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Figuring out how to file your self-employment taxes can feel intimidating and time-consuming, especially with the ever-changing tax laws that can confuse even an experienced filer. \nHowever, this process doesn't have to be a headache. As the 2023 deadline quickly approaches, preparing in advance can help you avoid costly penalties and fees. That way, you can enter tax season feeling confident and stress-free.\nKeep reading to learn how to prep, calculate, pay, and file your self-employment taxes in 2023. \nWhat is self-employment tax?\nOne of the first major shocks of working for yourself is learning that you’re now responsible for additional taxes. In short, the self-employment tax is something that all self-employed individuals must pay in addition to the income tax.  The Internal Revenue Service (IRS) uses this tax to fund the Social Security and Medicare programs. If it helps, you can think of it as investing in your own retirement since those programs largely support retirees. \nThe good news is that you don’t have to pay this tax until you earn more than $400 in self-employed net income. After that, you’ll have to put aside a percentage of your earnings to ensure you can afford to pay what you owe when the time comes. \nThis process differs slightly from filing taxes with a regular job because employers pay half their employees' Medicare and Social Security taxes while self-employed workers pay the entire thing. And unlike with a regular job, there’s no employer to take these taxes out automatically, so you have to be responsible. \nAlso, remember that the self-employment tax is not the same as income tax—which you’ll also have to pay.\nWhat is the self-employment tax rate in 2023?\nThe official self-employment tax rate for 2023 is 15.3%. To break that down, 12.4% goes toward Social Security, and 2.9% funds Medicare.\nThere’s also a cut-off for paying the Social Security portion based on your overall income from net earnings, wages, and tips. Keep in mind that the cutoff increased 8.2% to $160,200 for the 2023 tax season.\nOn the other hand, Medicare taxes never cut off. If you are a single filer who earns more than $200,000 from self-employment, you might even have to apply a 0.9% additional Medicare tax. For joint files, the income limit is $250,000.\nWho pays self-employment taxes?\nSelf-employment taxes are the responsibility of all self-employed individuals. These rules apply regardless of age or whether you are on Medicare or receive Social Security benefits. You'll likely have to pay if you earned more than $400 from a self-owned business. \nHere are some specific examples of who pays self-employment taxes:\nGig workers like rideshare and delivery drivers\n\nFreelancers and independent contractors\n\nAnyone earning passive income from:\nBeing a partner in a business\nBook/digital product sales\nMusic sales\nProduct sales\nOnline marketplaces (Etsy)\nSole proprietors or anyone \nneeding an LLC\n\nReal estate investors \nAnyone earning more than $108.28 a year from church employment\nNote that if you also have a full-time job, you’ll only apply the self-employment tax to your self-employment income. Also, in-home caregivers for disabled and elderly individuals \ndo not pay self-employment taxes\n.\n\nHow to file self-employment taxes step by step\nFiling your self-employment taxes can be a daunting task, but with the correct information and a few helpful tips, you can make the process much smoother. Below, we'll walk you through the steps of filing your self-employment taxes step by step. These tips and tricks will help you easily and confidently navigate the filing process.\nStep 1: Gather your documents and relevant info\nFor a stress-free filing experience, you’ll want to have all the necessary information and documents ready to go before you do anything else. \nFirst, you’ll have to provide identification in the form of either your Social Security number or your Individual Taxpayer Identification Number (ITIN). If you pay people to work for your business—even if they’re contractors—you will need an Employer Identification Number (EIN). Otherwise, you can use your social security number. \nThe next document you need is the 1099 form. If you don’t know, a 1099 form is for reporting income that doesn’t fit traditional W-2 reporting, such as freelance work, rentals, royalties, and independent contractor payments. \nYou can also use it to report non-employee compensation to contractors and other service providers of more than $600. If you did contract work for a company during the tax year, they should send you a 1099 form before tax time.\nTip:\n Companies will likely request that you fill out a W-9 form while establishing the service contract. The purpose of that document is to collect your tax-relevant information so that the company can accurately fill out your 1099 form.