Congratulations! You started a small business. So what are your responsibilities now? Taxes, insurance, record keeping? There’s a lot to take care of.
Open a Bank Account
The first step after you’ve started a small business, and as soon as you start accepting or spending money for your business, should be to open a business bank account. You should separate your business finances from your personal finances. Aside from the legal reasons for doing so, there are also practical reasons.
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Business bank accounts offer limited personal liability protection by keeping your business funds separate from your personal funds. When you co-mingle funds, the financial protection provided by a business begins to deteriorate. If you co-mingle funds and get audited situation, the auditor can review both your personal and business transactions.
Get Small Business Insurance
The protections you get from choosing a business structure typically only protect your personal property from lawsuits, and even that protection is limited. Business insurance can fill in the gaps to make sure both your personal assets and your business assets are fully protected from unexpected catastrophes. In some instances, you might be legally required to purchase certain types of business insurance.
Record Your Income and Expenses
Once your business is up and running, it’s time to start tracking your income and expenses. Accounting tools will help you track, organize and maximize your business deductions. According to the IRS, everyone who owns a business must keep certain records. Good records will help you monitor the progress of your business, prepare your financial statements, identify sources of your income, keep track of your deductible expenses, prepare your tax returns and support items reported on your tax returns.
Now that you’ve started a small business, be sure to save and organize copies of both your digital and paper receipts. Make it as easy and as automatic as possible.
Start Tracking Your Small Business Mileage
Every time you drive for business-related reasons, such as meeting clients or attending seminars, you can claim a mileage deduction. The IRS won’t just take your word for how many miles you drove. You need detailed records of your drives if you want to claim the mileage deduction. That means tracking the mileage for each trip. Track the date, the destination and the business purpose. You can also use GPS mileage tracking applications. The leading apps provide automatic mileage tracking so you don’t have to worry about remembering to track your drives. These applications can also calculate the value of drives for you and create records that can stand up to IRS audit.
Make Data-Driven Decisions
Be aware of the numbers that are relevant to the company’s performance. Reliable numbers will support your decision-making process and give you a clear indication of how your business is performing. Review your cash flow statements, profit and loss statements and balance sheets regularly. This will help you spot potential problems early.
Keep Up with Your Small Business Taxes
The taxes you are required to pay depends on how your business is structured. Sole proprietorships, LLCs, partnerships and corporations all have different tax requirements. Make note of any key dates for tax return filing deadlines. These can be quarterly payments, state franchise taxes, sales taxes and payroll taxes. If you get behind on any of these tax payments, it can be very difficult to get caught up. One strategy is to put money for taxes in a separate account as soon as you receive it. This way you know the money for taxes is always coming from the gross income to which it applies.
1099 Your Independent Contractors
For federal tax purposes, an independent contractor is a person who provides services but is not an employee. If the following conditions are met, you must report a payment by filing a 1099 Misc. form. One, you made the payment to someone who is not your employee. Two, you made the payment for services in the course of your trade or business. Three, you made the payment to an individual, partnership or estate. Four, you made payments to the payee of at least $600 during the year.
When you hire an independent contractor, always ask for a completed W9 form before making a payment for his/her services. A 1099 requires the information on a W-9 to complete.
