Bookkeeping or data entry is something that you either have to learn or outsource when you’re running a business. This will give you financial health and a better understanding of the cash flow statement.
After you have legally registered your business, you’ll need somewhere to stash your business income. Having a separate bank account keeps records distinct and will make life easier come tax time.
It also protects your personal assets in the unfortunate case of bankruptcy, lawsuits, or audits. And if you want funding down the line, from creditors or investors, strong business financial records can increase the likelihood of approvals.
Note that LLCs, partnerships, and corporations are legally required to have a separate bank account for business. Sole proprietors don’t legally need a separate account, but it’s definitely recommended.
Start by opening up a business checking account, followed by any savings accounts that will help you organize funds and plan for taxes. For instance, set up a savings account and squirrel away a percentage of each payment as your self-employed tax withholding. A good rule of thumb is to put 25% of your income aside, though more conservative estimates for high earners might be closer to one-third.
Next, you’ll want to consider a business credit card to start building credit. Credit is important for securing funding in the future. Corporations and LLCs are required to use separate credit cards to avoid commingling personal and business assets.
Before you talk to a bank about opening an account, do your homework. Shop around for business accounts and compare fee structures. Most business checking accounts have higher fees than personal banking, so pay close attention to what you’ll owe.
To open a business bank account, you’ll need a business name, and you might have to be registered with your state or province. Check with the individual bank for which documents to bring to the appointment.
BOOKKEEPER TRACKING YOUR EXPENSES
The foundation of solid business bookkeeping is effective and accurate income and expense tracking by recording transactions. It’s a crucial step that lets you monitor the growth of your business, build financial statements, keep track of deductible expenses, prepare tax returns, and legitimize your filings.
From the start, establish an accounting system for organizing receipts and other important records. This process can be simple and old school like Shoe boxed. For US store owners, the IRS doesn’t require you to keep receipts for expenses under $75, but it’s a good habit nonetheless.
There are five types of receipts to pay special attention to:
Meals and entertainment. Conducting a business meeting in a café or restaurant is a great option, just be sure to document it well. On the back of the receipt, record who attended and the purpose of the meal or outing.
Out-of-town business travel. The IRS and CRA are wary of people claiming personal activities as business expenses. Thankfully, your receipts also provide a paper trail of your business activities while away.
Vehicle-related expenses. Record where, when, and why you used the vehicle for business, and then apply the percentage of use to vehicle-related expenses.
Receipts for gifts. For gifts like tickets to a concert, it matters whether the gift giver goes to the event with the recipient. If they do, then the expense would be categorized as entertainment rather than a gift. Note these details on the receipt.
Home office receipts. Similar to vehicle expenses, you need to calculate what percentage of your home is used for business and then apply that percentage to home-related expenses.
DEVELOP A BOOKKEEPING SYSTEM WITH EL CID
Before we jump into establishing a bookkeeping system, it’s helpful to understand exactly what bookkeeping is and how it differs from accounting. Bookkeeping is the day-to-day accounting process of recording business transactions, categorizing them, and reconciling bank statements.
Accounting is a high-level process that looks at business progress and makes sense of the data compiled by the bookkeeper by building financial statements. As a new entrepreneur, you’ll need to determine how you want to manage your books:
You can choose software like QuickBooks.
You have the option of using an outsourced or part-time bookkeeper that’s either local or cloud-based.
When your business is big enough you can hire an in-house bookkeeper and/or accountant.
With so many options out there, you’re sure to find a bookkeeping solution that will suit your business needs.
Canadian and US business owners need to determine whether they’ll use the cash or accrual accounting methods. Let’s take a look at the difference between the two.
Cash method. Revenues and expenses are recognized at the time they are actually received or paid.
Accrual method. Revenues and expenses are recognized when the transaction occurs (even if the cash isn’t in or out of the bank yet) and requires tracking receivables and payables.
Technically, Canadians are required to use the accrual method. To simplify things, you can use the cash method throughout the year and then make a single adjusting entry at year-end to account for outstanding receivables and payables for tax purposes.
US business owners can use cash-based accounting if revenues are less than $5 million, otherwise, they must use the accrual method.
HAVE EL CID SET UP YOUR PAYROLL SYSTEM
Many online stores start out as a one-person show. When you’ve reached the point where it makes sense to El Cid Bookkeeping Services.
For employees, you’ll have to set up a payroll schedule and ensure you’re withholding the correct taxes. There are lots of services that can help with this, and many accounting software options offer payroll as a feature.
For independent contractors, be sure to track how much you’re paying each person. American business owners may be required to file 1099s for each contractor at year-end (you’ll also need to keep their name and address on file for this).
DETERMINE YOUR TAX OBLIGATIONS
Tax obligations vary depending on the legal structure of the business. If you’re self-employed (sole proprietorship, LLC, partnership), you’ll claim business income on your personal tax return. Corporations, on the other hand, are separate tax entities and are taxed independently from owners. Your income from the corporation is taxed as an employee.
Self-employed people need to withhold taxes from their income and remit them to the government in lieu of the withholding that an employer would normally conduct. For American store owners, you’ll need to pay estimated quarterly taxes if you’ll owe more than $1,000 in taxes this year.
CALCULATE GROSS MARIN
Improving your store’s gross margin is the first step toward earning more income overall. In order to calculate gross margin, you need to know the costs incurred to produce your product. To understand this better, let’s quickly define both cost of goods sold (COGS) and gross margin, by using your income statement and balance sheets.
COGS. These are the direct costs incurred in producing products sold by a company. This includes both materials and direct labor costs.
Gross margin. This number represents the total sales revenue that’s kept after the business incurs all direct costs to produce the product or service.
