When it comes to running a business, it’s important to keep your personal and business finances separated. This reduces accounting and tax problems and makes it much easier to manage your accounting books. Running a business already takes a great deal of effort, so it helps much to not have additional stress by managing your finances with bookkeeping tools and experts. We understand how important it is to properly manage your finances and the peace of mind that comes with it. We have helped over a hundred businesses with accounting and bookkeeping in the Chicagoland area and have gathered some reasons as to why you should separate personal and business finances to have a better understanding.
First off, you will want to ensure that your business is incorporated. Whether you choose to present it as an LLC, C Corp, or S Corp, you will want to ensure that it’s established with the right structure. By establishing a separate legal entity for your business, you will be able to protect your personal assets from your business debts, losses and lawsuits.
By opening business debit or credit cards, you won’t have to use your personal accounts for business transactions, and it’s the easiest way to keep your personal and business finances separate. In addition, a business credit card can help you build stronger business credit scores and could even boost your borrowing power which could help you qualify for business loans with lower interest rates.
- Open a business checking account
In addition to credit cards, you also want to open a business checking account and only make purchases for your business through it. Doing so let’s you have a clear and complete picture of your expenditures, which is ideal for when tax time rolls around as all you will have to do is review your statements.
- Create a salary for yourself
Seeing as you are the boss of your business, you will want to make it official. So, pay yourself. By creating a salary for yourself, you can write checks from your business checking account which can then be deposited into your personal account. This way, you can easily keep track of your payroll finances and ensure that your salary is being professionally handled as it should be.
One of the most efficient ways to keep your personal and business expenses separate is by keeping your physical receipts. So pull out those old-fashioned folders and place your receipts within them or upload them digitally. This will help with audits if the IRS ever comes knocking on your door, you can feel confident that you will be prepared.
- Track your shared expenses
As a business owner, it’s important to keep in mind that many of your business expenses are tax deductible and you will most likely have some expenses to write off! As a result, when you make purchases you will want to ensure that they are separate from your personal ones, which can be done by using your business debit or credit cards. Not only will separating your expenses make things easier for your accountant come tax time, but you will also be protecting yourself by keeping a financial record and continuing to keep receipts.
- Using personal items for business purposes
When it comes to your business, any expenditure that you can legally write off should be written off to save you money when tax time comes around. By working with a tax advisor, you can determine what’s deductible as well as how to keep the right records.
Properly managing your business finances is certainly of importance! These are just a few helpful ways to manage them throughout the year. Hopefully, you now have a better understanding of the complexities that are involved with running a business and managing your books. Working with an accountant can help with your bookkeeping, payroll and taxes and therefore make life and work much easier for you. Looking for an accounting solution that’ll provide you with peace of mind when it comes to your books? Get in touch with us here at Motl Accounting as we would be ready to assist. Our staff at our West Dundee, IL office assist many small to medium sized businesses and we look forward to assisting you.
Tax season is behind us, but that doesn’t mean it’s time to stop thinking about business expense documentation. In fact, now is the ideal time to get organized and create record-keeping habits that make sense for your company. Nobody wants to waste time digging through receipts and records just before tax day. Document your expenses now and you’ll save yourself and your accountant a headache later on.
Working with the Motl Accounting bookkeepers affords you the opportunity to not deal with all the effort and time it takes to stay organized with your expenses. We assist many businesses with bookkeeping services in Dundee, IL and the Chicagoland area. Below we share some of the things we recommend to our clients to keep their finances organized throughout the year.
Set up a Business Bank Account
One of the biggest mistakes people make when starting a small business is not creating a bank account dedicated to business funds. If you’re using the same account for personal and business spending, it’s easy to mix these expenses up and harder to locate specific purchases. Any business-related income should be pooled into a dedicated account. Only use business checking or credit cards when making purchases. Losing track of purchases will become a thing of the past. (more…)
If you’ve ever attempted a quick Google search for CPAs in your area, you’ve probably learned there’s no such thing as a quick search for an accountant. Accounting is all about the details, and when you’re trying to find someone to handle your finances, it pays to be thorough. Your money is at stake, and you should only choose someone who has your best interests in mind. A small amount of accountants have questionable (to say the least) practices, and knowing the warning signs makes a big difference:
Outdated CPA Certificate
There’s a reason many people prefer to work with a CPA rather than a general financial planner: the title requires a higher level of expertise. In addition to years of schooling, CPAs complete exams to ensure a high-level understanding of auditing, business concepts, financial rules and reporting. It’s worth checking out the Illinois CPA Society database to ensure your accountant has retained their license. (more…)
While the past decade has seen the advent of several tax preparation programs that allow users to file their taxes online, these programs raise several questions: Will filing your taxes online find you all of the deductions you qualify for? Are these programs secure? What if you encounter an issue? Here, we will examine the pros and cons of using tax software versus the advantages and disadvantages of filing with a CPA.
Depending on how complex your returns are, filing your taxes can take a fair amount of time. But, with that said, when you compare filing online with visiting an accountant, the time difference is clear. When you file online, you are still responsible for inputting all of the necessary information into the program. When you file with an accountant, they are responsible for wading through your information to complete the worksheets and calculations that result in your final return. This gives you the opportunity to spend your time doing what you want to do, rather than dealing with your taxes – which few people find enjoyable. (more…)
Cost accounting is a technique used to determine the best financial course of action. The primary purpose of cost accounting is to help decision-makers make decisions. By analyzing the cost of products, services, and projects, accountants can advise businesses of the best course of action regarding a particular transaction. To put it more simply, you calculate the elements of cost for product process (raw materials, labor, and expenses/overhead), compare that cost with the product price, determine the business’s revenue, and decide if and where savings are needed.
Cost accounting doesn’t have a singular approach. Cost accounting methods include: (more…)
When you start a new business, you have to make a decision regarding how you will approach your financial management. Two basic methods are available to you: cash basis or accrual basis.
Cash basis is an accounting method that counts income only after cash or a check is received and expenses are not counted until they have been paid. This method is the most popular accounting method among entrepreneurs and small businesses.
Accrual basis is an accounting method that counts income when orders are placed or services are requested, regardless of payment being received. Expenses are counted when your request for good or services is fulfilled.