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Recordkeeping Tips for Individuals and Businesses

Posted on September 4th, 2020

The key to avoiding headaches at tax time is keeping track of your receipts and other records throughout the year. Whether you use an excel spreadsheet, an app, an online system or keep your receipts organized in a folding file organized by month, good record-keeping will help you remember the various transactions you made during the year. Read More…

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separating business and personal expenses

7 Smart Ways to Separate Business and Personal Expenses

Posted on December 20th, 2019

Do You Avoid Separating Business and Personal Expenses?

You’re in good – or should we say, bad – company. Over half of American business owners use either their personal checking account or credit card for business purposes according to a TD Bank Survey.

Why is that such a bad thing? For starters, if you’re ever audited by the IRS, you’ll need to prove that every expense you deducted for business purposes was legitimate. Separating business and personal expenses becomes even more important in the case of a lawsuit (we’ll dive deeper into the #1 “golden rule”).

Here at Robert P Russo CPA, we ensure our clients understand the importance of separating business and personal expenses – and exactly how to do just that.

 

1) The Golden Rule of Separating Business and Personal Expenses: Create the Right Business Entity!

This may seem obvious, but the sooner you form an official structure for your business, the better. The reasons for officially forming a business entity transcend accounting and taxes, and move into life-altering situations.

For example, let’s say you have been operating a side business as a sole proprietor, making porch swings. One swing out of hundreds breaks, injures a person, and you’re being personally sued for $1 million. If you had set up any of these other business entities, such as an LLC, you’d have a better chance for making a case that your personal assets are off limits. After all, LLC stands for “limited liability company.”

However, simply having an LLC isn’t enough…if you’ve never bothered separating business and personal expenses! The judge might allow the injured person to go after your personal assets – from your home to your savings accounts – instead of the $1,500 in your business account.

Now that we have your attention about the importance of selecting the right entity – and separating business and personal expenses – take action. Contact a qualified CPA, like members of our team at Robert P Russo CPA, to analyze which business structure is best for you.

 

2) Open a Credit Card and Checking Account, Use it ONLY for Business Purposes

Next up on our list of tips for separating business and personal expenses is to immediately set up a business checking account and credit card after creating your entity. Depending on the entity you chose, you may have a separate Tax ID number – known as an EIN. This will be associated with your accounts going forward, and will help you build credit for your business.

You may face temptation when separating business and personal expenses thanks to alluring offers from credit card companies. They may promise $250-$500 cash back if you spend a certain amount on your business credit card within a few months. Don’t fall into the trap of using that business card for personal expenses! Think of that potential audit or lawsuit – it’s just NOT worth it.

 

3) Track What You’ve Invested Into Your Business

In most cases, business owners start up operations using some of their personal savings. That’s fine from a tax and accounting perspective. But be sure you record this in your business ledger because this amount is typically considered “owner equity” and is not taxable (there are exceptions, talk with a CPA to review your situation). 

 

4) Splitting and Separating Business and Personal Expenses Related to a Single Item

Not everyone likes to have two smartphones: one for business, one for personal. So how can you go about separating business and personal expenses you incur for a single smartphone or laptop? What about Internet fees? You’ve got two options. You can deduct the actual amount used for business purposes from your bill each month. Or, if you have a home office, you can deduct all utilities – such as Internet fees – at a percentage that relates to how much square footage your office takes up compared to your home’s total square footage. A qualified CPA can help you sort out which is more beneficial for you. See, you’ve got options for separating business and personal expenses!

 

5) If You DO Use a Personal Account for a Business Purchase? Track It!

It happens. You’re purchasing office supplies, and you left your business credit card at home. You have no choice but to whip out your personal card and pay. Good news, you won’t miss out on that deduction, as long as you pay yourself for the supplies via your business account AND you’ve saved your receipt. Proof is essential when separating business and personal expenses.

 

6) Convenience at a Cost: You Need to Separate Business and Personal Expenses Online

Temptation arises again. You need to buy business equipment online right away and the supplier only accepts PayPal. The only PayPal account you have is tied to your personal social security number, not your EIN. PayPal requires a few documents before they’ll set up your business account, so what do you do if you’re getting serious about separating business and personal expense? If it’s a one-time occurrence, go ahead and use your personal PayPal account and reimburse yourself – just like we mentioned in tip #5. But don’t make this a habit! Set up business accounts for Amazon, PayPal, etc.

