Business Taxes - Vyde

5 Tips on Tracking and Separating Your Personal and Small Business Expenses

It can be all too easy to allow your personal expenses get tangled up in your small business expenses. You’re shopping at Costco, getting things for your family, when you remember you need a couple things for the office. Before long it all ends up in the same cart and on the same receipt. In the moment, it may seem like the easier route to take. However, not separating business expenses from personal expenses can cause quite a headache for small business accounting, especially when tax season comes.

Here are 5 tips on tracking and separating business expenses for your small business:

1. Set up separate bank accounts. As a small business owner, your first order of business should be to set up a separate bank account. To learn how to do that, visit this post. If you are diligent about keeping expenses separate, you should only need to review your business bank account statements during tax season to find deductions. If you have multiple charges for your business on your personal account, it can be hard to remember which ones were business expenses. Which makes it easier to miss important business deductions. Separating your business bank account from your personal account adds a layer of protection. Which is especially useful if the IRS audits your business.
2. Learn to use a business credit card. Credit card statements can act as a proof of purchase when you don’t have a receipt. We do not recommend going into credit card debt on your business credit card. However, any interest you pay on the card is tax deductible. Building up a line of credit, earning points for travel, and receiving cash back on purchases for your business are added benefits of using a business credit card.
3. Keep track of expenses–both separate and shared. You don’t have to write down every cent you spend each day, but you do need to keep track somehow. Track business expenses using a simple spreadsheet once a week, or use a budgeting app like Mint for instant updates on where you’re at with your budget. Some business expenses will inevitably overlap with personal expenses. Cell phone bills, portions of your mortgage/rent, utilities, internet, etc. are all examples of overlap. Choose one account to pay these bills from and be consistent. Keep track of bank statements and receipts to refer to during tax season. The most important part of small business accounting is to set aside time each week to take care of small business bookkeeping tasks. Letting too much time pass between purchases and recording them in your budget increases error.
4. Set your salary as a small business owner. This can be difficult to do if your business’ profit fluctuates significantly from month to month. However, setting a salary to pay yourself as a small business owner helps you know how much money you’ll be bringing home each month, and how much money you’ll have to run the business. Just because you set a salary doesn’t mean it’s carved in stone. You can revisit your salary and adjust it quarterly, bi-annually, or once a year.
5. Consult a professional. As your business grows, you’ll likely need to hire a professional accountant or bookkeeper to help you keep track of business expenses and finances, pay taxes, and invest your money wisely. Vyde offers free small business accounting advice from professional CPAs who can help you navigate your business finances and answer any questions you may have.

How to Plan a Simple Small Business Budget

Whether you’ve been running your small business for years or you’re an entrepreneur just getting your feet wet, the importance of a small business budget cannot be overstated. You have to learn how to manage money before you can earn (or save!) it. A budget can track cash on hand, expenses, and how much revenue you need to make your business profitable.

Your small business budget doesn’t have to be anything fancy. It can be scratched out on paper with a pencil, laid out in a spreadsheet, or created using business accounting software, like Quickbooks. Set budgets for a determined amount of time such as, monthly, quarterly or annually. It’s best to create a budget for each of those time periods. Then you can compare your actual and forecasted expenses.

How to Set Up a Small Business Budget

Spreadsheets can really help you tackle your small business budget. As you create your spreadsheet, you’ll want to begin with your fixed expenses. These will include rent, loan payments, subscription costs, and the like. Next are your variable expenses which would include things like utilities, supplies, and labor.

Set a Budget

You can determine your budgeted expenses by averaging past expenses in each category. These expenses will likely change from month to month as different needs for your business arise. If you are just starting out and don’t have any numbers to work with, you can research the costs associated with your industry. Determine the averages based on your research, and then factor those into your small business accounting.

Forecast your monthly revenue and place it in a subheading titled budgeted income. Then, at the end of the month you can enter your actual expenses and actual income. You can then compare your budget with your actual numbers.

