Therefore, keeping thorough records is very important! When in doubt, you can easily keep them longer by downloading your bank statements to a business financial records folder on your computer.Īccording to the IRS, the burden of proof is on the taxpayer to prove and validate the income and expenses that they report. In almost every situation, the IRS stipulates that keeping your records for 3 years after you file your tax return is sufficient. Often receiving a physical bank statement in the mail costs money, but be sure you will have access to your online bank statements for at least 3 years after you file the related tax return. As mentioned earlier, this can be a bank account in your personal name, or a true business bank account. To satisfy the IRS, you need to have access to your bank statements. Simply save all of your electronic receipts in one email folder so that you can immediately access when needed. Many of your receipts will be electronic receipts that are emailed to you. This can especially be true for bloggers who are buying materials and supplies for their blog projects. The more information you have to prove that a purchase was a valid business expense, the better. Sometimes it is helpful to mark at the top what the purchase was for. I keep all of my physical receipts for the year in one file folder. Some of your receipts may be physical receipts from a store. In addition to avoiding co-mingling of funds, the next step to small business record keeping is saving all of your receipts. This is the first step to good small business record keeping. Whichever method you choose, you need a way to keep business transactions completely separate from your personal money. Eventually, you will want to create a business account in the name of your business, but just using separate personal accounts initially is fine. This scenario makes sense in the early days when you are just getting started, before you have had time to register your business, or when you are still at the hobby level. If you don’t want to set up a bank account in the name of your business, you can dedicate a personal account you already have for business activities and use a credit card you already own as your designated business activity card.
Some people choose to use their business PayPal account for their business income and a PayPal debit card for their expenses. This could be done at a physical local bank, or you can set up an online business checking account through a provider such as Capital One. You could go to the bank and open up a true business checking account with a debit card in the name of your business. There are several ways to set up separate business accounts. To keep your business finances separate from your personal, the first step is to set up a bank account and credit card for your business activities, keeping them separate from your personal bank accounts and credit cards. When you co-mingle funds, the financial protection provided by an LLC begins to deteriorate, and in an audit situation co-mingled funds means both your personal and business transactions can be audited. Second, if you claim that you are a business, the IRS wants to see that your business financial activity is kept completely separate from your personal money. No more depositing business income into your personal checking account or paying for business expenses with the credit card you use for your groceries.įirst, it is much easier to track your business finances if your business money is separate from your personal money. The number one thing any small business owner needs to do is keep their business finances completely separate from their personal finances. Unfortunately hobby income also has to be included on your tax return! Keep in mind that even if your small business is still at the hobby level, you still need to keep financial records. Not only will an efficient bookkeeping system make your life easier come tax time, but understanding your financial position will enable you to make better choices day to day. small business record keeping is not one of them! However, keeping good financial records is one of the best things you can do for your business. There are so many fun parts to owning your own business.
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