As a small business owner, should I pay my taxes from my personal or business checking account?
Payment of taxes for your personal return filed with the IRS always come from your personal account, regardless of how the money was earned. Sales tax would be paid from your business account, so would corporate taxes, if those apply; but if you're talking about your tax payments to the IRS for your personal income that should be paid from your personal account. Also, stating the obvious, if you're paying an accountant to handle things you can always ask them for clarification as well. They will have more precise answers. EDIT Adding on for your last part of the question I missed:  In virtually all cases LLC's are what's called a pass through entity.  For these entities, all income in the eyes of the federal government passes directly through the entity to the owners at the end of each year.  They are then taxed personally on this net income at their individual tax rate, that's the very abridged version at least. The LLC pays no taxes directly to the federal government related to your income. Here's a resource if you'd like to learn more about LLC's: http://www.nolo.com/legal-encyclopedia/llc-basics-30163.html
If thinking about it like a business you normally only pay taxes on Net income, not gross.  So Gross being all the money that comes in. People giving you cash, checks, whatever get deposited into your account. You then pay that out to other people for services, advertisement. At the end of the day what is left would be your 'profit' and you would be expected to pay income tax on that.  If you are just an individual and don't have an LLC set up or any business structure you would usually just have an extra page to fill out on your taxes with this info. I think it's a schedule C but not 100% "The government thought of that a long time ago, and has any loophole there plugged. Like if you set up a company to buy a car and then allow you to use it ... You can use the car for company business, like driving to a customer's office to make a sales call or delivery, and the cost of the car is then tax deductible. But the company must either prohibit personal use of the car, or keep a log of personal versus business use and the personal use becomes taxable income to you. So at best you'd get to deduct an expense here and then you'd have to add it back there for a net change in taxable income of zero. In general the IRS is very careful about personal use of business property and makes it tough to get away with a free ride. I'm sure there are people who lie about it and get away with it because they're never audited, but even if that causes you no ethical qualms, it's very risky. I don't doubt that there are people with very smart lawyers who have found loopholes in the rules. But it's not as simple as, ""I call myself a business and now all my personal expenses become tax deductible business expenses."" If you could do that, everybody would do it and no one would pay taxes. Which might be a good thing, but the IRS doesn't see it that way." FICA taxes are separate from federal and state income taxes. As a sole proprietor you owe all of those.  Additionally, there is a difference with FICA when you are employed vs. self employed.  Typically FICA taxes are actually split between the employer and the employee, so you pay half, they pay half. But when you're self employed, you pay both halves. This is what is commonly referred to as the self employment tax. If you are both employed and self employed as I am, your employer pays their portion of FICA on the income you earn there, and you pay both halves on the income you earn in your business. Edit: As @JoeTaxpayer added in his comment, you can specify an extra amount to be withheld from your pay when you fill out your W-4 form. This is separate from the calculation of how much to withhold based on dependents and such; see line 6 on the linked form. This could allow you to avoid making quarterly estimated payments for your self-employment income. I think this is much easier when your side income is predictable. Personally, I find it easier to come up with a percentage I must keep aside from my side income (for me this is about 35%), and then I immediately set that aside when I get paid. I make my quarterly estimated payments out of that money set aside.  My side income can vary quite a bit though; if I could predict it better I would probably do the extra withholding. Yes, you need to pay taxes for FICA and federal income tax.  I can't say exactly how much you should withhold though. If you have predictable deductions and such, it could be lower than you expect. I'm not a tax professional, and when it comes doing business taxes I go to someone who is. You don't have to do that, but I'm not comfortable offering any detailed advice on how you should proceed there. I mentioned what I do personally as an illustration of how I handle withholding, but I can't say that that's what someone else should do. "I expect the company wanted to pay you for a product (on a purchase order) rather than as  a contract laborer. Whatever. Would they be willing to re-issue the check to you as a sole proprietor of a business named ABC Consulting (or anything like that)? You can register your sole proprietor business with the state using a ""Doing Business As"" (DBA, or fictitious name), and then open the bank account for your business using the check provided by the customer as the first deposit. (There is likely a smaller registration fee for the DBA.) If they won't re-issue the check and you have to go the LLC route... Scrounge up $125 doing odd jobs or borrowing from a friend or parents. Seriously, anyone can earn that amount of money in a week or two. Besides the filing fee for the LLC, your bank may require you to provide an Operating Agreement (which is not required by the State). The Operating Agreement can be simple, or more complex if you have a partner (even if it's a spouse). If you do have a partner, it is essential to have such an agreement because it would specify the responsibilities and benefits allocated to each partner, particularly in the event of equity distributions (taking money out of the business, or liquidating and ending the LLC). There are websites that will provide you a boilerplate form for Operating Agreements. But if your business is anything more than just single member LLC, you should pay an attorney to draw one up for you so the wording is right. It's a safeguard against potential future lawsuits. And, while we're at it, don't forget to obtain a EIN (equivalent to a SSN) from the IRS for your LLC. There's no cost, but you'll have to have it to file taxes as a business for every year the LLC exists and has income. Good luck!" "Depending on how the check was made out, you may be able to file a DBA (""doing business as""), which would give you the business name locally.  