Account Organization To Prep For Self Employment Taxes

When a person has a small business that consists only of them - freelance writers

, people who sell on an online store - the nature of the accounting burden is unique. Because the sole owner is the business' most important and virtually only real resource, he or she has to manage time very carefully so that auxiliary tasks don't take too much away from the core activity of that business, whether it's making jewelry or providing some service. Self employment taxes and small business bookkeeping for tax season and the 1099K tend to get ignored as a result. There are a few simple techniques and strategies that can make keeping these books and keeping up with all the different financial details easier.

Part of the difficulty with small business finances is that many people combine their personal and business cash into the same pool. You spend your own money when you need a new piece of equipment and your business "pays" you the minimum you need to survive. The other problem is the lack of time to focus on developing and maintaining any kind of financial organization system. So you need a relatively automatic way to circumvent these difficulties.

One of the most appropriate for small businesses is to use separate banks accounts. Personal finance experts suggest this strategy because it makes it much easier to apportion your income and set concrete spending limits. With individuals, the point is to be sure you meet investment or savings goals each month to take advantage of compounding. You can do this too as a small business owner, but it's more likely you'd leverage this strategy to keep your finances organized.

You have to start by figuring out your business' fixed costs. That process of budgeting and deciding figuring out your expenses is a major effort itself. But once you know that you can figure out how much you should have left over at the end of the week. Some portion of this should go into a separate checking account for personal expenses, bills, and savings - or divided however you need within that category - while the rest goes into a business checking account for unexpected future expenses and reinvesting in improving and growing the business.

This is a relatively simple process on its face, but it can be immensely powerful as far as lightening your accounting workload and helping to organize your finances. And it makes it easier to also set aside the appropriate portion of your income each week to prepare for paying self employment taxes each quarter - when you are already dividing and allocating the business' income, the extra work to set aside the right portion for taxes becomes much easier.

by: John V

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