Make Tax Time Less Stressful
Make tax time less stressful for you and your business….
…keep your business and personal finances separate!
Many entrepreneurs fall into the habit of intermingling business and personal, especially in the beginning when they are first getting started. With everything else they are trying to juggle, from sales and marketing to managing clients, their accounting is usually not at the top of their list. When you're just starting out, you may not see the need to set up a separate checking account because it seems easier to have your income coming into your personal account where you need it to pay your rent and other bills. You're shuffling things around on different credit cards to cover your cash flow shortages, or to get the best rewards. You'll sort it out later, no big deal, right?
Well, when it comes to the end of the year and you’re trying to pull together your business income and expenses for tax time you may realize it was more important than you thought. When you’re sifting through your bank statements and trying to figure out what that deposit on May 4 was for – was it money I got from my friend paying me back for concert tickets, or was that a payment from a client? You’re staring at your credit card statement wondering what the charge from “Paypal*483 Co zycfsjiofd” for $50.00 was for. Assume you have 20 transactions on your credit card each month, but only 5 of them are business related. That’s 180 extra transactions you don’t care about for your business that you have to look through to pick out the 60 you do care about. That’s a waste of your valuable time and energy, and it’s a system that is prone to errors.
When you start your business, even if it's small and just getting started, set up a separate checking account and use it 100% for business. If you need to pull money out to pay for personal stuff, transfer money to your personal account. Use one credit card exclusively for business and pay the bill out of your business checking account.
By having all of your business activity in separate accounts, you make it easier to gather your information at tax time by saving yourself the frustration of hunting for information, and you make it less likely that business deductions will slip through the cracks. Also, if you’re operating your business as a corporation or an LLC, you have a legal requirement to keep your business activity separate, otherwise you risk losing the liability protection the entity provides.
If you’re ready to take the next step with your accounting, software like QuickBooks Online can make tracking your business finances even easier. Connect QuickBooks Online to your business checking account and credit card and it will automatically download the activity so you can easily categorize it and make tax time a breeze.