 

7) Get Smart About Separating Business and Personal Expenses While Traveling

Now here’s where things get a little more complicated in regards to separating business and personal expenses. What happens if you live in the Northeast but have business in Florida in the dead of winter? You want to bring your family along, but you’re unsure how to go about separating business and personal expenses. First, you know what to do: talk to a qualified CPA before you start trip planning. And of course, review these general rules about deducting travel expenses. You’ll learn things like the fact that you can deduct lodging for you only, not your family – and only on the days that you spend primarily engaged in business work (not on the days you went to Disney World).

Now that you’re informed about the basics of separating business and personal expenses, the next step is to put what you’ve learned into practice. Save all receipts, track every expenditure in QuickBooks or whichever accounting software you use, and by all means, speak with a CPA so that your business is set up for success!

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Recordkeeping Tips for Small Business Owners

Posted on June 6th, 2019

The key to avoiding headaches at tax time is keeping track of your receipts and other records throughout the year. Whether you use an excel spreadsheet, an app, an online system or keep your receipts organized in a folding file organized by month, good record-keeping will help you remember the various transactions you made during the year. Read More…

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Tax Tips for Foreign Taxpayers

Posted on March 1st, 2018

If you are living or working outside the United States, you generally must file and pay your tax in the same way as people living in the U.S. This includes people with dual citizenship.

In addition, U.S. taxpayers with foreign accounts exceeding certain thresholds may be required to file Form FinCen114, known as the “FBAR” as well as Form 8938, also referred to as “FATCA.”

FBAR is not a tax form, but is due to the Treasury Department by April 17, 2018, and must be filed electronically through the BSA E-Filing System website. It may be extended to October 15.FATCA (Form 8938) is submitted on the tax due date (including extensions, if any,) of your income tax return.

Here’s what else you need to know about reporting foreign income: Read More…

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What Income is Taxable?

Posted on March 1st, 2018

Are you wondering if there’s a hard and fast rule about what income is taxable and what income is not taxable? The quick answer is that all income is taxable unless the law specifically excludes it. But as you might have guessed, there’s more to it than that.

Taxable income includes any money you receive, such as wages and tips, but it can also include non-cash income from property or services. For example, both parties in a barter exchange must include the fair market value of goods or services received as income on their tax return.

Nontaxable Income
Here are some types of income that are usually not taxable:

  • Gifts and inheritances
  • Child support payments
  • Welfare benefits
  • Damage awards for physical injury or sickness
  • Cash rebates from a dealer or manufacturer for an item you buy
  • Reimbursements for qualified adoption expenses

In addition, some types of income are not taxable except under certain conditions, including: Read More…

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Tips for Getting Paid on Time

Posted on March 1st, 2018

For many business owners, collecting on your accounts receivables can be challenging especially as more people switch from established collection procedures to online payment methods. The good news is that you can take positive action to improve collection rates, shorten the aging days of your accounts receivable, help your business improve its cash flow and tighten up its credit and collections policies. While some of the tips discussed here may not be suitable for every business most can serve as general guidelines to give your company more financial stability.

Define Your Policy. Define and stick to concrete credit guidelines. Your sales force should not sell to customers who are not credit-worthy, or who have become delinquent. You should also clearly delineate what leeway salespeople have to vary from these guidelines in attempting to attract customers.

You should have a system of controls for checking out a potential customer’s credit, and it should be used before an order is shipped. Further, there should be clear communication between the accounting department and the sales department as to current customers who become delinquent.

Clearly Explain Your Payment Policy. Invoices should contain clear written information about how much time customers have to pay, and what will happen if they exceed those limits.

Make sure invoices (both paper and electronic) include a telephone number and website address so customers can contact you with billing questions. If you send an invoice via the US mail, also include a pre-addressed envelope.

Read More…

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Missing Important Tax Forms? Here’s what to do

Posted on February 1st, 2018

Form W-2

You should receive a Form W-2, Wage and Tax Statement, from each of your employers for use in preparing your federal tax return. Employers must furnish this record of 2017 earnings and withheld taxes no later than January 31, 2018 (allow several days for delivery if mailed).

If you do not receive your Form W-2, contact your employer to find out if and when the W-2 was mailed. If it was mailed, it may have been returned to your employer because of an incorrect address. After contacting your employer, allow a reasonable amount of time for your employer to resend or to issue the W-2.

Form 1099

If you received certain types of income, you may receive a Form 1099 in addition to or instead of a W-2. Payers have until January 31 to mail these to you.

Read More…

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