Then open an account under that name and deposit the check. Or simply go back to the customer and say ""hey, I don't have yhe company bak account open yet; could I exchange this check for one made out to me personally?"" That's how I've been handling hobby income under a company name. (I really do ned to file that DBA!)" As an LLC you are required to have a separate bank account (so you can't have one account and mix personal and business finances together as you could if you were a sole trader) - but there's no requirement for it to be a business bank account.  However, the terms and conditions of most high street bank personal current accounts specifically exclude business banking, so unless you could find one that would allow it, you'd have to open a business bank account. "There's no difference between ""individual"" and ""business"" in this context. What is a personal transaction that involves credit card? You have a garage sale? Its business. You sell something on craigslist - business. Want to let people pay for your daughter's girlscout cookies - business. There's no difference between using Paypal (which has its own credit card reader, by the way) and Square in this context. No-one will ask for any business licenses or anything, just your tax id (be it SSN or EIN). Its exactly the same as selling on eBay and accepting credit cards through your Paypal account, conceptually (charge-back rules are different, because Square is a proper merchant account, but that's it)." "For simplicity, let's start by just considering cash back. In general, cash back from credit cards for personal use is not taxable, but for business use it is taxable (sort of, I'll explain later). The reason is most personal purchases are made with after tax dollars; you typically aren't deducting the cost of what you purchased from your personal income, so if you purchase something that costs $100 and you receive $2 back from the CC company, effectively you have paid $98 for that item but that wouldn't affect your tax bill. However, since businesses typically deduct most expenses, that same $100 deduction would have only been a $98 deduction for business tax purposes, so in this case the $2 should be accounted for. Note, you should not consider that $2 as income though; that would artificially inflate your revenue. It should be treated as a negative expense, similar to how you would handle returning an item you purchased and receiving a CC refund. Now for your specific questions: Part 1: As a small business owner, I wish to attend an annual seminar to improve my business. I have enough credit card reward points to cover the airfare, hotel, and rental car. Will those expenses still be deductible at the value displayed on the receipt? Effectively no, these expenses are not deductible. If you deduct them they will be completely counter-acted by the ""refund"" you receive for the payments. Part 2: Does it matter if those points are accrued on my personal credit card, rather than a business credit card? This is where it gets hairy. Suppose your company policy is that employees make purchases with their own personal credit cards and submit receipts for reimbursement. In this case the employer can simply reimburse and would not know or care if the employee is racking up rewards/points/cashback. The trick is, as the employee, you must always purchase business related items normally so you have receipts to show, and if you receive cashback on the side there seems to be a ""don't ask, don't tell"" rule that the IRS is OK with. It works the same way with heavy business travelers and airline miles- the free vacations those users get as perks are not treated as taxable income. However, I would not go out of my way to abuse this ""loophole"". Typically, things like travel (airfare, hotel, car rental, meals) are expected. But I wouldn't go purchase 100 company laptops on your personal card and ask the company to reimburse you. The company should purchase those 100 laptops on a company card and effectively reduce the sale price by the cashback received. (Or more realistically, negotiate a better discount with your account rep and just cut them a check.) Part 3: Would there be any difference between credit card points and brand-loyalty points? If the rental car were paid for with points earned directly on the rental car company's loyalty system (not a CC), would that yield a different result? There is no difference. Perhaps the simplest way to think about this is you can only deduct an expense that you actually incur. In other words, the expense should show up on a bank or CC statement. This is why when you volunteer and work 10 hours for a charity, you can't call that a ""donation"" of any amount of money because there is no actual payment made that would show up on a bank statement. Instead you could have billed the charity for your 10 hours of work, and then turned around and donated that same amount back to them, but it ends up being a wash." They sure can. They are two different legal entities, so why not? You can even write a check to yourself, and then deposit it back into your own account. (Not very useful, but you can). The tax implications