Business Lines of Credit Secrets

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Introduction

                A tax audit is defined as an examination by the Internal Revenue Service (IRS) of an individual or a corporation’s tax return to verify that the return is accurate and complete.  A tax audit is not pleasant, especially considering that ninety percent of audits result in the taxpayer owing money.  It is an experience every sane businessperson strives to avoid.  CPAs say the best way to avoid a tax audit is to file a complete and accurate tax return.  No question about it, the prospect of a tax audit is scary, and the key to surviving it is to keep good records. 

Business

                An audit can be one of the most feared events of a business’ or individual’s life.  One of the biggest and most commonly audited items by the IRS for individuals in their own business, and employees of companies who use their own car in business, is the tax deduction for business transportation.  A very common reason people get audited is when they try to take deductions for exceptionally large expenses, or expenses that they cannot provide receipts for, such as the use of a personal car for business purposes.

                For starters, as a small business owner, you’re four times more likely to be audited than the average person.  With small business audits happening more frequently, it is more important than ever to know what it is that triggers an audit, how to avoid being audited and what to do if the IRS is after you.  And then if you’re audited, you’re going to have to prove those numbers. 

Conclusion

                A tax audit is nothing more than the IRS requesting “proof” for the deductions on your return.  And one of the best ways to prepare for a tax audit is to have your tax returns produced by a professional tax person. The #1 red flag that will trigger a business tax audit is to claim fabricated business expenses.  The other red flag is mixing your own personal expenses with your business expenses.  You can avoid this flag if you set up your business entity correctly using a simple structure such as an LLC, partnership, or S-Corporation.  If you start you business out on the right path from the beginning, you will greatly reduce your chances of an audit. 

                The other advantage of setting up your business structure correctly, besides avoiding an IRS audit, is that you can start building your business credit profile.  When you get your business “creditworthy” then you won’t need to use your personal paycheck to fund your daily business expenses.  Thus you can keep the separation between the business and personal – which is a major key to avoiding a tax audit.

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Introduction

Building an excellent business profile is the first step to removing the need for a personal guarantee.  It’s a good practice if you want to get money for your business.  The whole process is just like building your own personal credit, but the most important point to remember while you are doing this, is that you have to keep your business credit separate from your personal credit. 

Personal Credit

It’s always a good idea to check your personal credit on a regular basis to make sure it is in good standing.  Spend this critical time, and possibly money, to repair it while you are building up your business credit profile.  Plus, you must keep your personal credit separate from your business credit so that you can start to grow the creditworthiness of your new business venture without it having an impact on your FICO scores.  The opposite is also true, if your business starts to stumble, or worse, fail, the negative change in your creditworthiness will not be reported to the three personal credit bureaus.

Money

Creditors don’t want to lend money to businesses in need of it, so start building your business credit profile today.  You will save money since your good business credit will mean lower interest rates on business loans.  Also, building business credit is a great option for getting money to start your small (or large) business as well.  Most business owners want to be able to get money whenever they need it for expenses without having to provide a personal guarantee on the loans being applied for.  Finding the money for your business can be difficult unless you know the process.

Loans

When it comes to business loans, you want to eliminate personal guarantees that you use for your business.  You can learn to establish a strong business credit rating and get loans for your business without using your personal credit.  This holds true even if you had a previous business bankruptcy or if your personal credit is really bad.  The mistake many, many business owners make is using their social security number when they apply for business credit, leases or loans for their companies. 

Financing

For first time business owners that are trying to build their “new credit” in the business world, they are finding good business credit is the only way to get financing for their company.  Avoid the obvious mistakes that prevent most businesses from being successful in getting the credit and financing they need.  Many owners are turned down when they apply because they haven’t taken the unavoidable time to set up their business credit structure properly. 

Educate yourself.  Learn about the business credit bureaus.  Understand how they work so that you can get the most benefit from them. 

Conclusion 

There are specific steps to building business credit and it is imperative your business establish its credit correctly.  Business credit is the most important and well known wealth building tool.  It is a snapshot of how a business handles its financial obligations and relationships with its vendors as well as its suppliers, showing not only the business’s “ability” to pay, but its “willingness” to do so.  Therefore, the time for building a good business credit profile is before you need to use it.