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- Business is business. A hobby is a hobby until you treat it like a business.
- Deposit 100% of business income (all of it!) into your business bank account.
- Have a business checking account AND have a business savings account.
- AND have a personal checking account and a personal savings account.
- If you need money from the business for personal expenses, you MUST write yourself a check.
- If your business is a corporation, you MUST take a fair wage. Income taxes are withheld from your paycheck.
- If your business is a sole-proprietorship, (or a partnership) you NEVER take a wage, you take a draw. Your personal income taxes are not withheld, but are paid by making estimated tax payments.
- Only business expenses are paid from the business account. Any personal expenses “muddy” the audit trail and subject you to IRS scrutiny. This action can cause you to pay additional taxes, interest and penalties.
- If you are a corporation, hold that Annual Meeting every year. Make notes of what you discuss and decide (even if you are just a single shareholder or a single member LLC). Document those decisions in the Minutes of your Annual Meeting.
- If you are not in business for yourself, hold a year-end family meeting in preparation for the coming year. Review your income. Review your expenses. Adjust where you can or where you must. It is your money until you give it to someone else.
- Know that deductions cost you money. They are not free. How much tax will a deduction save you? Remember, you are still “out of pocket” on that expense.
- “When in doubt, throw it out.” is the mantra of the tax auditor. YOU MUST KEEP the documents you need to protect yourself, to protect your business if you are in business, to protect your home, to protect your tax return and to protect your money.
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