Analyze your Budget

Off to the side of the budget income and actual income you’ll need to determine the difference. This is the number you’ll want to reflect on at the end of each month. It is important to determine why your budgeted and actual expenses and income don’t match. Then you should make changes in next month’s small business budget to decrease the difference. By determining the reason for the difference, you can either identify potential problems. Which will help you fix it, or capitalize on a potential opportunity you had not noticed.

Entrepreneurs are capable of creating and maintaining a small business budget. However, it’s best to consult a professional CPA or financial advisor to cover all of your bases. A CPA can factor in any important legal and financial obligations you may have with the IRS.

Having a small business budget can help your business in numerous ways. You can improve business operations, create accurate estimations and effectively manage your profits. All of which lead to a more successful business and life.

FAQs for Small Business Budgeting:

Why is a small business budget important?

A budget helps track cash flow, expenses, and revenue, crucial for business profitability and financial health.

What tools can I use to create a small business budget?

You can use spreadsheets, business accounting software like Quickbooks, or even pen and paper to draft your budget.

How do I set up a small business budget using spreadsheets?

Start with fixed expenses like rent and loan payments, then list variable expenses such as utilities and supplies.

How do I determine budgeted expenses if I’m just starting out?

Research industry costs to estimate averages for your expenses. Adjust as needed based on your business’s specific needs.

Why is it important to analyze budget variances?

Analyzing differences between budgeted and actual expenses/income helps identify potential problems or opportunities for improvement.

How to Get a Tax ID Number From the IRS For Your Small Business

Any new entrepreneur quickly realizes there is a lot to do to get your business up and going. Between websites and marketing, business licenses and bank accounts, there’s not a lot of time to focus on the tax aspect of your business until…well, tax time. When starting a small business, you’ll need to obtain a Federal Tax ID number from the IRS in order to file taxes and have your business be recognized. This is also referred to as EIN, or Employee Identification Number. Here’s how to get one:

Apply Online. The quickest and easiest way to obtain an EIN is through the IRS website. You must complete the application all at once because you can’t save it and return later. Have your Social Security Number handy, as well as your business information. Apply for your EIN online here.

Apply by Mail. A mail application for an EIN generally takes about four weeks to be processed. You’ll need to send a Form SS-4 as your application. See where to send your application to here.

Apply by Fax. Complete the SS-4 and send to the appropriate fax number found here. The turnaround time for an EIN application through fax is about four business days.

Apply by Telephone. This method is for international applicants only. International applicants may call 267-941-1099 (not a toll-free number) 6:00 a.m. to 11:00 p.m. (Eastern Time) Monday through Friday to obtain their EIN. The person applying for the EIN by telephone must have all information pertaining to the SS-4.

Other Important EIN Information

In order to obtain an EIN, your business must be located in the United States.
Only one EIN can be granted per eligible person per day
If you have misplaced your EIN, do not apply for a new one. Find out what to do if you’ve lost your EIN here.
For more information on obtaining an EIN, visit the IRS website.

Have a question about obtaining your Tax ID number from the IRS? Give us a call, we can help!

Frequently Asked Questions:

Why do I need a Tax ID number (EIN) for my small business?

A Tax ID number, also known as an EIN, is essential for filing taxes and establishing your business’s identity with the IRS.

What information do I need to apply for an EIN online?

To apply online, you’ll need your Social Security Number and your business information readily available.

How long does it take to get an EIN through the mail?

Generally, it takes about four weeks for the IRS to process a mail application for an EIN using Form SS-4.

Can I apply for an EIN by fax?

Yes, you can apply for an EIN by fax using Form SS-4. The turnaround time for fax applications is approximately four business days.

What should I do if I’ve lost my EIN?

If you’ve misplaced your EIN, do not apply for a new one. Instead, follow the appropriate steps outlined by the IRS to retrieve your lost EIN.

