Alright my lovely business owner, freelancer, independent contractor, gig-worker, side hustler, solopreneur … You get the picture.
You’ve been spending money working one your business, and you want to know how you can use those business expenses as a deduction against your income.
There are so many details I can and should share with you in answering this question, but I will keep it short & sweet for now. I assure you, the lecture is coming later.
Here’s what you NEED
- You NEED to have earned and received income in your business – not your w2 employer – but from your business. The money should be, at the very least, in your hand, but really, in your business bank account by December 31st.
- You NEED to have receipts and good record-keeping of the monies you spent in order to: (1) have a product to sell or service to offer, (2) gain clients/customers, and (3) transact business with them.
- All the moneys spent and earned for the business should flow through one bank account that is exclusively used for the business. Then, when you want to use business income to pay for personal living expenses, you must “write yourself a check” from your business, deposit it into your personal account, and then spend it as you wish. You can also transfer the funds if your bank allows it. Sometimes business accounts will not allow you to do this.
- SIDE NOTE: In most cases you should not use your business bank account for any vehicle expenses unless the vehicle is used EXCLUSIVELY for business and you can prove it. So… no, you should not use your business account to put gas in your car. Click here to find out how to handle vehicle expenses.
There are specific ways you should go about documenting and managing the above mentioned MUST DOs, and there are even more things you SHOULD do to safeguard yourself from IRS and State audits; but I promised to keep it short and sweet… So I did.
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