are a very different question, as this might constitute taking money out of the company. Edit: In some countries, when the business hires someone to work for them, it is forbidden by law to do that, unless he/she is explicitly allowed to do it in his contract. The business owner himself however, can always 'allow' himself to do that. When a business asks me to make out a cheque to a person rather than the business name, I take that as a red flag. Frankly it usually means that the person doesn't want the money going through their business account for some reason - probably tax evasion. I'm not saying you are doing that, but it is a frequent issue. If the company makes the cheque out to a person they may run the risk of being party to fraud. Worse still they only have your word for it that you actually own the company, and aren't ripping off your employer by pocketing their payment. Even worse, when the company is audited and finds that cheque, the person who wrote it will have to justify and document why they made it out to you or risk being charged with embezzlement. It's very much in their interests to make the cheque out to the company they did business with. Given that, you should really have an account in the name of your business. It's going to make your life much simpler in the long run. "Disclaimer: This should go without saying, but this answer is definitely an opinion. (I'm pretty sure my current accountant would agree with this answer, and I'm also pretty sure that one of my past accountants would disagree.) When I started my own small business over 10 years ago I asked this very same question for pretty much every purchase I made that would be used by both the business and me personally. I was young(er) and naive then and I just assumed everything was deductible until my accountant could prove otherwise. At some point you need to come up with some rules of thumb to help make sense of it, or else you'll drive yourself and your accountant bonkers. Here is one of the rules I like to use in this scenario: If you never would have made the purchase for personal use, and if you   must purchase it for business use, and if using   it for personal use does not increase the expense to the business, it   can be fully deducted by the business even if you sometimes use it personally too. Here are some example implementations of this rule: Note about partial expenses: I didn't mention partial deductions above because I don't feel it applies when the criteria of my ""rule of thumb"" is met. Note that the IRS states: Personal versus Business Expenses Generally, you cannot deduct personal, living, or family expenses. However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. You can deduct the business part. At first read that makes it sound like some of my examples above would need to be split into partial calulations, however, I think the key distinction is that you would never have made the purchase for personal use, and that the cost to the business does not increase because of allowing personal use. Partial deductions come into play when you have a shared car, or office, or something where the business cost is increased due to shared use. In general, I try to avoid anything that would be a partial expense, though I do allow my business to reimburse me for mileage when I lend it my personal car for business use." It really depends on the type of business  you are running.  If there is any chance of liability, you should protect yourself with an LLC.  Then it is much more difficult for them to sue and take personal assets.  For example, if you are a wedding photographer, you would want to be an LLC in case you lose someones pictures. In the UK is perfectly acceptable to use your personal bank account as a business account if your a sole trader, although it can be messy. Just record and keep all relevant transaction invoices etc documents for self assessment time. At self assessment time they will tell you the amount of tax you need to pay when you fill out the forms. Not sure how it is Canada.  If you get bigger get an accountant. If you're a sole proprietor there's no reason to have a separate business account, as long as you keep adequate records, as you are one and the same for tax purposes. My husband and I already have 5 accounts and a mortgage with one bank. I don't see the need to open up yet another account.  As a contracted accountant, I don't need to write business checks, and my expenses are minimal. As long as I have an present my assumed business name certificate and ID, there's no reason for a bank not to deposit into my personal account. "I've done various side work over the years -- computer consulting, writing, and I briefly had a video game company -- so I've gone through most of this. Disclaimer: I have never been audited, which may mean that everything I put on my tax forms looked plausible to the IRS and so is probably at least generally right, but it also means that the IRS has never put their stamp of approval on my tax forms. So that said ... 1: You do not need to form an LLC to be able to claim business expenses. Whether you have any expenses or not, you will have to complete a schedule C. On this form are places for expenses in various categories. Note that the categories are the most common type of expenses, there's an ""other"" space if you have something different. If you have any property that is used both for the business and also for personal use, you must calculate a business use percentage. For example if you bought a new printer and 60% of the time you use it for the business and 40% of the time you use it for personal stuff, then 60% of the cost is tax deductible. In general the IRS expects you to calculate the percentage based on amount of time used for business versus personal, though you are allowed to use other allocation formulas. Like for a printer I think you'd get away with number of pages printed for each. But if the business use is not 100%, you must keep records to justify the percentage. You can't just say, ""Oh, I