3 Tips on Tracking Mileage and Deducting Vehicle Expenses for Small Business Owners

Tracking mileage and vehicle expenses is not normally at the top of a small business owner’s to-do list. In fact, the job often gets lost in the day-to-day hustle and bustle of running a successful business. So how do you keep track now so you don’t have to panic come tax season?

1. Keep track of miles driven for business. If you track nothing else vehicle-related for the rest of the year, tracking mileage is the most important task. You cannot deduct vehicle expenses if you don’t know how many miles you’ve driven. The IRS wants to know the total number of miles you drove for your business in a given year in order for you to claim the Standard Mileage Rate. Your commute to and from the office is not deductible; however, almost all other business travel is. The most accurate records are those that are calculated the day you traveled for business or shortly after. While a paper and pencil mileage log works just as well as anything, there are several ways to utilize technology to keep track. Logging the miles on your GPS may provide you with the most accurate record without much maintenance. Apps like Mileage Log+ or Everlance automatically calculate your distances by entering where you’re leaving from and where you’re going.
2. Calculate all vehicle expenses.This may sound like a daunting task, but if you travel a lot for your small business, it’s not a bad idea. Keep a notebook in your car where you jot down miles driven, gas and oil changes, tire rotations, car washes, parking fees, registration and license fees, insurance payments, lease payments, repairs, and maintenance. Keep your receipts for these expenses as well. You may opt to use the Standard Mileage Rate come tax season, but it doesn’t hurt to have all records of vehicle expenses so you can compare the two methods and see which will offer the greatest deduction.
3. Use the Standard Mileage Rate. Rather than adding up all business-related vehicle expenses in a year, the IRS offers the Standard Mileage Rate which provides a 57.5 cent deduction (2015) for every mile driven for business in a year. To figure your standard mileage rate, simply take the number of miles driven total and multiply it by the current standard mileage rate (which changes every year). Most small business owners opt for this quick and easy method and even end up getting a larger deduction by going this route.

But what if I haven’t been tracking mileage or vehicle expenses?

You’re not completely out of luck if you haven’t been tracking mileage this year. While the IRS does not prefer reconstructed records after the fact, if you can prove you drove to where you said you drove, you can still deduct your mileage. If you maintain a calendar, appointment book, or planner, you can go back through your records and calculate your mileage based on the appointments you attended and the miles you drove. You will only need proof of records if you were to be audited by the IRS, which is a small risk, but still a possibility.

Small Business Owner’s Guide to Year-End Employee Bonuses & Holiday Gifts: Part 1

There is no one right way to show gratitude for your employees during the holiday season, other than to not show it at all. If you were to ask 20 small business owners what they do for their employees as a year-end reward, you’re likely to get 20 different answers. Many offer a cash bonus, some take the team to a nice dinner, some give individualized holiday gifts, and others throw a party for employees and their families. Small business owners can make their employees feel valued and appreciated, even on the smallest budget.

3 Ways to Give Year-End Employee Bonuses

If you’re planning to offer a cash bonus to employees, there are a few ways you can go about it. Here are three types of year-end cash bonuses to consider for your small business:

Performance Bonuses. Many employers are turning to performance-based bonuses to save themselves money and keep employees from expecting a given amount at the end of the year. The best way to do this is to give each employee individual goals to work toward at the beginning of the year, and then evaluate their performance based on those goals and other factors at the end of year. Goals may need to be adjusting quarterly, according to the employee’s progress. Scheduling a year-end interview with each employee will help you evaluate their performance and decide on an amount that works for you. This may end up being a percentage of their salary, or perhaps a flat dollar amount that is contingent upon them reaching their goals. This will motivate employees to work hard and give them some incentive to carry out their goals to the end of the year. This method can reduce hurt feelings if the bonuses are not even because employees know up-front how the amount is decided.

