Congratulations! You’ve started your business! After that burst of excitement and glee comes all the considerations; you might be worrying about your responsibilities, taxes, government compliance and reporting deadlines. Here’s a quick start guide to help you work through these elements.
First, celebrate that you’ve started something you’ve been considering and bringing it into reality! Now comes the financials – as soon you start accepting or spending money for your business you need to open a business bank account – you must separate your business finances from your personal finances straight away. Business bank accounts offer limited personal liability protection by keeping your business funds separate from your personal funds. When you co-mingle funds, the financial protection provided by a business begins to deteriorate, and in an audit situation, commingled funds could result in both your personal and business transactions being audited.
Next, it’s time to think about your business insurance. The protections you get from choosing a business structure typically only protect your personal property from lawsuits, and even that protection is limited. Business insurance can fill in the gaps to make sure both your personal assets and your business assets are fully protected from unexpected catastrophes. In some instances, you might be legally required to purchase certain types of business insurance.
When your business is up and running (and protected), it’s time to start tracking your income and expenses. 1-800Accountant provides the necessary tools that will help you track, organize and maximize your business deductions. Having your separate business bank account and business credit card certainly helps keep everything easy to monitor. According to the IRS, everyone in business must keep certain records; good records will help you monitor the progress of your business, prepare your financial statements, identify sources of your income, keep track of your deductible expenses, prepare your tax returns, and support items reported on your tax returns. Be sure to save and organize copies of both your digital and paper receipts by date so they’re easy to reference if you need them.
Deductions are a huge part of being a small business owner! Every time you drive for business-related reasons, such as meeting clients or attending seminars, you can claim a mileage deduction. However, the IRS won’t just take your word for how many miles you drive. You’re going to need detailed records of your trips if you want to claim the mileage deduction; this means tracking the mileage, the date, the destination and business purpose.
Use all available tools at your disposal to monitor the company’s performance; sales, deductions, taxes you’re withholding for the IRS. Reliable numbers will support your decision-making process and give you a clear indication of how your business is performing. In terms of your financials – cash flow statements, profit and loss statements, and balance sheets are the most important financial documents to review regularly, as many answers to potential problems lie within.
Always keep up with your taxes. How you pay your taxes depends on how your business is structured – Sole Proprietorship, LLC, Partnership, or a Corporation. Make note of any key dates for tax return filing, quarterly payments, state franchise taxes, sales tax and payroll tax payments. If you get behind on any of these tax deposits or estimated payments, it can be very difficult to get caught up. One strategy is to put money for taxes in a separate account as soon as you receive it, so you know the money for taxes is always coming from the gross income to which it applies.
Many small businesses rely on independent contractors, and your business may someday need to hire this kind of help too. For federal tax purposes, an independent contractor is a person who provides services but is not an employee for employment tax purposes. If the following conditions are met, you must report a payment by filing a 1099 Misc. Form: you made the payment to someone who is not your employee, you made the payment for services in the course of your trade or business, you made the payment to an individual, partnership, estate, or payments were made to the payee of at least $600 during the year.
When you hire an independent contractor, always ask for a completed W9 Form before making a payment for his or her services. A 1099 Form requires the information on a W-9 Form to complete it.
Don’t feel overwhelmed – Half the battle of starting a small business is protecting yourself against little mistakes that can evolve into big mistakes. Take each of these steps one at a time, building on each piece we’ve detailed above, and you’ll be in a great place to stretch your wings and see where your new small business takes you. Remember that every great company, corporation or business started just where you are now!