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Financial Advice for Entrepreneurs Starting a Business

Money Girl answers a listener's question: What should entrepreneurs consider when starting a business? You'll learn five tips to protect your liability, cut taxes, stay organized, and find professional help.

By
Laura Adams, MBA
8-minute read
Episode #406

Here are the forms that each entity must typically submit:

Additionally, when you have pass-through income where no taxes are withheld, you’re also responsible for paying self-employment tax. This is similar to the Social Security and Medicare taxes withheld from most workers’ paychecks. You pay it using Form 1040, Schedule SE.

And since your self-employment income is not subject to withholding, you’re required to pay quarterly estimated tax, if you expect to owe at least $1,000 in federal tax for the year. You make estimated payments using Form 1040-ES, Estimated Tax for Individuals or Form 1120-W, Estimated Tax for Corporations.

To learn more, visit the IRS page called Which Forms Must I File? and the U.S. Small Business Administration’s State and Local Tax Guide.

Although it’s not against the law to mingle your business and personal finances, it makes filing taxes, monitoring the status of your business, working with an accountant, and even selling your business, much more difficult.

Tip #3: Separate Business and Personal Transactions

Keeping your business and personal transactions separate is important because you have to report business income and expenses to the IRS each year.

For instance, if you don’t have a system to know which restaurant meals were personal and which ones were with potential customers, you might forget to claim those qualifying expenses as a deduction. I’ll cover more about deductions in the next tip.

Although it’s not against the law to mingle your business and personal finances, it makes filing taxes, monitoring the status of your business, working with an accountant, and even selling your business much more difficult.

To stay organized, you could mingle personal and business finances but be meticulous about categorizing them using accounting software such as Quicken or QuickBooks. Or you can open a separate business bank account. I’ve managed businesses both ways.

When choosing a bank for business, consider what's most important to you. Do you want a local branch or do you prefer to use services remotely? 

While free personal checking is common, banks or credit unions typically charge fees for business accounts, depending on your volume of transactions or for online banking services.  

Large banks may offer lower fees and more online services, but small banks may be more likely to give loans to businesses in their community and offer personalized services.

To open up a business checking account, you'll need documentation for your entity. For instance, with a sole proprietorship you need a Social Security number or a tax identification number (TIN). With an LLC, you need your TIN and articles of organization.

If your business name doesn’t exactly match your real name, you’ll typically need to register your business name with the proper authorities in your state. This process is known as filing a fictitious name, registering a “doing business as” or DBA name, or registering a trade name.

You register a DBA name with your county clerk’s office or with your state, depending on where you live. But most banks I’ve worked with provided me with the necessary DBA form when I applied for a new business account.

See also: 3 Best Free Tools to Manage Money (for Home or Business)

In addition to paying less tax, qualifying tax deductions can give you nice perks like having a meal at a terrific restaurant with potential clients, combining a business trip and a vacation, and having a home office.

Tip #4: Understand Business Tax Deductions

Tax deductions are a legal way to cut your tax bill, so take every one that you can! But in order to do that, you need to get familiar with which expenses are partially or fully deductible.

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About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlersbook is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.