Account type to isolate some transactions

[jdebert]

Charles Gagnon wrote:
> Setting up a small homebased business that will not have it's own
> Bank accounts just yet. I would a way to isolate the cash, expenses
> and income accounts for this entity. Let me know if you think this
> makes sense:
> 

Of course, it makes sense.

But it is a really bad idea.

You must keep business and personal funds separate, in separate bank 
accounts. Accordingly, separate books must be kept.

Commingling funds is a guaranteed way to get into all kinds of trouble. 
Not just tax trouble.

The IRS will penalise you for commingling funds when they find out. They 
may disallow many if not all business deductions just because of this.

Creditors don't like it when personal and business funds are commingled. 
  It is regarded as worse than the worst credit rating.

A Schedule C business, which is the self-employed and sole proprietor, 
is the most likely to be audited. The IRS believes that sole proprietors 
are the most likely of anyone to commit tax fraud.

You can read all about this and other risks in a good small business book.

GO the a library or bookstore and get some books on starting your own 
business and on basic bookkeeping and recordkeeping.

I can recommend two:

1.  Start Your Own Business  by Rieva Lesonsky
       Starting a business, general information on different types of
       businesses, tax information, business resources.
     ISBN   1-932156-65-8
     Dewey  658'.041--de22
     NUC    HD62.5 .E559 2004

2.  Keeping The Books    by Linda Pinson
      Small business bookkeeping
     ISBN   0-7931-7929-7 (paperback)
     Dewey  657'.2--dc22
     NUC    HF5635.P649 2004


There are other books, like the *-for-Dummies series. Borders and 
Barnes/Noble have fairly large sections for business subjects.

Take courses geared toward small businesses about accounting, law, etc., 
at the local college or check with the Small Business Administration 
about classes and seminars.

Hiring a bookkeeper would be a good idea, even if it's only for a couple 
of hours a month. Then you won't have to try to wrap your head around it 
and you'll have the time otherwise spent in the books free to pursue 
business.

It would be a good idea to consult an accountant, a tax attorney and an 
attorney, too. This can save you some real serious money and time. BTW, 
if any of them say to you, "You Can't Do That!" then find someone else. 
They should advise, not decree.

-- 
=-=
jd

i is a by-product of public education.