Yes, I am still working on taxes. No, it is not that bad – I just keep putting things off. I heard from TWO different sources this week about having a separate checking account for my business. When I started my journey with Thirty One, it didn’t seem like a big deal. Everyone (almost) used a credit card so it didn’t seem to matter. Commission checks fell into my personal count which I promptly spent.
As I entered the middle of year two, more people were giving me checks as payment. Now, I was a little concerned how my personal account would be effected if one of those checks were returned for insufficient funds. I opened a “business account”, not a true one but a personal account that I designated for business purposes. Here is what you can do:
If you are ever audited, the auditor has been told to make you prove that your “business” is really a business. If your business is ever audited, the auditor will comb through your business checking and savings accounts to see if you claimed all of your taxable income. If you used a joint personal/business account, you will have to give them access to all of your personal info as well as business. Do you really want to do that? Come on, this is a little deal to you, even if it is a big deal to auditors.
Just go to the bank where you have your personal checking accounts, and tell them you want to open a second account. It does not have to be a “business” account by banking terminology. Open up a second “personal” account – just make sure, from day-one, you use it only for business income and expenses. What if your business is new, and you are not yet making enough business income to pay all of your business expenses? Fair question, and this is why many home-based business owners use their joint account. There is actually an easy solution – especially if you open your business account at the same bank as your personal account.
Step 1: For your opening balance, transfer funds ($100?) out of your personal account and into your business account, recording it in both check registers as “Loan toBusiness from Personal Funds.” This is very important so that some auditor someday will not try to claim you had $100 worth of “unreported business income.”
Step 2: Begin depositing ALL business income into that business checking account.
Step 3: If you continue to have business expenses that are greater than your business checking balance, make another loan from your ‘P’ account into your ‘B’ account.
Step 4: When business income is sufficient, begin to repay yourself by transferring money the other way, from B to P. And always label it in both check registers, as “Repayment of Personal Funds loaned to Business on (date).”
If the checking account and/or the credit card have any fees associated with them, remember that all fees will be tax-deductible as business expenses.
Business or hobby? Business checking or personal checking? The decision is yours.. For me, I now have an “official business checking account”. I track all of my expenses to make sure that profit or not at the end of the year, the auditors can see that I am working towards that goal. Share you tips with us..
Have a ThirtyOne-derful day!