In my last post regarding tips to better organize your business finances, I mentioned the importance of funneling all of the money you make into one bank account to keep better track of your money. Now I’ll explain 3 important tax-related tips to stay on top of your business finances.
1. Keep taxes in mind year round.
As soon as payments have cleared, you might want to start a habit of taking tax out immediately and set that portion aside right from the beginning. This way you won’t have to scramble and figure out what to do last minute when filing in April. It’s a surefire way to get organized for tax time. You also won’t fool yourself into thinking that all of the money in the account is yours. Consider setting up a separate account just for this reason. It will ensure that you save enough as you go or at least come close to saving the right amount so you won’t be in a panic when tax time arrives.
2. Create a mini-checklist
As a freelancer or small business owner, it can be hard to automate where your money goes. Putting away money for taxes or financial goals can be hard when your income varies a great deal from month to month. When automating isn’t an option, consider making a mini-checklist of what to do as soon as you get paid. You can have a list to remind you where to put the money and how much to put away.
So maybe the first item on the list is socking money away for your business taxes, then perhaps you take a percentage for a retirement account. Finally, you can include a percentage for any other business goals, etc. Creating a mini-checklist will help you stay on top of your business finances as well as your money goals.
3. Set up a business bank account.
Many solopreneurs, small business owners or full-time freelancers start out by first testing the waters through a side hustle. Some keep their main job as their primary source of income while they get their business off of the ground. Others like their full-time jobs, but may want to pursue a different passion without quitting their day job.
No matter the situation, tax expert, Kay Bell of Don’tMessWithTaxes.com explains, “a separate account helps a business owner of any size follow a key tax rule: keep your business and personal money separate.” It simplifies accounting whether you do it yourself or hand over your information to a bookkeeper or an accountant. It also makes it easier to comb through if you ever get audited by the IRS.
Bell explains that the difficulty comes in when micro-business owners don’t make enough to cover the fees associated with business accounts. Shopping around is key. Consider online banks and credit unions. Bell adds, “They might be more friendly, and less costly, for smaller account owners.”
A separate business account will also work to your advantage to quickly get a clearer picture of how much is coming in and going out. You won’t have to sift through your personal statements to get the information, For example, the purchase of the website domain for your business won’t be sandwiched between those new throw pillows or allergy medications you just bought. You can also learn how to control your spending by quickly scanning deposits and withdrawals.
