With tax season just around the corner, it’s a good time for a quick refresher on separating your personal expenses from your business expenses.
Whether you’re a seasoned business owner or are just starting out, these are common rules which can save you a lot of stress around tax time.
1. Apply for an Employer Identification Number (EIN) at IRS.gov.
2. Register a legal business name.
3. Get a business entity for legal and financial protection. (*Note – A sole proprietorship is NOT a legal entity.)
4. Open the following and use for ONLY business purchases and deposits:
- One business checking account for business expenses
- Two business savings account for 1) tax savings and 2) future savings/investment purchases
- Business credit card
5. By using only your business accounts to pay for business expenses, you only need to track receipts for those accounts. It is much easier to manage and trace expenses to receipts, and not overlook an expense or receipt when there is a dedicated business bank account(s).
6. Have a good process and filing system for storing receipts for all those business expenses.