Small Business accounting: how to pay the least in taxes
Many individuals who start a business create an LLC and assume the tax savings are implied, but it's more complex than that. For individuals who have just started a company, the number one way to save money on taxes is to do property bookkeeping. The first step should include opening a bank account and a credit card account, and keeping all business transactions in these accounts. This is by far the best way to ensure that all your income and expenses in the business are accounted for when you start the bookkeeping process.
Key Components of Good Bookkeeping
Regular updating of financial records throughout the year, by reconciling month by month, and not waiting until taxes are due to start bookkeeping
Accurate and detailed transaction recording
Clear and consistent categorization of expenses
Saving your receipts to verify your expenses in your bookkeeping
Regular financial review
Another key component is keeping your personal transactions separate from your business accounts. While there isn’t a specific law requiring the separation of business and personal finances, it should be non-negotiable.
Why Separate Business and Personal Finances
Legal Protection, most businesses set up an LLC for Legal protection. If finances are commingled, the court might find that you have pierced the corporate veil and hold you personally liable, regardless of your LLC structure.
Tax Compliance, by simplifying tax filing and avoiding potential IRS scrutiny
Bookkeeping, clear separation makes it easier to track business income and streamlines the bookkeeping process
Unfortunately, I have seen business owners come in to prepare for their tax return with handwritten calculations of income and expenses on a piece of paper. There is too much room for error, whether that be from calculations or not including all their expenses, because they lost track throughout the year. Bookkeeping is your number one and first tax strategy for your business.
Bryan E. Cairns, EA
Director of Compliance