think business use must have been about 3/4 of the time."" You have to have a log where you write down every time you use it and whether it was business or personal. Also, the IRS is very suspicious of business use of cars and computers, because these are things that are readily used for personal purposes. If you own a copper mine and you buy a mine-boring machine, odds are you aren't going to take that home to dig shafts in your backyard. But a computer can easily be used to play video games or send emails to friends and relatives and lots of things that have nothing to do with a business. So if you're going to claim a computer or a car, be prepared to justify it. You can claim office use of your home if you have one or more rooms or designated parts of a room that are used ""regularly and exclusively"" for business purposes. That is, if you turn the family room into an office, you can claim home office expenses. But if, like me, you sit on the couch to work but at other times you sit on the couch to watch TV, then the space is not used ""exclusively"" for business purposes. Also, the IRS is very suspicious of home office deductions. I've never tried to claim it. It's legal, just make sure you have all your ducks in a row if you claim it. Skip 2 for the moment. 3: Yes, you must pay taxes on your business income. If you have not created an LLC or a corporation, then your business income is added to your wage income to calculate your taxes. That is, if you made, say, $50,000 salary working for somebody else and $10,000 on your side business, then your total income is $60,000 and that's what you pay taxes on. The total amount you pay in income taxes will be the same regardless of whether 90% came from salary and 10% from the side business or the other way around. The rates are the same, it's just one total number. If the withholding on your regular paycheck is not enough to cover the total taxes that you will have to pay, then you are required by law to pay estimated taxes quarterly to make up the difference. If you don't, you will be required to pay penalties, so you don't want to skip on this. Basically you are supposed to be withholding from yourself and sending this in to the government. It's POSSIBLE that this won't be an issue. If you're used to getting a big refund, and the refund is more than what the tax on your side business will come to, then you might end up still getting a refund, just a smaller one. But you don't want to guess about this. Get the tax forms and figure out the numbers. I think -- and please don't rely on this, check on it -- that the law says that you don't pay a penalty if the total tax that was withheld from your paycheck plus the amount you paid in estimated payments is more than the tax you owed last year. So like lets say that this year -- just to make up some numbers -- your employer withheld $4,000 from your paychecks. At the end of the year you did your taxes and they came to $3,000, so you got a $1,000 refund. This year your employer again withholds $4,000 and you paid $0 in estimated payments. Your total tax on your salary plus your side business comes to $4,500. You owe $500, but you won't have to pay a penalty, because the $4,000 withheld is more than the $3,000 that you owed last year. But if next year you again don't make estimated payment, so you again have $4,000 withheld plus $0 estimated and then you owe $5,000 in taxes, you will have to pay a penalty, because your withholding was less than what you owed last year. To you had paid $500 in estimated payments, you'd be okay. You'd still owe $500, but you wouldn't owe a penalty, because your total payments were more than the previous year's liability. Clear as mud? Don't forget that you probably will also owe state income tax. If you have a local income tax, you'll owe that too. Scott-McP mentioned self-employment tax. You'll owe that, too. Note that self-employment tax is different from income tax. Self employment tax is just social security tax on self-employed people. You're probably used to seeing the 7-whatever-percent it is these days withheld from your paycheck. That's really only half your social security tax, the other half is not shown on your pay stub because it is not subtracted from your salary. If you're self-employed, you have to pay both halves, or about 15%. You file a form SE with your income taxes to declare it. 4: If you pay your quarterly estimated taxes, well the point of ""estimated"" taxes is that it's supposed to be close to the amount that you will actually owe next April 15. So if you get it at least close, then you shouldn't owe a lot of money in April. (I usually try to arrange my taxes so that I get a modest refund -- don't loan the government a lot of money, but don't owe anything April 15 either.) Once you take care of any business expenses and taxes, what you do with the rest of the money is up to you, right? Though if you're unsure of how to spend it, let me know and I'll send you the address of my kids' colleges and you can donate it to their tuition fund. I think this would be a very worthy and productive use of your money. :-) Back to #2. I just recently acquired a financial advisor. I can't say what a good process for finding one is. This guy is someone who goes to my church and who hijacked me after Bible study one day to make his sales pitch. But I did talk to him about his fees, and what he told me was this: If I have enough money in an investment account, then he gets a commission from the investment company for bringing the business to them, and that's the total compensation he gets from me. That commission comes out of the management fees they charge, and those management fees are in the same ballpark as the fees I was paying for private investment accounts, so basically he is not costing me anything. He's getting his money from the kickbacks. He said that if I had not had enough accumulated assets, he would have had to charge me an hourly fee. I didn't ask how much that was. Whew, hadn't meant to write such a long answer!"