It seems as though everyone has a side income "gig", whether its an online business or a brick and mortar establishment. Save yourself some headaches and set up your financials correctly from the start!
Are you shoving receipts in a shoebox and hoping that somehow they will magically file themselves before tax season? Read these words of wisdom from author, Richard Lindsey of Lindsey & Waldo. His firm is ready to help you get organized before end or the year!
Richard Lindsey's "Real World" Business Strategy Note Why Business and Personal Expenses Should Be Separate “In diversity there is beauty and there is strength.” - Maya Angelou
When you started your business, I’m sure you felt that sugar high that comes with it. You have this idea that’s been percolating in your mind for months, maybe even years… and now you finally get to open the doors, make the announcement, close your first sale…
It’s such an exciting (and hectic) time that many small-business owners (especially new ones) easily forget one basic fact about having your own company: Keep the money separate.
If we’re honest, treating your business’s money as your personal account (or vice-versa) is so easy to do: depositing a client’s fee paid to your business into your personal bank account, dipping into your business account to pay a personal expense, and not keeping the records because you know where the money went, and everything is doing fine.
The harm comes in the recordkeeping, though… because you might depend on it later to keep your company’s doors open. Here’s how.
A caution against commingling
If you’re properly in business, having two pots of money confuses your accounting. And accounting is what you’re going to need first and most obviously to determine your company’s strengths and weaknesses, aka profits and losses down the road.
Separating expenses can also be for your own good if you’ve incorporated them. If — heaven forbid — your company goes bankrupt someday, one avenue that creditors will have to your personal money will be if your business and personal finances were intertwined (piercing what’s called your “corporate veil”).
If you’re a sole proprietor, do yourself a favor and look into becoming a limited liability company (LLC), which can offer you some protection from the fallout of debt.
You’ll also need a proper audit trail to prove the deductions and losses you take (and believe me, you’ll need those in the first few years) on your business tax return.
While we’re on taxes, if you’ve got even a small online business, this could be the first year you get an IRS Form 1099. For tax year 2023, if you use a third-party payment platform like Venmo or PayPal or sell on sites like Etsy or eBay and make just $600 for professional services, you and the IRS will get a Form 1099-K in January 2024, and you must report the income.
If you use a payment platform for personal payments, you won’t get a 1099-K – but there’s no guarantee that mistakes won’t be made in this initial year of the 1099 blizzards.
You’re probably beginning to see how keeping good records and separating funds will be especially helpful.
The nitty gritty
Bank accounts: From the minute you turn on the lights, get a proper business account that’s completely distinct from your personal accounts. To open a biz account, you'll need to get a federal tax ID number (EIN) and a state tax ID number, as well as any documents you filed for when you formed your company such as articles of incorporation or a certificate of formation.
Business accounts typically give you checking, savings, credit card accounts, and a merchant services account that allow credit and debit card transactions from customers. Other perks should include multiple credit cards for you and your employees (more on that in a sec) and merchant services that keep customers’ personal info secure. You’ll probably get a line-of-credit option for your company larger than what you’d get in a personal account.
A business account in the same bank where you keep personal money may get you a break on some fees, but it depends on the bank. It’s the same for introductory offers and sign-up bonuses (which are taxable). Shop around and study the fine print — and don’t forget non-bank sources, like American Express.
Credit cards: Getting a business credit card separate from your personal plastic is just as important as having a distinct bank account. It’ll be instrumental in creating the paper trail needed to justify deductible expenses that you take on your business tax return.
Application and approval is a similar process to that of personal cards. Go into it knowing your credit score and history. Be prepared with your written business plan, profit and loss statements, and other financial records from any previous business you had.
What function is the card going to have in your company? Narrow this to just a few details — for instance, cash flow, international use, multiple employees using the card, and rewards points that match your company’s buying patterns — and match the card’s plusses to those.
Untangling a mess
It’s never too late to begin untangling business and personal finances.
Go back through your records (with luck, your company is still young enough so you won’t have to look at too many years). Pick out the transactions you know are business or personal. Pay special attention to meals and travel, vehicle expenses, and home-office costs — the IRS likes to attack these ones.
Richard A. Lindsey, CPA
Your Small Business Tax Expert
Author of Fairness or Folly, Crazy Little Shorts for These Taxing Times, and
Co-author of the Best-Seller, Breaking the Tax Code
Lindsey & Waldo, LLC
"You see the numbers, we look for the opportunities"
(251) 633-4070
What's Happening on YouTube this Week?
I grew up cooking with my mom and am thankful for those lessons and wonderful memories. This week I welcomed guest cooks, Amelia & Cameron "Chef Chuck" to my kitchen to make one of their favorite dishes. Check out this fun Kids in the Kitchen video when it publishes on Sunday at 2PM. Click on my channel this Sunday at 2PM to watch the video.
After seeing how these two kids devoured their pasta and sauce, I'm thinking Grandma Becky needs to make this recipe! It was certainly a favorite around my house when my children were young. This tortellini is simple to put together and delicious! Click here to watch!
Please like, share and subscribe my YouTube channel! It really makes a difference!
Things to do on the Gulf Coast!
The Gulf Coast Ethnic & Heritage Jazz Festival kicks off its 25th year in Mobile on July 28th-30th. This annual event is a celebration of music and features a mix of artists from the area along with national acts. For more information visit the festivals website by clicking here.
Attendees will enjoy up and coming local musicians as well as professional performers.
The festival travels from venue to venue so be sure to visit the website to plan your weekend!
Myrna Clayton with Keep it Live will be performing on Saturday evening at the Mobile Civic Center Grounds. Photo credit: official website.
If you are looking for something educational to do, now is the time to visit the new Clotilda Exhibition at the Africatown Heritage House. It is part of the History Museum of Mobile. This haunting story of how this community started has intrigued folks from all over the country. For more information and tickets visit their website at www.clotilda.com. Africatown Heritage House is open Tuesdays through Saturdays, from 10 a.m. to 5 p.m. The exhibition will have limited capacity and walkups, so please purchase tickets in advance. Individual tickets are on sale now.
Everyone one LOVES free admission and the fine folks at Bellingrath Gardens are offering Mobile & Baldwin County residents FREE admission on Walter Bellingrath's Birthday, August 6 from 8AM -6PM. What a lovely way to spend a Sunday morning, strolling through the manicured gardens!
In case you forgot, the first Sunday of every month offers FREE admission for locals at the History Museum of Mobile. Plan to spend a couple of hours on August 6th, in the afternoon, enjoying the various displays. This is a great way to escape the heatwave we've been experiencing in town. I think you are going to learn a thing or two while you are there! I have always enjoyed the doll house collection and the carriages. Hours are Sunday: 1:00 PM - 5:00 PM.
Parents, please note, there are so many things at this museum that your children will enjoy seeing. I would definitely make certain that you take them for a visit!
Have a wonderful weekend and enjoy the last week before school begins! ~ Charlsie
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