Using separate accounts
Separate business and personal information
It is important to not get your business income and expenses mixed up with your personal income and expenses. Otherwise you will not be able to tell what items are taxable as income or deductible as a business expense.
Use separate bank accounts
Having a bank account can help establish your income, particularly if you receive payments by check. Copies of deposit slips, cashed checks, and bank statements can support your claims. Keep a separate bank account for your business and do not mingle it with your personal bank account.
As an owner of a self-employed business, you don’t get paid a salary or wages. If you need to pull money from the business for paying personal expenses, mark it clearly as an owner’s draw, and either transfer the money to your personal account or write yourself a check from the business account.
Sales tax reporting
If you are required to collect sales tax on the items you sell or services you provide, set up either a separate account or sub account to place those revenues keeping them separate from your other business revenues. Do not touch this account other than to use the money to pay the state when your sales tax returns are due.
When collecting sales tax you are doing so in trust for the state. It is not your money, but money you collected on behalf of the state. If you do not file a tax return timely and send this money into the state, you could face penalties for late filing or even criminal charges.
Employment tax reporting
Similar to sales tax, if you have employees and are required to pay withholding and other employment taxes on their behalf, you should set up either a separate account or sub account. Us it for those revenues until you file and pay with your returns.