\nAdditionally, you should find all ledgers or bookkeeping tools you used to record income and expenses. You’ll want to keep your expenses organized throughout the year, so finding \nproof of income\n is super easy when tax season rolls around. \nStep 2: Total up your earnings\nOnce you’ve gathered all the necessary information, it’s time to calculate your earnings. The formula for this step is:\n[Net earnings = Gross self-employment income - Business expenses]\nTo avoid mistakes, you can make these calculations using \nSchedule C (form 1040)\n if you’re filing as a sole proprietor or \nSchedule E (form 1040)\n to report passive or supplemental income.\n\nStep 3: Total up any possible tax deductions\nAs a self-employed individual, the IRS allows you to deduct certain \nbusiness expenses\n from your taxes. This can help reduce your overall tax burden and save on the extra costs of self-employment. Here’s a quick overview the deductibles you could be eligible for:\nHome office:\n Expenses involved in running your business from home.\nEducation:\n Funds you spend to gain expertise towards your business.\n“Above-the-line” deduction:\n Half of your self-employment tax is deductible from your income tax.\nQualified business income (QBI):\n Up to 20% of your net profit. \nPhone and internet costs:\n Expenses you incurred from using your phone or internet for business purposes.\nMemberships:\n Expenses related to joining professional organizations in your industry.\nAdvertising/Marketing:\n Expenses involved in marketing your business.\nStartup costs:\n The costs of getting your business up and running.\nOffice supplies:\n Any funds you spend on necessary items for your office.\nCredit card and loan interest:\n Interest you gained on credit accounts from business purchases.\nBusiness travel and meals:\n Expenses involved in traveling for work.\nCar:\n Expenses related to using your personal vehicle for business.\nBusiness insurance premiums:\n Funds you pay towards insurance if you have employees.\nHealth insurance:\n Expenses related to securing health insurance.\n\nRetirement plan\n contributions:\n Expenses involved in securing a retirement plan.\nKeep in mind that each of these \nself-employed tax deductions\n has rules and requirements you need to follow.\nIt’s also possible to avoid the self-employment tax altogether if you file your LLC as an S Corp. You’ll only have to pay on your personal salary, as opposed to all your business profits. This solution may not work in all situations, so ensure you're clear on the pros and cons of \nincorporating your business\n.\nStep 4: Figure out how much you have to pay\nTo calculate the self-employment tax, multiply your net income by the self-employment tax rate. If your net earnings from self-employment from all businesses are $400 or more, use \nSchedule SE (Form 1040)\n to calculate your tax. \nOnce you have your answer, add it to \nSchedule 2 of Form 1040, part II\n.\nTip:\n You only have to apply the self-employment tax to 92.35 percent of your net earnings, which could save you thousands of dollars in tax payments.\nHere’s how that works. When using Schedule SE, you’ll chop 7.65 percent (or half of the self-employment tax rate) off your self-employment income \nbefore you apply\n the self-employment tax. For example: If you made $55,000 in self-employment income, you would only pay self-employment taxes on $50,792.50. That keeps almost $5,000 in your pocket.\nThe formula for this calculation is:\n[Net income x .9235 = Taxable income]\n\nStep 5: Make quarterly payments\nWhile you only report and file self-employment taxes once yearly during tax season, aim to pay them throughout the year to avoid penalties or interest charges. You should also track all the tax payments you make during the year for accurate reporting.\nYou’re eligible for estimated quarterly payments if:\nYou owe a minimum of $1,000 in federal income taxes this year, even after tax credits.\nYour withholding and refundable credits don’t cover at least 90% of your tax liability for this year or 100% of last year’s liability.\nTo pay your taxes quarterly, you should first estimate your annual earnings and calculate the amount of tax you owe using the formula from earlier. Divide that total into four payments and send those to the IRS every quarter. Remember to attach your payment to the appropriate payment voucher on \nForm 1040-ES\n.\nDon’t forget that there are deadlines. These are estimated quarterly payment due dates for 2023:\nApril 18, 2023\nJune 15, 2023\nSeptember 15, 2023\nJanuary 15, 2024\nAs for payment methods, you can opt for cash or money order through the U.S. mail or \npay online\n or through the IRS2Go mobile app.\nStep 6: Filing your self-employment tax\nThe final step to filing your self-employment tax is when all the previous steps come together. In this portion, you’ll finalize the information and forms you need to send to the IRS. \nFirst, use the results from your self-employment tax calculations to fill out \nForm 1040\n. Remember that you’ll need to provide your Social Security number or ITIN.\nAttach Schedule C (or E), which you filled out earlier. Next, report the tax calculations from your Schedule SE form on part II of the \n1040 Schedule 2\n, and attach that to your 1040.\nWhen you’re ready to send these forms off, you have a few options: The free IRS e-filing service, a third-party e-filing company, or you can send the physical forms to the \nfiling office in your state\n.\n\nNow that you can confidently file your self-employment taxes, it’s important to stay organized and ready for tax season. Track and streamline all transactions for your self-employed business and keep them separate from your personal finances with the \nSolo app\n.\nSources:  \nIRS\n\n