Non-performance bonuses. Some small business owners prefer to award year-end cash bonuses just to show their appreciation, without basing them on performance. Non-performance cash bonuses can also be a portion of the employee’s salary or a flat dollar amount. With non-performance bonuses, you’ll just need to make sure that everyone gets a fairly distributed amount to avoid contention and hurt feelings among employees who may not have been awarded as much.

Longevity bonuses. U.S. Bureau of Labor Statistics, people 35 years and younger change jobs every 18 months, and people of all age groups do so every three years, which motivates some companies to offer employees an incentive to stay put. Many employers offer bonuses for employees who have been with their 5, 10, 15, or 20 years, with a set amount for each milestone of employment. This can end up being less or more expensive for employers at the end of the year, based on how many awards must be given out and the years of service being rewarded. However, with this method, not everyone will get a bonus every year.

A Few Tips on Giving Year-End Employee Bonuses

Before you let yourself get overwhelmed with which type of bonus to offer, consider if offering a cash bonus is even in your accounting budget this year. If it’s not, choose another way to reward employees for a job well done. Many small business owners change their year-end bonus policy every year, based on the profits of the company during that year–and that’s completely fine. If your accounting and small business bookkeeping is up-to-date, you’ll likely have an easier time deciding how much to give.

If your company offers employee bonuses every year, but is unable to this year, be sure to let employees know as soon as possible so they don’t feel start prepping for their backyard swimming pool, like Clark Griswold in National Lampoon’s Christmas Vacation.

Be as fair as possible. While the actual dollar amount doesn’t have to be the same for each employee, bonuses do need to be distributed evenly and fairly. Make sure all employees are recognized during the holiday season–not just some. Bonuses should be consistent and unbiased.

FAQs about Year-End Employee Bonuses & Holiday Gifts:

What are common methods for giving year-end cash bonuses?
Employers often opt for performance-based bonuses, non-performance bonuses, or longevity bonuses to reward employees at year-end.
How do performance-based bonuses work?
Employees are given individual goals to achieve throughout the year. Their performance is evaluated against these goals, determining the bonus amount.
What are non-performance bonuses?
Non-performance bonuses are awarded without specific performance criteria. They can be a portion of the employee’s salary or a flat amount distributed evenly among employees.
What are longevity bonuses and how are they earned?
Longevity bonuses reward employees for their tenure with the company, typically after 5, 10, 15, or 20 years of service. The amount varies based on the milestone reached.
How should employers approach year-end bonuses when faced with budget constraints?
Employers should assess their financial situation and consider alternative forms of recognition if cash bonuses are not feasible. Transparency and communication about bonus policies are essential to managing expectations effectively.

The Business Standard Mileage Rate and How Do I Use it for My Small Business?

If you own a small business, you’ve likely heard the term “Standard Mileage Rate.” Some business owners spend a great deal of time behind the wheel, logging up to 20,000 miles in a year. Most of the time, they’re using their personal vehicle for business travel which can end up being quite expensive. The IRS has provided a Standard Mileage Rate to ensure those miles driven for business are tax deductible.

Here’s how it works:

Standard Mileage Rate Explained

Rather than adding up every mile driven, gas tank filled, oil changed, car wash and window cleaning, tire rotation, and other vehicle expenses in a year, the IRS offers the Standard Mileage Rate which provides a 57.5 cent deduction (2015) for every mile driven for business in a year. That way, business owners only have to track miles driven, and not every other cent they spend on their car. To figure a standard mileage rate, simply take the number of miles driven and multiply it by the current standard mileage rate (which changes every year).

Example: Jenny, a realtor, drove his car 15,000 miles for business during 2015. To determine her car expense deduction, she simply multiplies her business miles by the applicable standard mileage rate of 57.5 cents per mile. This gives her a total deduction for the year of $8,625 (.575 × 15,000 = $8,625).

