Use a Business Banking Account
Regardless of your business structure, your personal finances should not mix with your personal finances. The easiest way to separate your business finances from your personal finances is to have a separate account for your business; you might even want to use a different bank for your business needs. When running a business, you should have at least one checking and one savings account for your company – in the company’s name. All transactions associated with your business, including office expenses, payroll and payments, should be handled solely by your business account.
The only time you should be taking money out of your business account for a “personal reason” is when you cut your paycheck. Paychecks from your business will show that you have personal income, which is helpful for loans, credit and tax purposes.
Avoid Personal Loans
Even though you and the business may be one and the same, when it comes to money you should differentiate personal finances from business finances. Avoid loaning yourself money from the business. If you are unable to pay the loan back, you will be unable to properly justify where the money went, which could lead to problems tax-wise.
Sole proprietors are responsible for all taxes and any business debts. If the business cannot cover its debts, then personal income will be used to pay those debts if necessary. Keeping personal books separate from business books will help you know where your funds are, how your business is doing, and how money has been allocated in your business (and home.)
Report all income to the IRS, regardless of whether or not you will receive a 1099 for it at the end of the year. If you are worried about paying taxes due to business income, utilize every possible tax deduction (mileage, expenses, employee payroll and so on) to help lower the taxable income.
The most important reason to use accounting software, like QuickBooks, in your business is for tax purposes. When you have your own business and report your own income to the IRS, statistically, there is a higher chance of undergoing an audit. Of course there are many reasons to use QuickBooks for maintaining your business accounting needs, but using this software accurately will help ensure that you know where your money is coming from, where it is going and how to prepare for the future.
Do not wait until tax time to use QuickBooks. Whether you are using the software yourself or you have hired someone to use it for your business, make sure you understand the basics and have someone you trust to support you. Quality Accounting Solutions can help you with QuickBooks set-up, hosting, bookkeeping, accounting and more.