How to file your self-employment taxes in 2023

When you \nwork for yourself\n, it may seem easier to combine your personal and business finances; you may think about dipping into your personal savings to help fund your new business venture or using your personal debit card here and there to make business transactions. While this may seem easier up front, filing taxes and managing your finances can go much smoother if you learn how to separate business and personal expenses from the start.\nFiling business taxes requires much more documentation for things like business expense write-offs, financial reports, and payroll information, so it’s important to distinguish a clear separation between the two. In this guide, we’ll teach you how to separate business and personal finances so you can stay organized and prepared for tax season. \nNOTE: We have made a reasonable effort to provide accurate information, but we are not tax attorneys or accountants. This article is for informational purposes only, and Solo does not accept any liability for the use or misuse of this information. Consult a tax professional familiar with your state's laws.\nBusiness taxes vs. personal taxes\nSimilar to personal taxes, business owners get taxed on the income they make from their business. The biggest differences between personal and business taxes are the forms you need to fill out, write-offs you can deduct, filing requirements and deadlines you must meet when filing.\nSo, what exactly are business taxes and personal taxes and what are we paying for? \nExamples of business tax:\n \nIncome tax \nEmployment tax\nSelf-employment tax \nEstimated tax\nExcise tax \nExamples of personal tax:\n \nPersonal income tax \nPayroll tax \nProperty tax \nCapital gains tax \nEstate tax \nDo you file business taxes separate from personal taxes?\n\nDetermining whether or not you can file your business and personal taxes together or separately comes down to your business structure. \nMany business structures, aside from corporations, are pass-through entities, which means business owners will file their business taxes on their personal tax returns. If you’re a pass-through entity, you’ll file an informational federal tax return but won’t be responsible for paying corporate income tax.\nEach structure has different \nfiling requirements outlined by the IRS\n.\nPartnership\nPartnerships are pass-through entities, meaning each owner must report business income and losses on their personal tax returns using \nForm 1040\n. Partnerships must first file \nForm 1065\n to report the business's financial information. From there, each owner will receive a \nSchedule K-1\n that they will use to prepare their personal tax return. \nSole proprietorship\nAs a sole proprietor, your business structure is a pass-through entity, so you cannot file business and personal taxes separately. You will use \nSchedule C, Form 1040\n to file business income and expenses on your personal tax return. \nS corporation\nS corporations are also pass-through entities, so each individual owner will pay their portion of business taxes on their personal tax return using \nForm 1120-S\n.\nC corporation\nYou can file business and personal taxes separately as a C corporation since the IRS sees it as a separate entity from its shareholders. To report your business expenses as a C corporation you must file \nForm 1120\n.\n\nLLC\n (Limited Liability Company)\nLLCs are also pass-through entities, so the owner will report business incomes and losses on their personal tax returns. However, if your LLC has multiple members, you can elect to file as a corporation to keep your business and personal taxes separate using Form 1120. \nHow to separate business and personal expenses in 7 simple steps\n\nKeeping your business and personal finances separate starts with the formation of your business. Here are seven simple steps you can take to ensure you keep your business and personal expenses separate to make the filing process during tax season a breeze. \n1. Register your business\nDetermining your business structure and registering your business is the first and most important step in maintaining separation between your business and personal finances. As mentioned above, each type of business structure—\nsole proprietorship\n, \ncorporation\n, \npartnership\n, and \nLLC\n—has different tax filing requirements. As a small business owner, you’ll likely classify a pass-through entity, so you’ll file business income and expenses on your personal income tax return.