10 Bookkeeping Basics That New Business Owners Need to Know
2020 was a chaotic year for businesses of all sizes. Even so, no fewer than 800 thousand industrious individuals still accomplished one of the biggest feats out there: they started their own businesses.
Starting your own business is not a choice made lightly. It’s complicated; it’s expensive; but for many entrepreneurs, it’s also the fulfillment of a lifelong dream. Whether you launched a solar focused lighting company, opened a mediation-first law firm, or finally took your real estate expertise solo, your business has the capability to improve lives, your local economy, and your industry.
If you’ve recently made – or may soon make – the jump from employee to boss and owner, there are a couple of basic questions you’ll need to answer about your business’ bookkeeping and tax status to start and stay on the road to financial success.
Your Startup Bookkeeping Checklist
Starting your business on the right foot begins with making sure that you’ve correctly set up your books and filed your business’ tax documentation. Use the following steps as a guide to make sure that you do just that, as well as take advantage of any financial savings for your startup along the way:
Open a new bank account for your business. You’ll need to keep that income and those expenses separate from your personal bank account for tax purposes. Important Note: This does not have to be a business bank account; it just needs to be a separate account.
Stay away from cash when possible. Cash leaves no paper trail, and can be confusing to account for during peak tax season, or whenever you’re reviewing your business’ financial health.
Something a lot of startup entrepreneurs may not know is that you don't necessarily need to create an LLC or DBA in order to do business. When starting out small, you can just do sales through your name.
If you do file for an LLC, remember that you need to file a franchise tax return every year to keep your business in good standing with the state.
Track your income and expenses in some way. For beginners, we recommend using QuickBooks or an Excel spreadsheet. Keeping good records from the start will help you avoid having to recreate the wheel at tax time.
Do you drive anywhere for your business? Keep track of your miles! These can become a tax write off when you file for the year.
Do you use your cell phone for your business? A percentage of that is also tax deductible.
If you have a designated space in your home for your business, then you can be eligible for a home office deduction.
If you sell products, make sure that you collect and pay sales tax. You will also need to contact your state’s Comptroller for a permit to charge sales tax sooner rather than later.
If you pay any contractors through your bank account, make sure that you get a W9 from them as soon as possible. This will save you hassle at the end of year, and help keep your books in order.
The steps on this checklist will guide you through the initial phase of your business venture. However, you will likely encounter new questions or tax rules you want to know more about, related to your industry, as you go about launching your business. If you need detailed, business or industry specific guidance on setting up your startup the right way, contact the team at Remote Accounting Experts for a free consultation.