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I’m so excited to introduce to you my friend Rebekah from TheCentsibleBookkeeper.com. She is going to share how you can create a simple financial management system that will make tax season a breeze!
I’m going to be honest here: You need a system.
The system I’m talking about today is a financial management system.
Why?
To the best of my knowledge, no matter where you live, you will have to pay taxes at some point. Ugh.
Here in the US, we not only have to pay taxes to the Federal government but in many cases to the State government too.
Each year we have to report our income. And as business owners (you do realize that if you are monetizing your blog, you are a biz owner, right?) we have to pay taxes on the business income. We do get to deduct our business expenses, however, but that adds a new wrinkle.
Whether you earned $1000 from your blog this year or $100,000 when tax time rolls around you need to be prepared.
There’s the easy way and the hard way.
Most business owners start out the hard way. It’s not their fault. No one ever told them what I’m about to tell you.
You get an email from PayPal that you just received your first affiliate payment. Congrats! But now what? What happens to those funds? How will you keep track of it all?
THE HARD WAY
For a lot of bloggers, the next step is to transfer those funds to their bank account. They’ll probably save the emails from PayPal and the affiliate program as receipts and think all is well. Depending on the amount, they may choose to spend some on a new tool like ConvertKit or Buffer. Or maybe take the family out for dinner!
The cycle repeats itself. Each time income is received, it’s transferred to the family bank account and spent on business needs or family fun. Or going toward reducing the mortgage. Or a new roof. Or whatever.
Then tax time rolls around.
The tax preparer asks how much income they received.
Gulp.
They have a file of receipts (most of them anyway), and a myriad of transactions both incoming and outgoing from the bank account.
How can they be expected to remember if a Walmart trip seven months ago was for personal or business??
THE EASY WAY
There is a solution. It’s quite simple. Open a special bank account JUST for the business cash flow.
It doesn’t even have to be a business bank account, per se. Unless you are using a D/B/A (like MomsMakeCents), you can just use your own name and a personal account is fine. The key is to use a different account.
Let’s look at our scenario again:
You get an email from PayPal that you just received your first affiliate payment. Congrats! But now what? What happens to those funds? How will you keep track of it all?
You transfer those funds to your special, business only bank account. You’ll save the emails from PayPal and the affiliate program in Google Drive or somewhere cloud-based to be safe. Since you can see immediately how much you have, it’s easy to save it for something special that your biz will need.
The cycle repeats itself. Each time income is received, it’s transferred to the business bank account and spent on business needs. Periodically, funds are transferred to the personal account to use toward reducing the mortgage. Or a new roof. Or just for fun!
Then tax time rolls around.
The tax preparer asks how much income you received.
You proudly produce a thumb drive with all your bank statements, receipts, etc. showing exactly where the income came from and where the expenses went.Easy peasy!
Granted, using a bookkeeping software system would make it even simpler, but if you are just starting out, a separate bank account is really all you need.
HOW TO GET STARTED
The first place to check is your current bank.
If you are using a D/B/A and not just your own name, you’ll want to find out if they offer free business checking accounts. Some do, others have a small fee. You’ll have to decide if the small fee is worth keeping the account local.
If your bank doesn’t have an option for you, you can check with other local banks, or explore online bank options.
If you need a business account (and have your EIN and biz license) and you don’t want to pay any fees, I recommend checking out Capital One Spark Business. It’s worked out well for me so far.
Here are a few tips to keep in mind:
- If you are conducting business under your own name (ie: not using a D/B/A), then you do not need a business account and a personal account will be fine.
- If you are using a D/B/A, make sure you have your EIN and whatever licensing your area requires. You’ll need these documents when you go to open your account.
- It can take a few days or even a week or two for applications to be processed fully. Give yourself plenty of time and don’t stress!
- If you have any questions, your local banker would be happy to help. They deal with these all the time and will have some great, local information to help you out.
BUT WHAT IF I STARTED OUT THE HARD WAY?
No worries! Everyone does.
First, get set up with a separate bank account and get all services switched over.
Next, using a spreadsheet or notebook, figure out the total funds your business currently has. Transfer this amount to your new bank account. Make sure that all future income and future expenses use this new account.
For figuring out the total funds your business has, here’s what I recommend.
- Go back through all the data you’ve saved since you started your business.
- List each income payment you received
- List each business expense for which you have documentation
- Total it up… there’s your figure!
- SAVE THIS: your tax preparer will thank you!
Even if you are making just a tiny amount from your blog right now, you know it won’t stay that way! Get set up the right way right now and enjoy the peace of mind you’ll receive. You deserve it!
Rebekah Zobel Jones is The Centsible Bookkeeper. With a deep financial heritage (her grandmother, father, and aunt were all accountants/bookkeepers), digging into the books is always an adventure. She irons out the difficulties and automates as much as possible — giving you peace of mind and clarity about your financial position.
Grab her quick guide to reduce expenses, 5 Simple Steps to Shrinking Your Financial Waistline.
A special thanks to Rebekah for this awesome post! If you want more check out her…
