There’s nothing more frustrating for a small business owner than tax time. Even though it’s always at the same exact time of year it never fails to come around when you’re not thinking about it. If you run an established business with employees and an office you probably have an accountant who manages the books all year round, but if you’re a sole proprietor or an independent contractor with a startup chances are you’re on your own. Most of your time is spent trying to make a living and build your business from scratch, which means accounting organization often gets ignored. But the messier you allow your company’s finances to be, the harder it will be to save money on your taxes or receive a return. Success most often hinges on proper separation of your personal life from your corporate requirements. So here are a few tips to help you keep your business and personal expenses separate.
First of all, try to get yourself a separate credit card for your business expenses. Most small businesses lean on credit for their operating expenses and then true everything up at the end of the month. But if you use the same credit card in your personal life that you use for business keeping everything straight becomes very complicated. And if you are ever audited by the Internal Revenue Service you may be forced to prove that an expense was truly for business. Avoid this fate by charging anything for your company on a separate credit account. If this isn’t possible, at least try to use a credit card that allows you to categorize expenses in various ways for your records.
Not everything will go on a credit card, but in any case you should always keep receipts tallying the purchases you want to contribute to your business. If you manage your accounting on paper you should tape each receipt to an individual sheet and then describe the expenses that were for your business. Keep a notebook, and organize it by date. If you’ve moved to digital accounting, which is the better bet these days, look for a smartphone app that allows you to take a snapshot of a paper receipt and scan it into your record-keeping software. There are some incredible apps out there for iOS and Android devices that seamlessly import images of receipts, allow you to highlight particular lines, add those expenses to spreadsheets and even search by item. Remember that if you hope to claim automotive costs for your business you’ll have to make detailed physical records of all driving activity as well. Start that at the beginning of the year, as it will be next to impossible to recreate it after the fact.
The easiest way to keep absolutely everything personal separate from your business is to maintain different bank accounts. It’s easy to get approved for small business checking accounts, and they usually come with a host of features that are particularly valuable. You’ll find the accounting much easier to manage, and the best tools your bank can offer could prove hugely useful. And don’t forget that this will also help you get approved for business credit cards and build a financial track record over time. If you ever want to apply for a small business loan or take on investors that paper trail will be crucial.