\nHowever, \nincorporating your small business\n may allow you to keep your personal and business finances separate, as it’ll be a separate legal entity. If you want to keep your business tax return and personal tax return separate, it’s best to register your business as a C corporation or LLC and elect to file as a corporation. \n2. Apply for an EIN\nAn employer identification number (EIN) also known as a Federal Tax Identification Number, is a nine-digit number issued by the IRS to identify your business for tax purposes. Think of it as a social security number for your business. Business entities operating as a corporation, LLC, or partnership must obtain an EIN. \nIf you operate as a sole proprietor, you aren’t required to obtain an EIN and can use your social security number when filing your taxes. However, you can still get one. If you plan to open a business bank account, it may be smart to get an EIN, as some banks require this when opening a business account. \nTo obtain an EIN, you can: \nApply online:\n Complete the \nonline application\n and receive your EIN immediately. \nApply by fax:\n Complete \nForm SS-4\n, fax it to the \nappropriate fax number\n, and receive your EIN within four business days. \nApply by mail:\n Complete \nForm SS-4\n, mail it to the \nappropriate address\n, and receive your EIN within four weeks. \n3. Open a business bank account\nNext, you’ll want to open a dedicated \nbusiness bank account\n. This is the easiest way to ensure you keep your business and personal finances separate. It’s best to start with a business checking account, so you can use it to pay bills and make day-to-day business transactions. \nEven if you are a sole proprietor and have to file your personal and business taxes together, a business bank account will allow you to track your business’ income and expenses separately. This will make it easier to distinguish your business income from your personal income during tax time. \nA business bank account can help build your business line of credit, gives you easier access to \nsmall business loans\n, and helps protect your personal information, since you have to use an EIN as opposed to your social security number. \nTo open a business checking account, you’ll need: \nPersonal identification, like an ID or passport\nEmployer identification number (EIN) \nBusiness details, like your business name and address \nAny supporting documents, like your business license \nMinimum opening deposit if the bank requires one \n4. Get a business cash card\nNext, you’ll want a dedicated business card to make any business transactions. This is just another way to keep your personal and business expenses separate. \nA \nbusiness debit card\n is used to spend the funds you have available in your business checking account with no interest charges, credit limit, or other requirements. You can also quickly withdraw cash from your account if you need to. \nA \nbusiness credit card\n is used to make business transactions that you can pay back later. It can also help you establish your business credit, increasing your chances of getting a business loan. However, there are more requirements, like a credit limit and interest. \nSolo’s business cash card makes it easy to spend money on your business while helping you keep track of expenses and payments all within the app. \n5. Keep track of your expenses and keep receipts\n\nStaying organized by \nkeeping track of your business expenses\n will make filing your taxes so much easier. When tax season rolls around, you won’t have to worry about digging up receipts, invoices, and bank statements at the last minute. \nBusiness expenses are any costs related to running your business. Here are a few tips for successfully tracking your expenses.  \nAutomate with accounting software\nManually tracking your business expenses can become tedious and time-consuming, especially as your business grows. Accounting software makes it easy to keep track of and organize your expenses, saving you a ton of time you’d spend manually inputting information. \nThe great thing about accounting software is that it also has other built-in tools that can give insight into how your business is doing financially, like reporting tools. \nSave and digitize your receipts\nIt’s important to keep receipts for every business transaction you make, so you have a proper log of your business purchases. Come tax time, you’ll need to reference these expenses when determining your tax deductions. \nYou can keep paper receipts and invoices in a folder, but digitizing them is a safe and easy way to ensure they’re all in the same place. The accounting software you choose will likely have a feature that allows you to scan the receipts using your phone. \nMonitor business use of personal items\nThere may be some instances where you use personal items for business use, like using your car, home office, or personal phone. In this case, make sure you’re properly tracking when you’re using them for business purposes. For example, tracking your mileage when using your car and keeping your gas receipt. \n6. Pay yourself\nYou want to avoid using your business funds for personal needs, so paying yourself a salary is necessary to maintain a clear boundary between your personal and business finances. \nJust as you’d get a paycheck from an employer, pay yourself a salary twice a month (or on a schedule that works for you). Transfer the funds from your business account to your personal account, or set up an automatic transfer on the same day each month, so you don’t forget. \nYou may be wondering, how much should I pay myself? Here are a few things to consider: \nWhat is your monthly net income?