Accounting Tips for New or First-Time Business Owners
If you’re a new business owner, the best time to reach out to an accountant is right off the bat. That way, you’ll develop good habits from the start and won’t make mistakes that would require corrections later on in the process.
Here are some tips we give to all first-time business owners:
Open a bank account as soon as you can (after registering with the state and obtaining an EIN from the IRS). Once the bank account is opened, do not run any personal transactions thru it. If you need to pay a personal bill or credit card with funds that are currently in the business account, transfer the money out before doing so. On the flip side, all business transactions should hit the business bank account. Don’t write a check using a personal bank account because it will be harder to prove that it was related to your business if you were ever audited.
If you do not qualify for a business credit card, we recommend only using the business debit card that is connected to your business bank account. If you must use a personal credit card, pay off the balance in full prior to using it for business transactions. Once you’ve started using that credit card for business, do not charge anything personal on it. Then, once you qualify for a business credit card, pay off the balance of the personal credit card in full. Use only the business credit card going forward.
Try your best to use a debit or credit card instead of cash when buying things for your business. The reason is simple: all card transactions have a built-in receipt (the bank or credit card statement). If you pay for something in cash and lose the receipt, you’ll lose the tax deduction. Card transactions also feed directly into accounting software, making life a lot easier when it comes time to do the books.
Keep detailed mileage logs for each time you drive your vehicle for business purposes. At the end of the year you’ll get to add those business miles up and multiply them by roughly 60 cents for a nice tax deduction. Do not, by any means, pay for gas or other car expenses, other than parking and tolls, with a business debit or credit card.
Find a way to qualify for the home office deduction. The IRS says you need a spot in your home that is used solely for administrative business purposes. It doesn’t have to be an entire room. It can be a desk in the corner of your bedroom. Even if the home office deduction itself is minimal, it allows you to deduct mileage when traveling from one office (your home) to another (your brick-and-mortar business location).
When purchasing equipment or furniture, the magic number is $2,499. If you buy an item for $2,499 or less, it does not have to be categorized as a “fixed asset” and becomes 100% tax deductible right away. If you spend $2,500 or more on an item it has to be categorized as a fixed asset, which means more complicated record keeping and additional tax reporting requirements. Sales tax is included in the item price, so keep that in mind as well.