Even though you may have had your business for a few years and it is profitable, it can still come up against IRS scrutiny if you haven't laid the proper foundation. There are several things you can do to create a solid foundation and legitimize your business in the eyes of the IRS.
1. Register with the Secretary of State.
By registering with the Secretary of State, you officially claim your business name. You also elect your business structure (LLC, LLP, Non-Profit, or Corporation). There is a fee of $125 but it is well worth it as it shows you are serious about your business. This is super easy and you can do this without leaving your desk. Click here to get started.
2. Get an Employer Identification Number (EIN) from the IRS.
Many businesses use their social security number to do official company business. This is completely ok, but with an EIN number, your business definitely appears more legitimate. Plus, with the surge in identity theft, using an EIN is far more secure than using your social security number. This is completely FREE. Click here to get started.
3. Get a Business License.
This is perhaps the best way to show that your business is on the up and up. Many cities and counties require you to get a business license if you do business within their parameters. It isn’t cut and dry whether you should register with the City, County of both. But I suggest you get started with the County. Business license fees are generally based on revenue and must be renewed each year. So that means the more profitable your business is, the more you have to pay. That’s fair, right? Click here to get started in Richland County, SC.
4. Get a Business Checking Account.
One way the IRS determines that your business is legitimate is how you manage your business finances. Having a dedicated checking account for your business allows you to keep business expenses and income separate from your personal income and bills. This doesn’t mean that you can’t use money from your business to pay personal expenses. Of course you can… that’s the purpose of working, right? Just make sure you transfer the funds to your personal account and notate it accordingly. Need a couple of options? Here you go!
5. Keep Good Records.
Whether you use a spreadsheet or QuickBooks doesn’t matter to me or the IRS. But if you are audited, you should be able to show a systematic way of tracking your income and expenses. Oh yeah. Receipts are pretty important too. After all, you need to be able to show what that $1250 write-off was for. Click here to check out QuickBooks. Want to go old school? Click here to download a spreadsheet I share with my clients.