There are many terms for providing a service as a small business – gigs, contracting, freelancing, and the trade industry just to name a few.
Many people just starting their businesses are enthusiastic to develop their product, but unaware of some simple accounting practices for small businesses. These tips can save both time and money when it comes to filing taxes. Below are some great industry-specific tips that can assist with the “numbers-part” of starting a business.
1. Keep Track of Income/Expenses
As a specialty trade contractor, it can be easy to lose track of the money coming in and out of your business, especially in the first year. Every little expense should be documented if you’re going to deduct it – and it’s common to forget you can write off that cup of coffee with your client!
Before a contractor even starts their first job they should consider costs, such as:
- Obtaining tools
- Acquiring permits
- Any legal requirements associated with forming a business
To make sure business owners are claiming these expenses at the end of the year, it’s important to record these transactions somehow.
Accounting software is a good choice for that, as it will help you when it comes to tax time. But in a pinch, even a simple excel spreadsheet can do the trick.
2. Separate Bank Accounts
Another important element of starting a business is the business bank account. Specialty trade contractors often deal with cash payments as a form of business income.
Without a separate business bank account – which many new business owners may not have – it could be difficult to calculate your deductions at the end of the year. Keeping track of the business activity from the start will help you claim all the expenses you are entitled to – while also keeping an accurate record of your income.
3. Register Your Business Wherever You Are Located
Some specialty trade contractors may have certain jobs that are outside of their home state. In this case, you’ll need to separate any income earned outside of the state your business is registered in. However, you wouldn’t have to register in any state you aren’t physically present in.
For example, a designer or writer working remotely with a client does not provide a physical product, and isn’t physically in the office of the client. At the end of the year, you will only need to file tax returns for the state you physically worked in.
4. Keep Record of Mileage and Business Assets
Another aspect of starting your own business is to keep track of your mileage and business assets.
Many contractors may need to travel from job site to job site! In order to claim any auto expenses, you will need to provide a mileage log.
This deduction can be very significant as you wrack up miles, so it’s very important to keep diligent records. Also, as a specialty trade contractor, you may be purchasing some expensive pieces of equipment.
A good rule of thumb is to record the date and purchase price of any singular piece of equipment worth more than $500.
Good Records Now Saves Time and Energy Later
Like all things, keeping notes can be very important for completing projects. In your business, it’s just as important; the more efficient and accurate your records of expenses, payments, miles driven, and tools purchased, the easier it’ll be to breeze through your tax filings in the future.