Separate Your Business and Personal Finances to Avoid Tax Trouble
Business owners often end up intertwining their business and personal finances. It may seem that you are your business but interweaving both of these two aspects will create a mess at tax time. Even if your company is a start-up it is advisable that you split up these two accounts and treat them as individual accounts. In the beginning it might feel like a hassle, especially if you are investing personal finances in your business. But in the long run where your business grows and your family extends, you will be able to reap the benefits of separating the two accounts.
Start with your bank account.
Maintain two separate accounts. At the end of the day you will have a clear idea about where you invested, how much you have invested, and why. This will help you determine the tax benefits related to different investments. A tax smart idea, your business will be more organized. You tax filing will be easier and more convenient. If at the last moment (March/April) you try to find out where you invested what, you will be completely confused and there are high chances that you will not be able to separate between your personal and business transactions.
Use a business credit card.
Applying for a business credit card can be a helpful move when setting up your business. The moment you have a business credit card, you will be able to carry out all your business transactions through this card only. Moreover, you will be able to keep a track of where you have spent the money and will have a detailed record of expenses to use when preparing your taxes or if you are ever audited. In fact, a business credit card can give you tax deduction as well.
Make it official.
Make your company official. Set up a limited liability company (LLC). Consult with your attorney, financial planner, advisors and insurance agents and find out how the business will affect your finances as well as the tax calculation.
Tax Filing Tips
If you are running your business out of home then opt for home office deduction. Most people don’t file for it. But when it is legitimate, don’t hesitate. Even if your business is not garnering profits, it is better to file for tax returns.
Paying your taxes on time will save you a lot of hassles in the future. Doing so establishes credibility, showing that you own a legitimate business. At the same time don’t forget to file your personal tax as well. Keep both the accounts updated so that at any given point, you know where you have invested how much and why.
Good financial planning will help you to save a significant amount of money. That’s why it is vital that you plan your taxes properly. By taking advantage of applicable deductions and structuring your business wisely, you can significantly reduce your taxes. Tax planning, to a large extent, is depended on your goals as well as your individual situation. This financial year, sit down with a sound financial advisor who will be able to guide and assist you. Outline everything so that you have a clear idea of your situation and can file your tax returns on time.