#1 SEGREGATE BUSINESS AND PERSONAL FINANCIAL TRANSACTIONS
• Establish a separate checking account for this business.
• Only business-related income and expenses should flow through the business checking account.
• Utilize a separate debit or credit card solely for business-related expenditures.
#2 PAY ATTENTION TO TAXES
• A self-employed person is effectiv...ely both the employer and the employee of the business.
• Self-employed taxpayers must pay self-employment tax in addition to income tax on the profits of the business.
• In some instances self-employed taxpayers will not have the benefit of taxes being withheld from paychecks.
• Self-employed taxpayers typically must pay quarterly estimated tax payments to cover their tax liability.
• Failure to pay a sufficient amount through estimates or withholding can result in penalties and interest.
• You will need to pay payroll taxes and file payroll tax returns if you hire employees.
#3 TAX DEDUCTIONS
• Self-employed individuals may claim deductions for "ordinary and necessary" expenditures.
• Beware that taxpayers may not be permitted to immediately deduct some expenditures. Certain expenditures must be capitalized and deducted over a number of prospective tax years.
• Vehicle mileage expense and the home office deduction are two overlooked deductions. However, you should ensure that you qualify for the deduction of these expenses.
• Even if you have diligently separated personal and business expenditures, it is possible that some business expenses have been paid using personal funds. Don't overlook the deductibility of such transactions.
• Retirement account contributions can be a useful vehicle for reducing current taxable income.
• Ensure that you retain accounting records, receipts and other documentation in case your return is audited.
• Proper insurance coverage is often the first line of defense for a self-employed business owner.
• At a minimum, you should have a general liability insurance policy.
• If you hire employees you will need workers' compensation insurance coverage.
• You may need property insurance if you have equipment or other business assets.
• Consider coordination with an umbrella personal liability policy.
#5 SEEK PROFESSIONAL ASSISTANCE
• Most self-employed individuals should consult with a Enrolled Agent,CPA or professional tax preparer because tax and accounting rules for businesses are complicated and frequently change.
• Consultation with an attorney is also a prudent measure.
• Your Enrolled Agent, CPA and attorney will advise you regarding such matters as entity selection and formation, legal agreements, registration for taxes and obtaining necessary licenses.
Give David M.Green Bookkeeping and Tax Service a call today. I am a licensed Enrolled Agent as well as a Certified Business Consultant.Enrolled Agents are always up to date on the latest tax law changes.