Standard Mileage Rate vs. Actual Expense Method

Most business owners find it quicker, more efficient, and financially advantageous to use the Standard Mileage Rate. However, it doesn’t hurt to keep track of receipts and expenses and see which method gives them a better deduction for the year.

To use the actual expense method, a small business owner must keep track of every purchase made for their vehicle. These expenses include:

gas and oil
repairs and maintenance
depreciation of your original vehicle and improvements
car repair tools
license fees
parking fees for business trips
registration fees
tires
a portion of insurance premiums
car washing
a portion of lease payments

The Actual Expense Method can offer a larger deduction at the end of the year, but it require diligent and meticulous record keeping.

Which method is better?

Determining which method is better for a small business owner requires calculating both ways to see which offers the bigger deduction. Keep in mind that smaller cars usually get better gas mileage and may not require as much as maintenance as larger vehicles. In this case, the Standard Mileage Rate is almost always the better option. After you calculate both ways for the first year of using your vehicle for business, you’ll likely stick with the same method year after year. However, you are allowed to switch back and forth between the methods from year to year, but with some restrictions. Ultimately, most small business owners elect to use the Standard Mileage Rate, but both are important in tracking business expenses and deductions.

Vyde’s Year-End Business Accounting Checklist

As December approaches, it’s time to start thinking about your small business bookkeeping and closing out the year for your small business. While that may sound like an overwhelming feat to accomplish in addition to a busy holiday season, we’ve made the accounting part easy with our quick, printable year-end business accounting checklist. Click here to download.

FAQ – What If I do Business Outside of My Home Office?

If you read our last post, you know that in order for a home office to be claimed on taxes, it must be used exclusively and regularly for business use. However, that doesn’t mean it has to be the one and only place you do business. Here’s how to keep your home office status as an entrepreneur and still be able to conduct business where you need to.

You can still claim a home office if any of the following apply:

Other people conduct administrative or management activities for your business at their business location. Ex: Your accountant does your small business bookkeeping from their office.
You conduct administrative or management activities at places that aren’t fixed locations of the business, like in a car or a hotel room.
You conduct a substantial amount of these non-administrative and non-management business activities at a fixed location outside your home, like meeting clients for lunch or traveling to conferences.
You have suitable space to conduct administrative or management activities outside your home, like at your regular business office. However, you choose to use the home office for those activities.

If you own multiple businesses and work on them both at home AND at an office:

Follow IRS guidelines to find out if your home office is the principal place of business for each. It might be for one and not the other.
A home office might be the main place of business for more than one activity. However, each activity you conducted in the office must meet all requirements for the deduction. Otherwise, you won’t meet the exclusive-use test for any activity.

Essentially, your home office doesn’t have to be the only place you do business. Your daily business activities as an entrepreneur will undoubtedly take you further than the walls of your home. However, the regular and exclusive use guidelines are most important when determining if your home office is tax deductible.

Vyde’s Updated Holiday Gift Giving Guide for Small Businesses and Entrepreneurs

The holiday season is the perfect time to show your clients and employees just how much you appreciate them. However, figuring out what to give, when to give it, and what’s tax deductible can be a daunting task. Vyde has made it easy with our comprehensive, deductible-focused Business Holiday Gift Giving Guide.

To get the most bang for your buck, you’ll want to give gifts that are tax deductible. While the IRS doesn’t list specific client gifts that you can or cannot deduct, there are limits on how much you can deduct for each client receiving gifts from you. So how do you know what is tax deductible when purchasing a holiday gift to a client or employee?

Purchasing Business Gifts that are Tax Deductible

Currently, the limit is $25 per recipient per year. There is no limit on how many people you can give business gifts to in a year, but the deductible portion for each recipient is $25. That means if you splurge on a $50 gift basket, only half of that amount is actually deductible. If you’ve already sent your clients a gift this year, be mindful of that running total and the $25 yearly limit.

