by Holly Murray
Metro West Accounting & Associates
Every year the IRS does audits on innocent small business owners. More often than not, that innocent person fails the audit and ends up owning the IRS lots of money. These small business owners are not trying to scam anyone, they just don’t know what they need to be doing. So, I’m here to help them.
Keep business and personal separate
The IRS wants you to keep everything separate. Have business accounts and have personal accounts, I personally have mine at different banks so I can’t easily inner-mingle my funds. Most small businesses are set up as LLC’s (so that is what we will look at) where you can take a draw or add equity. If there is a great shoe sale and the personal account is looking a little low write a check from your business to yourself and deposit it into your personal account, this is called a member draw.
Now you can get those really cute shoes you’ve been drooling over. Next month, your faithful printer starts sounding like it will die with the next sheet of paper but you are waiting on some clients to send you their payment. You may not be able to wait for the check that they say is in the mail so go ahead and write a check from your personal account to your business and deposit it into the business, this is called member equity. Now go get that new wireless printer so you can work while on the couch watching ‘The Crown’ on Netflix. I know, I know what a pain but better to keep the taxman off your front step by taking the time to keep it separate.
Keep those business receipts
You are self-employed a small business owner and you want to deduct everything, right? That is great but make sure you can account for every deduction. You do this by keeping receipts. So, an Angel and a Jeanne walk into a Barr, they enjoy happy hour and talk about how to grow each other’s business. Yeah, this is a deduction! Use your business debit card to pay and jot a note with everyone’s names and a short description of what you discussed. Now you have a ton of receipts in your wallet, what now?
Get 12 envelopes and write each month and the year on each one and put a rubber band around them. Every few days, weeks, or whenever get the receipts out of your wallet and put them in the envelope for that month. I use an app on my phone that allows me to take a picture of the receipt, add a few details, and I have permanent proof of everything I deduct. Note: that shiny paper from the restaurant will fade and become unreadable over time, the IRS will not accept a faded receipt so we will have to start taking pictures or scanning our receipts. I know, I’m asking a lot but do you want to owe Uncle Sam more than your fair share? I didn’t think so.
Track your mileage
There are many ways to track your mileage, and this is how most people take their automobile deduction. I use a paid app that tracks all mileage whether in my car or not then once a week I go in and classify all of my drives. Another way is to keep a mileage journal, every time you get in and out of the car write the odometer reading with a description of where you went and why. Be aware that every December the IRS adjusts the standard mileage rates for business, medical, and charity drives (for 2017 it’s 53.5 cents per mile for business, 17 cents per mile for medical/moving, and 14 cents per mile for charity). Again, you must have a record of your mileage and what it was for to be able to deduct it on your schedule C.
These are just a few tips to get started and to help you stay out of the Internal Revenue Service’s crosshairs. Please reach out to me at (636) 448-4005 or firstname.lastname@example.org if you have any questions.