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There is a lot of bookkeeping that has to happen when you first start a business. This is important not only so you can run your business successfully but also so that when tax season rolls around—or worse, you get audited—you have pristine paperwork to present to the IRS.
As tax professionals, we help a lot of customers who run their own small businesses. Typically, these people start building their business slowly. They get some people interested and suddenly they’re off running without thinking about what kind of infrastructure they need in place. It’s not until a year or two later that they realize they have to file a tax return. At that point, there’s a lot of messy paperwork to get through.
Make life easier for yourself and establish a separate checking account immediately after starting your new business. The first dollar you make is more than just something to hang on the wall. It’s actually a sign that you are ready for a separate business checking account. In fact, this should be one of the very first bookkeeping tasks on your list. There are a few reasons why.
1. A separate checking account will help you see the money coming in and leaving your business in one place. This way you don’t have to worry about mixing the money in with your personal expenses, like buying groceries or paying your cable bill. It is much easier to identify business activities when they are all in the same account.
2. The IRS requires that you keep accurate books and records on your business. You will want to keep all account statements from the bank, neatly filed and organized, so they are available for IRS inspection at any time.
3. If you get audited with just one account for both personal and business, the IRS will deem the personal and business activities to be comingled. You may have to recreate all transactions—going back to that first dollar—and that’s a headache you don’t need.
4. If all business expenditures are purchased through a business account, it makes a stronger argument to the IRS that when you went to Walmart or Target, you were purchasing only business supplies, rather than some business supplies and some personal items.
Here are a few more tips to make the best use of your business checking account:
Bill Nemeth and Merry Brodie are both Enrolled Agents and the founding partners and owners of Tax Audit Guardian, an Atlanta-based group of professionals who specialize in assisting troubled taxpayers. The married couple also recently sold their 24 Jackson Hewitt Tax Service franchises. Additionally, Brodie works with small businesses as owner of Brodie Accounting Services and Nemeth is active in education and membership arms of the Georgia Association of Enrolled Agents.
The information contained in this blog post is designed to generally educate and inform visitors to the Equifax Finance Blog. The blog posts do not give, and should not be assumed to provide, personalized tax, investment, real estate, legal, retirement, credit, personal financial, or other professional advice. Before making any financial decision, you should always consult with the appropriate professionals who can explain your options, rights, and legal responsibilities, and advise you on any tax, legal, credit, or business implications that may result from those decisions. The views and opinions expressed by the authors of blog posts are their own views and may not be the views or opinions of Equifax, Inc. and/or its affiliates.
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