Complete Your Life + Biz New Years Resolutions: Your Guide to Money
This January, we’re tackling a lot of things that you might have life or business resolutions around. While we don’t always love the word resolutions because it’s contrived and overused but it’s important to set intentions around things you want to see improved! Without it, you’ll always make the same mistakes!
We’ll go through 4 topics I heard discussed the most through the month of January in case you have similar resolutions! Let’s set an intention to do better!
Let’s talk money! You’re a business owner and you make money but you hate working with numbers. You have a credit card or a bank account but you don’t really know how much you have to spend. When you’re unclear about your money, it’s hard to make confident business decisions. Amy Northard is a CPA and expert money gal. She’s going to be teaching us what you need to know when it comes to handling money in your biz!Money 101
Separate accounts for business
The first thing you should do for your business, from a money standpoint, is start separating personal and business transactions. The best way to do this is to get separate bank accounts, credit cards, PayPal accounts etc. Then, promise yourself you’ll stick to keeping business transactions in your business accounts, and personal transactions on your personal accounts.
I know it’s tempting to buy that Kate Spade purse with your PayPal account (easy and your spouse won’t know how much it costs), but resist!
The biggest benefit to keeping everything separate is that you won’t forget to report any income or expenses. You aren’t weeding through Target purchases and Starbucks receipts trying to remember if it was personal or for business.
It might feel like a huge hassle to go into a bank, but some will allow you to create an account online without ever stepping into an office. Check out Nerd Wallet’s best business checking accounts here.
Track income and expenses
Now that you’ve got everything going into separate business accounts, your bookkeeping will be much easier. The next step is organizing those transactions so you can turn it into information that will help you grow your business.
When you’re starting out, a simple spreadsheet may be your best friend, but as you grow, you’ll want something a little more automated and less time consuming.
Let’s talk spreadsheets. If you go this route, you’ll want to be sure to capture the transaction date, amount, client or vendor name, what account the transaction occurred in (checking, PayPal, etc) and the category.
If what to call something starts to stump you, keep in mind that you can just make categories up! Just remember, don’t go overboard and create a million categories. Try to lump things together as best you can.
Look into sales tax obligations
Some states charge sales tax on just physical products and not services, others charge on both physical products and services, and it gets even hazier when it comes to digital products.
If your state has sales tax, visit the state’s tax website to learn what’s considered taxable. If it’s unclear, try giving the state’s department of revenue a call (it’s not scary, promise!). You’ll just need to tell them what kind of business you have and explain everything you’re planning on selling. Then, they’ll be able to tell you whether or not sales tax should be charged and how you should charge it.
If you’re having a hard time finding info for your state, check out Tax Jar. They’ve created a map that allows you to click on your state and access a summary of your state’s sales tax rules.
Set aside money for income taxes
One of the best habits you can get into for your business finances is to set aside 30-35% of the profit (incomes less expenses) for income taxes. Stash this money away in a separate savings account so that it’s out of sight and out of mind and then don’t dip into it for any reason, unless you’re paying your taxes.
You can pay in this money you’ve set aside for taxes each quarter by paying quarterly estimated taxes to the IRS and state (if your state has income tax). I like to put a reminder on my calendar for a couple weeks before the payment is due so I can get my bookkeeping caught up and can estimate based on my current profit.
Estimating is fine, but if you want a more precise calculation, get in touch with an accountant who can project how much tax you’ll owe. Think of these payments like you’re making a deposit towards the total income tax due on your year-end tax return. Be sure to track your federal and state payments so you have them handy when it’s time to file your annual taxes.
Click here for your free visual list of deductions sheet!
Upgrading from Spreadsheet to Bookkeeping Software
Manually adding in every income and expense transaction to a spreadsheet can get time consuming, especially if you have a high volume of transactions. Once you get to the point where it’s taking too long to update your spreadsheet, consider upgrading to an online bookkeeping software that will sync to your bank accounts securely, like Mint does for your personal finances. The best time to do this is towards the beginning of the year so you only have a month or two to import.
Below are my favorite bookkeeping softwares and their average cost per month:
- Wave Apps (free) – best for service providers
- Quickbooks Online Simple Start ($15) – best for service providers and product sellers
- Xero ($30) – best for service providers and product sellers
Once you’ve chosen the program, give yourself a couple hours to run through their tutorials and learn the software. If it’s daunting to do on your own, many bookkeepers will offer one-on-one help to walk you through the process.
Consider becoming an S-corporation
It’s true that S-corporations can offer tax savings, but a lot of small businesses rush into becoming an S-corporation without knowing all that’s involved. If your business is making $50,000 in profit or will make this much for the upcoming year, it’s a good idea to talk with an accountant to see if you’re ready to be an S-corp.
The S-corp requires that the owner be paid a reasonable salary (via payroll), a completely separate tax return (no more Schedule C), and other details like running health insurance through the business. These all mean extra business expenses, so you’ll need to make sure the tax savings outweighs the extra expense and an accountant can help you with that analysis.
The deadline for becoming an S-corporation is 2 ½ months after you become an LLC or March 15 of the current year. You can still submit the paperwork after these deadlines, but you’ll need to provide a reason for filing late.
Try not to get overwhelmed by all of this information. Take it step by step and as you cross a big financial task off your list, celebrate!
Click here for your free visual list of deductions sheet!
Hi, my name is Amy Northard and I’m the CPA for creatives. I help creatives like you all over the US navigate taxes and set up bookkeeping systems so they can get back to the part of business they love – the creative part.