\n This will help you understand how much profit your business generated after you’ve subtracted your business expenses. \nDo you have enough money set aside for taxes?\n A good rule of thumb is to set aside 30% of your net income to go toward paying your business taxes. \nHow much do you need to cover personal expenses?\n This will give you a realistic estimate of how much money you’ll need to pay yourself to cover your bills and other personal expenses. \nWhat is a reasonable monthly salary that won’t put my business finances at risk?\n Based on your monthly net income, tax savings, and personal expenses, determine how much you can comfortably afford to pay yourself. \n7. Prep for tax season year-round\nThe final step in keeping your business and personal finances separate is filing your taxes, which should be easy if you’ve followed the steps above. Preparing for tax season all year will set you up for success come time to file. This means setting aside a portion of your earnings for taxes. \nWhen running your own business, you may be required to file taxes quarterly and annually. \nQuarterly taxes:\n On a quarterly basis, the IRS requires small business owners to pay \nestimated tax\n if they expect to owe $1,000 or more in taxes or $500 or more for corporations. \nForm 1040-ES\n includes a worksheet that can help you determine your estimated tax. \nAnnual taxes:\n You will still need to file your annual federal income tax return at the end of the year. If you didn’t pay enough in your quarterly estimated tax payments, you will have to pay the remaining balance after you file your tax return. If you paid too much, you could receive a refund. \nPaying quarterly taxes may seem like a drag, but you might find it easier to pay smaller installments than having to fork over a bigger lump sum at the end of the year. Make sure you’re staying ahead of filing deadlines for quarterly taxes to avoid penalization. \nHow to separate business and personal taxes\nLearning how to separate your business from your personal expenses helps make tax filing easy. Now that we understand how to keep business expenses separate, here’s how to separate business and personal taxes so you’re prepared to file.\n1. Organize and gather what you need to file your taxes separately\nWhen you work for yourself, you’ll need to gather a few more documents and additional information than you would need when filing your personal tax return. If you’ve stayed on top of your business finances throughout the year, accessing this information should be no problem. \nBusiness tax documents needed\nHere are some things you may need to gather when filing business taxes: \nSocial security number or EIN \nLast years tax return \nInvoices and receipts \nBills \nSales records \nBank statements \nCredit card statements \nRecord of deductible expenses you plan to claim \n\nProof of income\n\nBalance sheet \nIncome statement \nCash flow statement\nBusiness loan records, including accrued interest and payments \nThe appropriate tax forms for your business structure \nPayroll information (if you have employees)\nPersonal tax documents you need\nWhen filing your personal income tax return, here are some documents you may want to gather ahead of time: \nSocial security number \nLast years tax return \nIncome statements (W-2’s, 1099 forms) \nDependent information \nMortgage interest statement \nStudent loan interest statement \nCharitable contributions \nIRA contributions \nEducation expenses\nChildcare expenses \nMedical expenses \nHealth insurance \n2. Know the common tax deductions\nTax deductions, or tax write-offs, are business expenses that you can subtract from your taxable income to lower the amount you owe when you file your tax return. Careful planning and organization of your business finances can help you accurately calculate your yearly tax write-offs. \nCommon business tax deductions\nHere are some common \ntax deductions\n you should keep in mind before you file your business tax return: \nDeduction\nWhat’s eligible?\nPercentage deductible\nHome office expenses\nUtilities, rent or mortgage, phone bills, internet bills, etc.\nAmount based on how much you used for business\nAdvertising and marketing expenses\nBusiness cards, social media ads, flyers, etc.\n100%\nSelf-employment tax\nSocial security and Medicare taxes\n50% of what you pay in self-employment taxes\nBusiness use of car\nMileage, gas, etc.