Best Business Practices for Photographers [97]
Further, if your business is incorporated as an LLC or LLP, your accounting will require separate cards. In some cases, you'll be able to get a credit card with your name, the business' name underneath it, and your business' federal ID number (which is your business' "social security number"), so that should your business go deeper into debt or carry balances, there will be a limited effect on your personal credit. This is not a way to avoid or work around repaying your debts; rather, it is a method to properly allocate liabilities and credit lines to your business.
A note about your federal ID number, also called your EIN or Employer Identification Number—you should have one. They're free, and you can apply online (via IRS form SS-4) at:
https://sa.www4.irs.gov/sa_vign/newFormSS4.do
More information about EINs can be found at:
http://www.irs.gov/businesses/small/article/0,,id=102767,00.html
Part of the application process—for sole proprietors (like me)—requires you to submit your social security number, so the IRS has a cross-reference between you (personally) and your business.
Managing Credit Card Charges: Categorizing Expenses and Integrating with Your Accounting Software
Now, when you have a credit card bill for $3,456.24, you write a check for that amount, but how do you accurately allocate that single expense to the proper categories in your accounting software? You can't just call it "office expense" and be done with it. Expenses such as dining/entertainment are deducted differently than a gift for a client, flowers for a client or business-related person, large equipment purchases that may need to be amortized, office supplies, and the like. Here's how I do it.
Every month I get a statement, and I go through it, classifying every expense by its expense type. I created the Statement Breakdown form in Figure 11.10. Suppose, for example, that there are six charges for gas. A handwritten notation next to each charge on the statement is made with the Legend item C, and they are totaled and entered into the third line of the form: Auto-Gas (200-02). This continues for the entire statement. The most common categories are on the form and corresponding legend, but there's room for the occasional odd charge under Other.
Lastly, I ensure that the total in the Statement Total field matches the actual statement total from the credit card receipt. On the rare occasions when there is a personal charge on my business card, that total amount is listed in the Draw Total field, and then the final business total is entered in the Business Total field.
The Payment Breakdown form shown in Figure 11.11 is identical to the Statement Breakdown form. Each payment is broken down and paid against the statement from the previous month, except when I am paying for a carried-over balance from months prior. Figure 11.11 shows a simplified example.
Figure 11.10
Statement Breakdown form.
Figure 11.11
Payment Breakdown form.
Suppose that in March, I charge $300 on my credit card. Two-hundred dollars of that was for office equipment (a printer), and $100 of that was for education (a seminar on lighting). That Statement Breakdown would have just those two totals in the Amount column on the form.
When I receive my March statement in April (mine closes around April 6 for all March charges, and it comes in the mail around April 9), I want to pay the $300 in full, which I do. I then complete the Payment Breakdown form, indicating which card I used, the date of the payment, and a reminder to myself about whether this was a payment of the entire balance. (More on that in a moment.) This payment, made in April—say, on April 21—will appear on my April statement, which I will receive on or about May 9, having closed on or about May 6. I will attach the Payment Breakdown for $300 to the month on which the payment appears—in this case, on the April statement that I received in May. This validates that the payment has been made, as well as when it was made, and then outlines the categories to which the payment