Tax structures, laws, and requirements can be complicated and confusing, and each business structure has its own requirements and limitations. We recommend you speak with an accountant who understands a new business’s needs. You will want to get information and make choices, including:
- Accounting software - Quickbooks, Wave, etc.
- Tax structure - Which is best for you?
- Double taxation - Double taxation is when you pay tax on the income from the business and then again on the income you pay yourself from the business.
- Paying yourself - Owner salary, owner's draw, disbursements
- Payroll – You may not have payroll initially, but you will want to make sure you understand and are set up to meet the requirements for when the time comes.
- 1099 – There are very tight restrictions on 1099, how it works and when it is allowed. States may also have their local requirements. Speak to both an accountant and a local business counselor. Getting 1099s wrong can lead to legal and tax issues.
- Set-asides - You will want to hold some money in your business. Below are a few things to consider and speak with your accountant about.
- Taxes – how much should you set aside every month or quarter?
- Insurances – liability, theft, fire, lawsuit – yes, there is insurance that can help you in the event you get sued (see the separate insurance section)
- Unforeseen expenses/emergencies – As a rule of thumb, 10% of income should be kept in the business until there are enough savings to cover emergencies, including replacing hardware. You may have insurance, but the payment may not come before you need to replace it. Some common emergencies
- Profit and loss statements or P&Ls - They are an excellent way to keep track of how your business is doing. They may also be required if you are applying for any type of funding or anything else where insights into your business finances will be a factor. That can include renting an office or taking or bringing on a new business partner.
- Best practices – Speak to your accountant about the best practices for managing your business and personal spending.
- Accounting rule number one: Do not co-mingle transactions
- If you go to Costco to buy business items and buy even one personal thing, have separate transactions. If you buy business items with your personal money, have a paper trail from purchase to reimbursement - Even for the tiny things.
