What is bookkeeping?
Keeping good records of your business income and expenses is a critical part of running your business. Bookkeeping is:
- invoicing clients and collecting payments/income
- paying bills
- recording income and expense transactions
Mistake #1: Not setting up bookkeeping when you start your business
The vicious cycle of not setting up bookkeeping:
When you don’t setup up bookkeeping, you will forget business expenses, spend extra time organizing receipts, and your tax preparer will charge more money because it will take more time to file your taxes.
Mistake #2: Not asking for help from a bookkeeping or accounting professional
Don’t procrastinate getting help from a professional! Set up a consultation with an accounting professional when you launch your business to help you get started. Books that are set up correctly can be a great tool for measuring your business goals for income, keeping your expenses in check, and deciding when it is time to hire extra help.
Mistake #3: Not taking your startup expenses
In the first year, your online business will have more expenses than income, resulting in a business loss. It is important to keep track of your expenses and take any applicable deductions when you file your business taxes for the first time.
Mistake #4: Not knowing what business expenses are tax deductible
<— This guy may have 30 years of tax experience, but he does not understand online business. It is very important to hire bookkeepers and accountants who understand online businesses. They will know what questions to ask you about income and expenses and make sure that you do not miss a deduction. They need to understand the home office deduction, mobile and internet expenses, email marketing software, business gifts, etc.
Mistake #5: Not knowing what business entity to choose
When do you add three letters to your business- LLC or Inc? Your choice of business entity is extremely important. It has several implications for both your business and you personally. These implications range from the simplicity of taxes and record keeping to legal and tax liability.
Mistake #6: Not knowing what state to register your business in
There are certain rules that determine whether or not you have to register your business in a certain state. Regardless of what people trying to take your money to set up your corporation in a tax friendly state tell you, you are absolutely required to register in the state that you have a physical presence in.
Mistake #7: Mixing Business and Personal Transactions
When you mix your business and personal expenses, you’re more likely to invite extra attention from the IRS – and your compliance regulators. Additionally, if you’re an LLC or S-Corp and you co-mingle funds, you pierce the corporate veil which opens any shareholders or owners up to be liable for the business debt and liabilities. Make sure that you open a separate business bank account and use it for your business transactions.