\n100%\nBusiness interest\nCredit card interest, investment interest, property interest, etc.\n30% of your adjusted taxable income\nTravel expenses\nCost of plane tickets, rental car, hotel, meals, etc.\n100%\nStartup costs\nSupplies, licensing or permits, insurance, advertising, etc.\nUp to $5,000\nEducational expenses\nBooks, tuition, supplies, etc.\n100%\nInventory expenses\nCost of products, labor costs, storage costs, etc.\n\nInsurance\nHealth insurance, business continuation insurance, property insurance, etc.\n100%\nOffice supplies and expenses\nFurniture, printers, computers, etc.\n100%\nBusiness bad debt\nBusiness loan guarantees, loans to suppliers, etc.\n100% (for fully worthless debt)\nCommon personal tax deductions\nWhen it comes to personal taxes, there aren’t as many write-offs to deduct from your taxable income. Generally, people take the standard deduction—an automated deduction taken from your taxable income. The standard deduction varies depending on your filing status, whether you’re 65 or older, and whether another person claims you as a dependent. \nHowever, if you paid property taxes or student loan interest, for example, those qualify as deductions and are considered eligible for write-offs. In this case, you can choose to itemize your deductions as opposed to taking the standard deduction. \nHere are some common personal tax deductions you should consider ahead of filing: \nStudent loan interest\nHealth care premiums \nRetirement contributions \nMortgage interest \nProperty taxes\nCharitable contributions\nNote: Ensure you only report tax deductions once\nTo make sure you don’t accidentally report your personal tax deductions on your business tax return (and vice versa) you’ll want to make sure you have all of the proper documentation separated, so you only file the write-offs once. This is why staying organized during the year is important—it makes tax filing easier and limits small mistakes.\nThough pass-through entities file their business income and losses on their personal tax returns, you’ll still want to keep business and personal write-off documentation separate to ensure you’re filing an accurate tax return. \n3. Stay on top of filing deadlines and other tax dates\nThough some business structures have the same filing deadline as your personal tax return, some have an earlier deadline. You’ll also want to make a note of filing deadlines for estimated taxes, as well as deadlines for filing an extension. If you owe taxes and miss your filing date, you may receive a penalty and have to pay. \nBusiness tax dates and deadlines\nHere are the tax filing deadlines and dates you need to know when filing your business taxes.  \n\nWhat’s due?\nDate\nWho does it apply to?\n2022 4th quarter estimated tax payment\nJanuary 17, 2023\nAll businesses\nDeadline to send out W-2 forms to employees\nJanuary 31, 2023\nAll businesses\nDeadline to send 1099 forms\nJanuary 31, 2023\nAll businesses\nDeadline to file yearly tax returns\nMarch 15, 2023\nPartnerships, S corporations, and multi-member LLCs\nDeadline to file an extension\nMarch 15, 2023\nPartnerships, S corporations, and multi-member LLCs\n2023 1st quarter estimated tax payment\nApril 18, 2023\nAll businesses\nDeadline to file yearly tax returns\nApril 18, 2023\nSole proprietorships, C corporations, and single-member LLCs\nDeadline to file an extension\nApril 18, 2023\nSole proprietorships, C corporations, and single-member LLCs\n2023 2nd quarter estimated tax payment\nJune 15, 2023\nAll businesses\n2023 3rd quarter estimated tax payment\nSeptember 15, 2023\nAll businesses\nDeadline to file returns with an extension\nSeptember 15, 2023\nPartnerships, S corporations, and multi-member LLCs\nDeadline to file returns with an extension\nOctober 16, 2023\nSole proprietorships, C corporations, and single-member LLCs\n2023 4th quarter estimated tax payment\nJanuary 15, 2024\nAll businesses\nPersonal tax dates and deadlines\nUnless you file an extension for your personal tax return, there’s only one important date you need to remember when filing your personal taxes—\nApril 18th, 2023\n. If the filing date lands on a weekend or holiday, you’ll have until midnight the following business day to file. \nIf you’d like to file an extension, you’ll need to submit \nForm 4868\n by April 18th, 2023, and you will have until \nOctober 16th, 2023\n to file your personal tax return. \nKeep personal and business expenses separate with Solo\nFiling taxes when you’re self-employed can be tricky, but staying organized and properly separating business and personal expenses can take some stress off your plate when tax season rolls around. \nSolo can make it easier for you to pay expenses and track your spending. Make purchases for your business from your Solo account balance with the Solo cash card. Your customers can also pay you using multiple payment methods, like Apple Pay, Google Pay, and other traditional payment methods. An all-in-one place for freelancers, sole proprietors, contractors, and small business owners to pay, get paid, and track their spending. \nLearn more at \nSolo.co\n. 