The actual gift isn’t the only tax deductible portion of business holiday gift giving. Wrapping paper, cards, scissors, tape, ribbons and bows are all tax deductible so fancy it up before shipping it out! And when you get to that mile-long post office line this December, keep your receipts because shipping and stamps are deductible as well. These costs are an addition to the $25 per recipient limit, so the actual gift itself can be valued at $25 and these expenses are still deductible.

If the $25 limit feels restrictive to you, there is a way that can help you deduct even more—and probably cut your work in half, too. According to the IRS, if you give a gift of “entertainment,” you can deduct 50% of the cost.

Examples of entertainment gifts are concert tickets, sporting event tickets, movie passes, restaurant gift cards, vacations, hotel stays, etc. Clearly that $25 limit per recipient can quickly be surpassed in these categories, so your deductions may actually be greater than $25 each if you spend $50 or more. Your clients are sure to love the gift of entertainment and you won’t have to bother with the ribbons and bows. In fact, most of this shopping can be done online and sent to your client electronically.

Who to Send Business Gifts to this Holiday Season

Start making a list of those you’d like to give a holiday gift from your business this year and your list may be as long as Santa’s in no time. Here’s a little tip: focus your holiday gift giving on the people who make your company great.

Your business certainly wouldn’t be what it is without the people who support it–your clients. And if you’re not a one-man band, don’t forget about your employees either. Both of these lists of people are essential on your business holiday gift giving list. Other people you may consider sending business gifts to may include some service providers, potential clients, resources, consultants, contract workers, guest speakers, or those who have referred clients to you.

When it comes to client gift giving, things get complicated in a hurry. Maybe you have a lot of clients who pay only a small amount of money to your business each year. In this case, you’ll want to give smaller, more general items as gifts to your clients. That doesn’t mean a pen and notepad with your logo on it, or something cheap bought in bulk from Oriental Trading. This isn’t about promoting your business, it’s about strengthening that relationship you’ve worked so hard to form. Even if you’re on a tight budget for a lot of people, you can still send a thoughtful, meaningful gift.

If you’ve got too many clients to manage individualized gifts and would rather not send an actual item (inexpensive or not), a handwritten card is a genuine gift that shows your client that you care about them as an individual. Think about the message you want to convey, make it personal, express your gratitude, and hand write it. A personal message directly from you to a client occupies a larger space in their mind than a plastic yo-yo with your company name on it.

Or perhaps you have only a few clients with large accounts. In this case, you may want to invest more money in holiday gifts that show you care and value the business relationship you’ve formed.

Regardless of your situation, cost is undoubtedly on the forefront of your mind when it comes to gift giving. We’ve compiled a list of ideas, categorized by cost, to get you thinking.

Holiday Gift Giving Ideas for Clients and Employees

Gifts Under $15

Candy, such as a small box of chocolates, peanut brittle, gourmet butterscotch hard candies, or fudge
Refillable water bottle or insulated mug
Page-a-day desk calendar
Your favorite business book
A small bouquet of flowers or holiday arrangement, hand-delivered (maybe even handmade!)
A desk toy such as a kinetic motion toy or a clock
A small potted plant
A gift certificate to a local ice cream or cupcake shop
Electronic cleaning kit, complete with microfiber cloth and cleaning spray

Gifts under $25

Small meat and cheese tray with fine mustard or dipping sauce
A set of personalized stationery
Amazon gift card
Gourmet cookies
A subscription to a business magazine or website that interests them
iPad case or cover
Engraved and/or personalized pen
Movie tickets
A gift certificate to their favorite restaurant

Gifts under $50

Digital photo frame
Large box of chocolates (suitable for office sharing)
Carry-on bag for business trips
Sporting event ticket(s)
A gourmet food basket
A messenger or laptop bag
Wrist or clip-on fitness tracker/activity monitor

Entertainment Gift Ideas

These gifts can actually be deducted 50% no matter the cost, rather than the $25 per recipient limit.

