Entrepreneurs are a passionate bunch. They love their chosen profession and take pride in making a living doing what they enjoy. But owning a business means taking on more responsibilities than the average worker, including more complex bookkeeping and tax decisions.
To simplify accounting, business owners should separate their personal and business accounts, attend to bookkeeping every week, and consider hiring a CPA.
Separate Your Personal and Business Bank Accounts
Commingling personal and business funds may save time in the short run, but it can result in far more time and effort to untangle the two if you lose track. In addition, you fail to keep accurate track of business and personal assets and income, resulting in a mistake that triggers an IRS audit.
Also, when you convert a sole proprietorship or other business structure to an LLC or corporation, you’ll need to set up a business bank account anyway. It’s better to create this division beforehand and develop the habit of separating the two. This makes the process of setting up a corporate entity easier.
Ultimately, most small business owners benefit by changing to an S Corporation or LLC because they can avoid self-employment tax on a portion of their income by paying it in dividends. They also gain eligibility for a host of other tax benefits.
Separate business and personal bank accounts safeguard against the cardinal sin of deducting personal expenses as business related. It’s easier to make this mistake than many business owners think, and as transactions grow in number and complexity, having commingled funds all but guarantees you’ll make a mistake or waste countless hours sorting things.
The IRS often audits small business people because they have more eligibility for tax savings and, in the eyes of an auditor, a better chance of owing more than declared. However, W2 employees have a far more straightforward tax situation, making it easy for the IRS to determine if they have filed properly without needing an audit.
However, the IRS may find it impossible to know if a small business person has paid all he owes without conducting an audit. Therefore, even if you are sure you have paid properly, you need to be prepared for an audit.
Having separate bank accounts creates a clear spending trail you can present to the IRS as proof of your position. Additionally, if you have commingled funds, the IRS may assume that all expenses are personal, setting the stage for a costly and time-consuming fight with the government.
Regular Bookkeeping from a CPA
Many small business owners make a big mistake by putting off their bookkeeping, attending to it monthly, quarterly, or even less often. As more time passes, your memory fades, documents disappear, and you lose track of your enterprise’s financial situation.
By disciplining yourself to attend to bookkeeping weekly, you keep your business in order, avoid the time-wasting process of reconstructing previous transactions, and can plan spending to maximize tax benefits. In addition, regular bookkeeping allows you to make intelligent, data-driven decisions.
The best option is to leave the bookkeeping to a CPA or accounting firm. This will alleviate stress and preoccupation with falling behind. A CPA will maintain accurate bookkeeping as well as keep you on track and compliant so that you can run your business with peace of mind.
Consult a CPA
Business owners start their companies because they are passionate about their work and want to make consistent profits. Therefore, they must focus on their core responsibilities and balance accounting duties with other commitments. Hiring a CPA relieves them of the pressure of weekly bookkeeping, tax planning, and stress from audit worries, allowing them to keep their eyes on the prize.
In addition to bookkeeping, CPAs are versed in tax law and know how to maximize tax benefits. You work too hard to hand free money to the IRS. By hiring a CPA, you never miss a deduction and have protection from IRS auditors.
Bookkeeping is essential to every business’s success, though many business owners consider it a burden. By practicing good bookkeeping habits, you make the process easier. A CPA can manage this aspect of the business and find ways to maximize tax benefits.
Tax Avenger in Canton offers exemplary business accounting, tax preparation and planning as well as payroll services, bookkeeping and more. By providing strategic insights, business owners and individuals can make informed decisions for growth and success. Our meticulous bookkeeping services are the foundation that supports a streamlined operation for local businesses. So, if you are looking to organize your financial records, remain tax compliant and plan for growth our accounting firm is an excellent choice. Call to schedule a Free Consultation today.