establish a Business Credit File
Even if you’re a one-person operation and don’t think you will use a business credit card often, we encourage you to apply for one anyway. When you make purchases on the card and pay for them on time, the issuer reports your payment history to business credit reporting agencies.
Should you need a larger loan in the future, one of the first things lenders do is request a copy of a business credit report. The card issuer will review your personal credit report if you haven’t established a credit file for your business yet. While the credit limit may be low, focus on making timely payments to qualify for an increase and to establish a business credit score.
Track When You Use Personal Resources for Business Purposes
Chances are high that you’re not going to have a company car right away and that you will work out of a home office until you need to hire employees. Because you must use your own car and home for business, the Internal Revenue Service (IRS) allows you to take deductions for the business usage of personal items. Your cell phone and home computer are also common examples.
Be sure to record the date and other relevant information such as miles driven for business or minutes used from your cell phone plan. We will help you determine the tax credit you’re eligible to receive when you become a client of Nolan Accounting.
Keep Your Receipts
Although it might seem tedious, you need to retain receipts for every business expense you incurred during a calendar year. Some software programs and smartphone applications allow you to take a picture of each receipt and upload it to your account if you don’t want to hold onto paper receipts. Be sure to organize your receipts if you decide on the old-fashioned method to avoid having to dig through a pile of them come tax time next year.
Business Consulting and Full Accounting Support Available
Nolan Accounting is pleased to offer a range of services for small business owners in Greenfield, Wisconsin, and the surrounding communities. Please contact us today to learn more about business consulting and our many other services designed to help your company be as efficient and profitable as possible.