Sporting event tickets
Theme park tickets
Restaurant gift cards
Movie tickets
Vacations/hotel stays
Ski lift tickets
Golf cart / green fee passes
Play/show tickets
Concert tickets

Keep in mind that not all holiday business gifts are created equal. You don’t have to give your $100 a month client the same gift you give your $1,000 a month client. It’s ok to send some clients cards and others more expensive gifts. Select a price range that feels right to you based on your relationship with each recipient and go from there.

The Do’s and Dont’s of Business Holiday Gift Giving

DO:

-Give. Don’t promote. You have all year to promote your business; allow the holidays to be a time to focus on your clients and let them know you’re grateful for them.

-Send a card. A handwritten card or personal email can be meaningful and memorable. Gift giving has lost its personal touch over the years and your client will love getting a special note from yours truly, with or without a gift.

-Keep an ongoing list of employees, clients, service providers, and others who make your business great throughout the year. The holidays are a busy time of year, making it easy to forget someone. Keeping a list throughout the year will ease your holiday stress and keep you from overspending at the last minute.

-Set a budget. Not all client gifts are equal, but you do need to have a budget in place before you start shopping.

-Check into a company’s gift giving and receiving policy before shipping your presents. The larger the company, the more likely a specific policy is in place. You don’t want to spend unnecessary cash on a contact who is not allowed to accept your gesture.

DON’T:

-Don’t wait until the last minute. Keep in mind many people take a lengthy break from work to travel during the Christmas season, so sending a gift to a client’s office on December 23^rd may not work. Try to have your gifts sent out early in December to ensure on-time delivery.

-Don’t feel pressure to run out and buy a nice gift for everyone who sends you one. This is a quick way to go over budget and is not always necessary. Be sure to send a nice thank you card expressing your gratitude or a holiday card, and add that person to the list for the next year, if need be.

-Don’t send gifts that are too personal or religious. Keep it professional in the work place and avoid gifts like clothing, perfume, and other items people have personal (and sometimes very strong) opinions about.

-Don’t be a brown-noser. Give gifts because you’re grateful and keep it at that. Don’t try to out-do another employee or company, just give from the heart.

Regardless of what you actually send, clients and employees are sure to appreciate a genuine gesture that shows your gratitude for their business and service throughout the year. When in doubt when it comes to holiday gift giving, keep it simple and track expenses closely.

Top 20 Accounting Tips for Insurance Agents

As an insurance agent, there is no one who understands the importance of protecting your assets better than you. You’ve got your clients covered when it comes to their vehicles, home, business, assets, family members, and every other important aspect of their life. Why not do the same for your insurance agency? Proper accounting and bookkeeping practices help protect your business from potential disaster by ensuring your finances are always in order, no matter what comes your way.

Top 20 Accounting Tips for Insurance Agents to Protect Your Business and Keep It Running Smoothly

