minding your own (small) business
Today I got some spam unsolicited email in my Inbox that actually was helpful. Since many of you own your own small business, this information may be of interest to you. It comes from The Tax Club newsletter, an affiliate of American Express Cardmember Services.
As you enter the Small Business world, you will quickly become aware of the importance of separating personal and business expenses to aid you with government and IRS regulations. It is imperative that you get a system in place to handle this separation and one facet of that system should entail getting a credit card which will be specifically devoted to tracking your business expenses.
Keeping Your Business Expenses Separate
As a business owner, the simplest and most effective way to minimize your tax liability is to make sure you document and record all transactions. Any tax due on business income is based upon net profit rather than gross income. What this means is that business owners pay tax on the remaining amount after subtracting business expenses from gross income. Proper recordkeeping is not only required by IRS regulations, but it can actually help you help you to make sure that you are accounting for all of your business expenses, therefore lowering your tax liability.
Never commingle your business & personal funds – You must always keep your personal and business funds separate. In order to get your business expenses deducted on your tax return, the burden of proof that the expenses were for your business lies with you. If your personal expenses and your business expenses are commingled, it will be difficult for you to identify which are for personal purposes and which are for business purposes. Often times, the IRS will deny any business expense that you deduct on your tax return if the funds commingled. If that occurs, you could be liable for tax on those disallowed expenses plus any interest and penalties.
Set up separate accounts for your business - It is very easy to maintain separate accounts for your business and personal use. Opening business checking accounts, savings accounts and credit cards will help you to establish completely separate and independent records for your business funds. This is incredibly important. Many small business credit cards also come with handy software, making it easy to track expenses and keep records for tax purposes. If the IRS were to inquire about your business expenses, it is your responsibility to show the proof that the expenses were used for business purposes.
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((¸¸.•´ ..•´ Jessica -:¦:-
