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Work From Home -
WAH Research
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If you are running a home business it is very important that you learn how and why you should keep your business finances separate from your personal finances. It may seem like a pain in the beginning but in the long run it will definitely pay off. If you keep your business and personal finances together you will have a much more difficult time when tax season rolls around. In the event that your business is ever audited by the IRS, you will also have a much easier time providing the documentation needed for the audit.
You should be able to show the IRS exactly what business deductions you take and why you take them. They should show that you are entitled to take these specific deductions for your home business. If you do not separate your personal and business finances you may have a lot of trouble proving that you are taking legitimate business deductions.
The first thing that you should do is to open a separate checking account for your business. You can use the same bank that you use for your personal account and in fact, this may be the easier choice. You will likely have to show your business license or other proof of your home business when opening the account so that you can put the account in your business and not your personal name. While the address will be the same for your home business as your personal address, the name can and should be different. If you use credit cards for personal purchases, you should also consider getting a separate card for business expenses. This helps you to keep better track of your business spending and again, will come in very handy during tax season. You will also be able to show your profit margin much better if you know specifically what is spend for your business versus what is spent for personal purchases. In addition, a business credit card can help you to improve the credit rating of your business. Even if you never use the business credit card, they are a good idea to have on hand.
Having a separate bank account for your business also makes your business look more legitimate and professional. You can make payments and receive payments from customers more easily through a business account and this way you can determine just how much you are actually making from your business. In addition to a business bank account, have a separate email account as well. If you are receiving payments on your website through PayPal, a business email address will look much more professional to your customers.
Mixing your personal and business finances will simply be much more frustrating in the long run. It will make it much harder to find specific information when you need it and when running a business, finding invoices and payment statements is crucial at times and should be done as quickly as possible. Also, if you normally use accounting software, make sure that you have a separate account set up for your business finances. You may need to use two different programs to keep them completely separate. QuickBooks is an excellent business financial software and you can consider using Microsoft for your personal accounts.
There are many other advantages to keeping your finances separate but these are the most beneficial for you. Keep very accurate records, particularly when dealing with your business finances as you will need to be able to provide documentation when you are having your yearly income taxes prepared.
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