1. Find an efficient way to track income and expenses. The first accounting tips for insurance agents is to keep track of money coming in and money going out. It is important to track expenses as they really are and not how you want them to be. Having an efficient system for tracking expenses and income is the only way to know how your business is performing financially.
2. Create a budget and stick to it. Categorize and track all expenses for your insurance agency. Your budget should include monthly expenses for different aspects of your business such as payroll, marketing, utilities, office rent, office supplies, business meals, and vehicle expenses.
3. Separate business and personal expenses. One of the first orders of business for insurance agents should be to set up a business bank account and use it for all business expenses. That way, when tax time comes you will only have to review your business account bank statements for deductions and expenses, rather than reviewing your personal account and trying to remember which expenses were for your insurance agency.
4. Set aside time for business bookkeeping and accounting. If you prefer to do business bookkeeping yourself, try set aside at least one hour each week to pay bills and update your income and expenses.
5. Don’t miss out on deductions, big or small. Noting even the smallest tax deduction can add up over the course of a year and really help out during tax season. Any money spent on improving or maintaining your business is tax deductible, as long as the expense is ordinary and necessary. Visit our previous posts on business deductions here, here, and here.
6. Create a home office. If you use part of your home to conduct insurance business, you may be able to claim a home office deduction. The IRS requires that the space designated as your “home office” must be used regularly and exclusively for your insurance agency business.
7. Track vehicle expenses. While you can’t deduct your drive to and from the office, all the other driving you do for your insurance agency is deductible, like driving to see clients or taking the office staff to lunch. Make sure to keep an accurate log of all miles driven for business.
8. Pay close attention to important tax deadlines. The most important tax deadlines to be aware of for insurance agents are Estimated Quarterly Taxes, which are due four times each year.
9. Outsource payroll. Most insurance agents start out doing their payroll in-house; however, when your insurance agency reaches a certain point of growth, you may find the time and effort put into payroll isn’t worth the cost anymore. Outsourcing payroll frees up your time and provides access to the knowledge and expertise of professional accountants, who are less likely to make mistakes while processing payroll.
10. Choose benefits wisely. The most sought-after benefit for employees is health insurance, followed by retirement, life insurance, and paid leave. Employees also appreciate extra perks like wellness programs, gym memberships, and child care assistance.
11. File taxes early to prevent fraud. Not only does it relieve your stress, to get taxes done early, it reduces the risk of identity theft.
12. File a tax extension when you need to. Here’s how.
13. Employ your children. Whether they’re cleaning your insurance office or answering the phone, their wages are tax deductible and they can be a big help to your business. Teaching them work ethic at a young age is an added bonus, right?
14. Invest money wisely in your business. Don’t spend money carelessly, even if you feel like you can afford it. Make business purchases wisely and invest in the aspects of your business that will provide you with the most profit long-term.
15. Set your salary. Decide on a monthly amount or percentage of profit from your insurance agency for your take-home pay. For tips on setting your own salary as a business owner, visit this post here.
16. Develop an exit strategy for your insurance agency. If you’ve partnered with another insurance agent, an exit strategy helps keep the relationship professional and is an added security for the business. Make the tough decisions about how your partnership could potentially end now, rather than when things may be tough down the road.
17. Develop a succession plan for your business. Additionally, setting a plan of who will eventually take on more business responsibilities within your insurance agency helps keep things on track.
18. Save money where you can, but don’t cut corners.
19. Utilize technology. Stay up to date on the latest accounting software for your industry, in addition to utilizing tools like smart phones and tablets to track expenses.
20. Hire a professional accountant. Mazuma accountants can take care of all the taxes, catch-up bookkeeping, and accounting for your insurance agency for less than $100/month. It only takes ten minutes to upload your information monthly or stuff your Purple Vyde Envelope with receipts and invoices and send it off to Vyde accountants who take your financial records and turn them into neat and tidy profit/loss statements.

Protect your business finances like you protect your insurance clients and you’ll be prepared for any unexpected financial crisis that comes your way.

FAQs for Insurance Agents Regarding Accounting Practices

1. How does efficient tracking of income and expenses benefit my insurance agency?

Efficient tracking offers clear insights into financial performance, aiding informed decisions and ensuring accurate financial assessments.

2. Is it mandatory to set up a separate business bank account for an insurance agency?

Establishing a separate business account simplifies tax processes, enabling easy identification of business-related expenses during tax assessments.

3. Why consider outsourcing payroll for an insurance agency? Outsourcing payroll, especially with business growth, saves time and minimizes errors. Professional accountants handle complexities more efficiently.

4. What’s the significance of filing taxes early and considering tax extensions?

Early tax filing reduces stress and minimizes identity theft risks. Tax extensions offer flexibility, ensuring accurate filings without unnecessary rush.

5. How can utilizing technology benefit insurance agency accounting?

Adopting updated accounting software and tech tools streamlines expense tracking, enhancing accuracy and efficiency in managing financial records.

Resources

Category: Business Taxes