It’s essential to separate business expenses from personal expenses. If your business is a sole proprietorship, it is considered unincorporated business with no legal distinction between it and you, its only owner. Through the sole proprietorship, all profits, losses and liabilities are tied to you personally. Therefore is important for a sole proprietor to keep business and personal finances separate.
Unfortunately the IRS loves auditing On-Demand workers. You will always have the burden of proof to disclose your business expenses and income. Therefore, it is important to keep good records and use a financial financial institution that makes records easy to access. (If you still write checks, for example, pick a bank that has images of these readily available)
Here are a few tips to do this:
- Have a separate bank account for business expenses (that means having separate check book and also having all direct deposits go directly into that account)
- Track income from your various sources separately (SherpaShare surveyed 963 respondents, and found that 90 percent of them drove for #Lyft, Uber or both. Nearly one in five surveyed say they work for at least one other service in addition to Lyft and Uber, with most common being Postmates, Sidecar, Instacart and DoorDash).
- Designate one of your credit cards only for business expenses
- Leverage PayPal for paying people you outsource tasks too or any payments you need to make
- Think taxes first (before even thinking about how much to pay yourself); Self-employed people also must make estimated tax payments on a quarterly basis
- Think in percentages; the way you manage your money should be looked at from a percentage point of view – for both money coming in and going out. If you’re putting 30% away for taxes and 10% away for retirement, stick to those numbers whether you get a $10,000 check or a $50 one.
- Start putting money away for retirement
- Set aside rainy day / emergency funds
A word about your bank account:
- Make sure the cash sitting in the bank is earning the highest interest
- Make sure to pay yourself, pay business expenses and set aside funds for taxes, retirement and emergencies.
- Find out whether your bank can make prompt decisions, or has to check with the home office
- Look into special services, but be aware of added fees
- View your bank as a long-term partner (Even if you are just a 1099)
Low Cost Bank Accounts:
- BankRate.com: Provides recommendations
- Ally.com: Low Cost Bank with no minimum requirement
- GE Capital Bank (Who knew the big guys would help the little guy)
- American Express Personal Savings
- Home Capital One
- Bill our clients every two months (don’t wait 30 days) so you have a better cash flow
- Set up key milestones in case there is a dispute with a client
- Think about your cash flow all the time
- Think about how much money you will need in 6, 12 and 18 months
- Review Bank’s various services (even PayPal is adding more services all the time).