Home Business Record Keeping

Spring is the time for cleaning out and cleaning up! This can really apply to your business, especially if you work from home. Record keeping is important to the integrity and foundation of your business so here are a few things to check off your list as you get organized this spring!

1 - Separate Checking Account - Establish a separate checking account and use the account for business transactions ONLY. This is the account you should deposit your business checks into each month and pay bills from, such as your business credit card bills. Transfer funds from your business checking to your personal accounts as needed.

2 - Small Business Credit Card - Establish a small business credit card and use it ONLY for business transactions. Find a card with bonus points or frequent flyer and reap the rewards for buying business supplies and items you would be purchasing anyway. If you reserve this card for business transactions only then accounting at the end of the year will be much simpler.

3 - Scheduling Calendar - This will be one of the most important documents you have. The calendar is the basis for daily scheduling, logs for documentation of business activity and tracking the business use of your automobile. Maintaining your calendar on a daily basis will enhance your ability to keep your business organized.

4 - Expense Documentation - The definition for allowable business expenses is that they be "necessary and ordinary in the course of running your business." The key to documentation is that you collect the documents as you go through the year. Then it won't be overwhelming come tax time. Make a file system and as you have expenses, save the paperwork and/or receipts to show as proof of the expense. Remember, the IRS cannot read your mind and they need to see why the expense was "necessary and ordinary." To cover your bases, don't just rely on the credit card statements as proof. Note the event, lunch, meeting, trip, mileage in your calendar and save any documentation (schedule of events from a conference etc.)

5 - Establish a home office - Having a place to work is necessary to running a successful business and it is an allowable deduction for tax purposes, however, the IRS has specific requirements. It must be an area of your home that is used exclusively for business purposes. It cannot be your kitchen table with a laptop. The tax benefit can be as much as $1500 to $3000 a year in deduction from your business income. That translates into $450 to $900 in actual tax savings. So set up a specific space with definite boundaries and no other use, and use it for your business!
Then, calculate the ratio of the square footage of your home to “office” and apply it to overall expenses required to maintain your home.

6 – Estimated Tax Payments – It’s not all yours! You need to realize from the beginning that as a business owner of a home based business, the income from your business does not all belong to you. It is your responsibility to either set aside money in a savings account to pay your taxes or make quarterly payments to the IRS. Talk to your CPA or Tax Attorney for more specific information relating to your situation. If you are in the state of Florida (like me) my husband is a tax attorney practicing in the areas of trusts, estates and business planning. His email is freemanlaw@bellsouth.net.

7 – Employing Family Members – If you have children under the age of 21 you can hire them to work for you. You can pay then up to $4750 a year and they will not pay taxes on that income. The requirement is that they service they provide is necessary to your business (filing, shipping, deliveries, organizing etc). The key is to set up a checking account for them and issue them a check from your business. Of course, they must be old enough to actually provide a service to your business!