I'm a single person running a small home based business. It is not incorporated and is a sole proprietorship. I use money from the business to pay for expenses and sometimes my own money when the business doesn't have enough. I do have seperate personal and business accounts.
I take a percentage of my rent as a business expense. I enter this percentage as a bill. How exactly do I pay this bill? The company is more or less going to pay me since I have already paid rent from my personal account.
As a Sole Proprietor there really isn't any difference between "your" money and the "business" money. That is why you file only one tax return, with Schedules C and SE attached, and why Sole Proprietorships don't provide any protection for your personal assets
- they are one in the same. Have you ever considered becoming a single-person LLC?
-- Vic Roberts Replace xxx with vdr in e-mail address.
See Victors post. The home office deduction is taken on the owners personal
1040 tax return using a special form just for that purpose. Paying oneself rent has no meaning and is a waste of time. The owner pays the actual rent out of the funds he takes out of draw. Life is far to short to be spent on needless complexity where there should be none.
I always thought the LLC was more time and trouble than it was worth for one person. This is a small business with very little income. Any general comments on if it is really necessary?
I know it all goes in & comes out of the same pot but the OP has separate accounts. I wasn't giving him accounting advice but bookkeeping advice. He needs to know how to move money if he's going to maintain that separate account. FWIW there are some banks out there who make it very difficult to run a sole proprietorship out of your personal checking. I've had two banks try to force people (myself & one of my clients) into opening a business checking account in order to deposit any checks for business related activities, even checks made out to Tara Osment dba XYZ.
Yes you were and bad advice at that. Your beating a dead horse. He can have two accounts or two thousand, it does not matter. You don't pay yourself rent.
So what is your suggestion on how the bill is paid? I understand the draw, which gives me money from the business to pay the business' portion of the bill. How exactly does the business pay the bill?
Just to clarify, I know you aren't giving me tax advice.
The draw is money you take out of the business so you can live.
Step 1. Business makes money Step 2. You take money out of business. Step 3. You pay your rent so you do not have to sleep in the streets. Step 4. Find a professional to help you with your taxes.
Well, I'm just repeating myself here, but a Sole Proprietorship does not provide ANY protection for your personal assets. If the business is the subject of a lawsuit, all your personal assets are at stake. That is the main reason why I switched from a Sole Proprietorship to a C Corporation.
If you organize as an LLC, S-Corporation or C-Corporation, then the business is a separate entity. Having said that, I don't have any experience with a single-person LLC other than knowing that it can be treated as a Sole Proprietorship for tax reporting purposes. Are single-person LLCs really that much different than a normal LLC, which does provide protection of personal assets?
My business is organized as a C Corporation, even though I have only one employee, me. The C Corp is an entirely separate entity, which protects my personal assets, and it also provides certain benefits to officers (me) that are not available to officers of S Corps. Most people would not need these benefits and would be better off as an S Corp, but I have an unusual family situation, so the C Corp works out better than an S Corp.
-- Vic Roberts Replace xxx with vdr in e-mail address.
Make a journal debiting 'Rent' account and crediting 'Owners Equity' account. If the business pays you back then in the 'Write Checks' window select 'Owners Equity' account in the 'Account Column'. In case the business dose not pay you back this remains in the business as additional capital introduced. This process for all business expenses met by you through your personal account.
Mike Block - QuickBooks Tax Cut C.P.A. Intuit paid me to make QuickBooks better!
Mike is a CPA and should know better than to give that type of advice to a sole proprietor who takes the home office deduction. It the height of tax season and probably did not read the entire thread.
As far as your comment about accrual accounting, say what?
The short version of that is: you should really speak with and accountant and determine how you should be setup based on your own situation.
You'll see a lot of threads in here with people posting to speak with an accountant, and that is for one very good reason: It is very sound advice. Especially when first starting out, or if any major life changes are made... married, divorced, children and the like. You never know what different options you might need or have available.
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