Here’s a quick disclaimer: Bookkeeping is complicated. We officially recommend that you hire a professional to manage the books for your business. Incorrect bookkeeping can lead to many problems down the road, such as IRS penalties and other time costs.
Bookkeeping and a business bank account – introduction
The primary reason to open and use a business bank account is because the IRS requires that you keep your business and personal transactions separate. What’s nice about the bank and credit card statements is that it makes bookkeeping for your business much easier because you can use the monthly statements as a journal.
If you use your business credit card for your large and for your recurring expenses, pretty soon you can take an awesome and free vacation with the points you can generate.
Within 2 years, my wife and I wen to Machu Picchu and the Angkor Wat all on airlines tickets bought from the points generated form our cards.
Finally, getting a business bank or credit card account is easy and often free.
Bookkeeping 101: IRS rules and commingling
You must separate your business and personal transactions. The IRS does not allow you to use one account for your business activity and your personal activity together.
With a business bank account and a dedicated credit card, you can be sure to pay for your business expenses only with your business account. The IRS believes that there will be too much trickery going on if you don’t, which totally makes sense.
Note that you need to contribute or draw money to and form your business and personal accounts, then that’s fine and perfectly legitimate.
If you sell golf clubs and make up, then that’s different story. Now they would be business inventory expenses.
If you buy gold clubs AND make up for personal use – then that could be two different stories, he he.
Anyway the solution is to open a business bank account and a business credit card account and use them accordingly.
Are you buying a printer to print your business invoices? Use one of the business accounts. Are you putting aside the golf clubs to take your husband out for a movie? Swipe the personal card.
It’s going to make your bookkeeping much easier.
The statements become a journal
OK, so separating your transactions between business and personal is humbug, I know.
But here comes the cool part.
If you separate everything perfectly, then your business bank statements (and your business card statements) become your journal for bookkeeping.
Well, not really done, because you still must take all of your expenses and sum them up into categories for when you do your taxes.
Still, now you have a complete journal of all of your expenses. Assuming that your expenses are ordinary, necessary, and reasonable for your business operations, this makes your bookkeeping virtually bullet proof in an audit.
Having an automatic journal also saves a lot of bookkeeping time costs. We all like that.
Bookkeeping 101: Get points form your card purchases and go travel
This is not really a bookkeeping thing, but I feel strongly about it.
Take advantage of business card offers and points and go do some traveling before it[s too late. Take the kids white water rafting, or go see the Louvre in Paris with your significant other.
Just make sure it’s something awesome.
Are these benefits considered taxable income? Maybe, but I’ll take any income even if it’s taxed please. Would you turn down a million dollars if you knew it was going to be taxed?
Of course not.
So is it taxable to use business points for personal travel? That’s kind of gray. The IRS tried to clear it up – but they weren’t super clear. Check it out. The link opens up in a new tab.
OK, back to bookkeeping 101.
How to get business bank and credit card accounts
For a business checking account:
Step one – form your entity or be a sole proprietor.
Step two – get a federal tax ID (FEIN)
Step three – get your state sales or excise tax license.
Step four – shop around for a sweet checking account deal.
For a business credit card, just do a quick search. I like “Chase Ink” personally. The Citi Costco card is pretty good too, I hear.
For the record, the card doesn’t really need to be in your business’ name. Any card that is dedicated to business expenses only will do.
Thanks for reading and please fell free to leave a comment.
Bookkeeping and Business Consultation
If you are local here or near Honolulu, we offer a business consultation which includes information on bookkeeping, tax deductions, GE Taxes, estimated tax planning, entity organization, tax mitigation, some business coaching, and we will address any of your additional concerns. For new clients, we charge a $300.00 for a consultation – which includes estimated tax planning for the year. Please understand that we must charge for our time because our overhead expenses are quite costly. Click here to contact us now!