SMALL BUSINESS BOOKKEEPING SERVICES
Above all, El Cid’s staff have years of experience in all accounting and bookkeeping services. Most importantly, we service all types of industries. We service small or large businesses. Without a doubt, our bookkeeping services include;
Are you thinking about hiring El Cid as an accountant or bookkeeper to prepare your Income Taxes?
Bookkeeping is a direct record of all your purchases and sales that your business conducts monthly. While accounting is a subjective look at what that data means for your business.
An accountant can be considered a bookkeeper, but a bookkeeper cannot be an accountant without proper certification.
To know whether you need a financial professional, assess the current financial position of your business. Compare what you want your business to grow financially, and decide if you can manage that independently.
This article is for business owners deciding whether they need to hire an accountant or bookkeeper or business accountant bookkeeping.
Staying on top of your finances is vital for being a successful small business owner. Your financial data must be current and accurate. You have the tools you need to make sound business decisions and ensure healthy cash flow.
As your business grows to include more customers, vendors, and employees can get more challenging to keep track of your finances. This might be a good time to hire El Cid as your professional bookkeeper and accounting professional to do your bookkeeping services, data entry, and financial statements. Financial statements might include your Profit and Loss, Balance Sheet, Payroll Tax Reports, and Trial Balance.
When the bookkeeping, accounting, and tax returns are too much to handle by yourself, it’s time to hire El Cid.
IRS 1040 Tax Return
Form IRS 1040
Schedules A, B, C, CEZ, D, E, F, H, J, R, SE
Form 8812 Child Tax Credit
We will prepare your IRS 1040 tax return for both State and Federal and e-file for you. Your return shall be prepared with the highest standards as for all of our clients.
Schedule A (Form 1040), Itemized Deductions
Information about Schedule A (Form 1040), Itemized Deductions, including recent updates, related forms, and instructions on filing. Filers use Schedule A (Form 1040) to report itemized deductions.
Schedule B (Form 1040A or 1040), Interest and Ordinary Dividends
Form 1040 Schedule B is used by filers to report interest and ordinary dividend income. Information about Schedule B (Form 1040A or 1040), Interest and Ordinary Dividends, including recent updates, related forms, and instructions on filing. Use Schedule B to report your taxable interest or ordinary dividends.
Schedule C Form 1040, Profit or Loss From Business
Schedule C (Form 1040) reports income or loss from a business operated or a profession practiced as a sole proprietor. Also, use Schedule C to report wages and expenses that occurred as a statutory employee. Publication 525 discusses many kinds of income (money, property, or services) and explains whether they are taxable or nontaxable. Use this schedule to report gain or loss from a business you operated or a profession you practiced as a sole proprietor.
Schedule C EZ (Form 1040), Net Profit From Business
Schedule C-EZ (Form 1040) is used instead of Schedule C by qualifying small businesses and statutory employees with $5,000 or fewer expenses.
If you operated a business or practiced a profession as a sole proprietorship or qualified joint venture, you can use this schedule. If you were a statutory employee and met all the requirements listed in Schedule C-EZ, Part I.
Schedule D (Form 1040), Capital Gains and Losses
Form 1040 Schedule D is used to report sales, exchanges, or specific involuntary conversions of capital assets, certain capital gain distributions, and non-business bad debts. The form includes the tax computation using maximum capital gain rates. Use this schedule to report the sale or exchange of capital assets, gains from involuntary conversions, distributions, and non-business bad debts.
Schedule E Form 1040
Information about Schedule E (Form 1040), Supplemental Income and Loss, including recent updates, related forms, and instructions on filing. Schedule E (Form 1040) is used by filers to report
Income from rental real estate
Residual interests in real estate mortgage investment conduits (REMICs).
Schedule EIC (Form 1040A or 1040), Earned Income Credit
Schedule EIC (Form 1040) is used by filers who claim the earned income credit to give the IRS information about the qualifying child. After figuring out your earned income credit (EIC), use this schedule to provide the IRS with information about your qualifying child.
Schedule 8812 (Form 1040) is used by taxpayers to calculate and report the Child Tax Credit and the Additional Child Tax Credit.
Use Part I of this schedule to document any child for whom you entered an ITIN.
Suppose you checked the “if qualifying child for child tax credit” box is a resident of the United States. Your child also meets the substantial presence test. And is not otherwise treated as a nonresident alien. Use Parts II-IV of Schedule 8812 to figure the additional child tax credit.
Schedule F (Form 1040), Profit or Loss From Farming
Information about Schedule F (Form 1040), Profit or Loss From Farming, including recent updates, related forms, and instructions on filing. Use this schedule to report farm income and expenses.
Schedule H Form 1040
Household employers use schedule H (Form 1040) to report household employment taxes.
Every employer uses schedule A (Form 940) with four or more employees on at least one day of each of 20 calendar weeks. Also, in a calendar year, file a return on Form 940 for such a year. Schedule H is also used to report household employment taxes. If you paid cash wages to a household employee and the wages were subject to social security, Medicare, or FUTA taxes, or if you withheld federal income tax.
Schedule J Form 1040
Information about Schedule J (Form 1040), Income Averaging for Farmers and Fishermen, including recent updates, related forms, and instructions on filing. Use this schedule to elect to figure your income tax by averaging over the previous three years (base years)—all or part of your taxable income from your trade or business of farming or fishing.
Schedule R (Form 1040A or 1040), Credit for the Elderly or the Disabled
Information about Schedule R (Form 1040), Credit for the Elderly or the Disabled, including recent updates, related forms, and instructions on filing. Use this schedule to figure the credit for the elderly or the disabled.
Schedule SE Form 1040
Information about Schedule SE (Form 1040), Self-Employment Tax, including recent updates, related forms, and instructions on filing. Self-employed persons use schedule SE (Form 1040) to determine the self-employment tax on net earnings.