What is “Commingling”?
When you commingle your funds, you are treating your business funds as your personal money and your personal funds as your business money. Some of the most common ways to commingle are:
- Transferring money between business and personal accounts without documentation.
- Writing business checks or using business credit cards for personal reasons/expenses, and vise versa.
- Having only one bank account for personal and business needs.
- Depositing business checks into your personal bank account.
- Withdrawing money from your business account to pay personal expenses without documentation.
The IRS does not allow you to deduct business expenses that you cannot document. When you have one business account for personal and business expenses, it is hard to explain to the IRS what you need to deduct and for what purpose. The IRS is a lover of documentation, and by keeping track of your business income and expenses in its own business account is crucial to help minimize taxes and maximizing your deductions.
I haven’t had any transactions yet. Should I still track my expenses?
Even if you haven’t had any sales yet, you should still track your expenses. Any ordinary and necessary expenses incurred to set up your business are all valid business deductions and should be tracked. It is completely normal for it to take a while before sales start happening on a regular basis for a new business. Once you do start making sales, you will start tracking them as well.
What types of transactions should I keep record of?
Any money that is spent on your business should be recorded. For a valid tax deduction, the purchase needs to be both ordinary and necessary for your business. That means that even if you want a new business car, a Lamborghini probably isn’t the best choice and won’t be a valid tax deduction.
Some examples of transactions may include:
- Sign up fees and monthly fees for companies that help you set up your business. That includes Bookly.
- Money paid to the Secretary of State to register your business.
- Any office supplies you need to use during the normal course of your business.
- Any Shipping supplies, Stamps, packing materials etc.
- Fees paid to host websites; register domain names or business cards.
- Fees paid to eBay or PayPal or any other type of online auction retail you use to sell your product.
- License fees to keep up a license necessary for your business i.e. Real Estate License fees, Business License, etc.
This is in no way a complete list. If you have questions about something, please don’t hesitate to contact us with any questions.
Are my car expenses valid business expenses?
There are 2 ways to deduct your car expenses. The first way is to keep track of the miles traveled for your business and multiplying that by the standard mileage deduction given by the IRS. For 2013, the amount is 0.565¢ per mile.
The second way is to keep track of all your car expenses including maintenance, gas and repairs. You also need to track your business miles and total mileage. The deductible business expense is figured by multiplying the business use percentage of your car by the total car expenses for the year.
The IRS allows a deduction for the larger of the two expenses. Although the second method requires a little more record keeping, it’s possible it is more beneficial. Whichever method is used, good recording keeping is required.
Can I deduct my Utilities?
If you use part of your home as a home office, a portion of your utilities, insurance, taxes, interest, rent, etc. can be a valid business deduction.
Home office expenses can be an overlooked source of valuable business deductions. Many business owners don't claim them because they fear (incorrectly) that home offices are an audit "red flag," or because the record keeping is a pain. (Form 8829, which helps calculate the deduction, includes 43 lines and asks you to "see instructions" 17 times.) But now the IRS has released a "safe harbor" method that may make home office deductions more accessible.
The new procedure, outlined in Revenue Procedure 2013-13, lets you deduct a flat rate of $5 per square foot, for up to 300 feet of qualifying office space. You'll still deduct your mortgage interest and property tax attributable to the space on Schedule A as usual. But you won't have to calculate any actual expense or depreciation deduction for the space. On the downside, if your simplified home office deduction reduces your income below zero, you can't carry if forward to future years, as you can with the regular deduction.
You can determine year-by-year which home office deduction method to use. You don't have to elect one and lock yourself into it for the future.
The Business Use of Home deduction is only allowed for LLC’s. However, there are certain utilities that S Corporations can still deduct as business expenses. The business use portion of your home phone, cell phone and internet are all valid deductions.
When will I get my Income Statement?
As long as you have answered any pending transaction questions or have provided us any requested information by the 20th of each month, you should expect to receive an Income Statement for the prior month before the end of the current month.
What if I forget to send you my information one month?
Don’t worry. We are here to help you and if you forget one month, or find you don’t have the time, then feel free to submit everything the next month. We will be happy to create two income statements, one for each month. We will continue sending the monthly reminder emails, but if we don’t receive anything in return, we will assume you didn’t have any business activity for the month.
Do I need to send you copies of my receipts or credit card bills? Do I need to keep originals? How long should I keep them?
It is not necessary for you to send us copies of the original receipts or credit card bills. The information requested in the PDF forms is exactly what we need. Please keep the originals in your own personal file.
Be sure to keep the original documents safe. In case of a future audit, an auditor will want to see the original receipts or credit card statements. Keep the documents for 3 years assuming that a timely tax return has been filed that is correct in accordance with IRS regulations.
I had to put $100 into the bank account when setting up a business account. Is that a business expense?
Since that money is still yours to use, that is not a business expense. It was just a balance transfer. If the bank charged you a fee for that balance transfer, that would be a business expense. Until the money is spent, it is not deductible.