Guide to separating business and personal finances for a streamlined tax season

When you’re working with a \nfreelancer or contractor\n, it’s common for deliverables to change hands. Those deliverables likely amount to intellectual property (IP), meaning someone owns the rights to them. But the question is: Who exactly does own the rights?\nA freelancer IP agreement is designed to transfer ownership of intellectual property. Below, we’ll dig into the basics of intellectual property, how to protect your interests as an entrepreneur, and how to get started on an IP agreement with our free template.\nIMPORTANT NOTICE: Solo is not a law firm or licensed attorneys, nor do we claim to be. This blog does not provide legal advice and is for informational purposes only.  Before using any information or forms made available from this site, you should consult with an attorney to ensure that they are appropriate and adequate for your needs.  Solo does not claim that the forms made available on this site are complete or appropriate for use in all circumstance or jurisdictions and disclaims all responsibility for any outcomes from the use of any information provided on this site.\nIntellectual property agreement: Sample template\nNeed help crafting an IP agreement before your working relationship begins with a freelancer? Look no further than our free, editable intellectual property agreement template.\nClick below to get the template:\n\nDownload IP agreement template\n\nIf you’re not quite ready to dive into creating your own intellectual property agreement, continue reading to review IP itself and explore the purpose behind IP agreements.\nOverview: What is IP?\n\nIP is an acronym for intellectual property, which is an intangible or indefinite asset that a person creates. Intellectual property can come in many forms, but most commonly it’s protected by one of three identifying marks: copyrights, patents, and trademarks. You can license or transfer each of these IP rights with an intellectual property agreement.\nWhen you create something like a blog post, an illustration, or even a slogan for your first marketing campaign, you have the rights to that intellectual property—that is, unless you’re working under an IP agreement that transfers the intellectual property rights to someone else.\nWhat is an IP agreement?\nAn IP agreement, or intellectual property agreement, is a legally binding document that defines the ownership of intellectual property rights between two or more parties. This agreement can be between companies, employees and their employer, or even an employer and a freelancer they work with.\nIP agreements might also be referred to as IP transfer agreements or IP assignment agreements if they involve transferring the ownership rights of the IP.\n\nRegardless of the name, the IP agreement’s purpose is to guard the ownership rights of the intellectual property while also outlining any guidelines for other parties that will work with the IP, such as a freelancer—in this case, it’s a freelancer IP agreement.\nFreelancer IP agreement: Why you need one\nIf you’re planning to hire a freelancer to create any kind of work on behalf of your business, it’s a good idea to ensure your contract contains a freelancer IP agreement. When a freelancer creates work for a business, any assets are automatically the intellectual property of the freelancer unless a freelancer IP agreement says otherwise.\n\nWhat does that mean for you? If you don’t use an IP agreement with a freelancer, you might:\nLose\n the rights to assets created on behalf of your business, like logos, blog copy, or more\nDevalue\n your work or lose a unique edge if the freelancer ever decides to reuse the work for other purposes\nDamage\n your working relationship with the freelancer, potentially harming your \nbusiness’s reputation\n long term\nEven if you agree to allow the freelancer to retain ownership rights and you simply license their work, it can be a good idea to put the scope of that relationship in writing via an IP agreement. That way, you’re more likely to have protection in the event of a legal dispute over your right to use the intellectual property.\nTwo types of IP agreements: Pros vs. cons\nNot every freelancer IP agreement is created equal. In some instances, it could make sense for you to own the intellectual property rights to a work. Other times it might make more sense for you to simply license the IP from a freelancer without owning them outright.\nEach type of freelancer IP agreement has benefits and drawbacks for small business owners. Before drafting an agreement, it could help to talk things over with the freelancer you’re working with to decide what works beneficially for the both of you.\nBelow, take a look at a few pros and cons of exclusive and nonexclusive agreements:\n1. Exclusive agreement\nWhen you enter into an exclusive IP agreement, you own exclusive rights to the IP. Typically in this agreement, the freelancer sells those rights directly to you. No other party can own or use the IP, even at the discretion of the freelancer.\nPro:\n You have the option to sue for infringement of your intellectual property rights since you’re the sole owner.\nCon:\n Taking exclusive ownership of all IP rights involved in a project might be seen as a step too far for freelancers.\nExclusive IP rights must be written up in an agreement, so if you plan to take this approach, an intellectual property agreement is a must.\n2. Nonexclusive agreement\nIn a nonexclusive IP agreement, multiple people can own rights to the IP, each holding a nonexclusive license to use it. Stock photography is a common example of a nonexclusive IP agreement.\nPro:\n Since you’re not acquiring the IP outright, licensing the work in this way can be less expensive.\nCon:\n You don’t own the rights to the work, so others may be able to use it beyond your control.\nNonexclusive IP rights may not necessarily need to be put in writing like exclusive rights, but it’s still a good idea to put an IP agreement in place that clearly defines what you own and how you can use it.\nWhat to include in a freelancer IP agreement: Three considerations\nIf you’re thinking of working with a freelancer to develop creative work or an otherwise original creation, you should think about how you would like to use it and if you would prefer to own it.\nHere are three questions to answer when thinking about what to include in an intellectual property agreement:\n1. What specific IP is involved?\nYou should note exactly what is involved in the agreement in as much detail as possible to avoid confusion. It’s best for an IP agreement to also note what IP isn’t covered, such as any intellectual property that the freelancer previously created and already owns the rights to.\nDeclaring specifically what you are and are not claiming the rights to can help avoid questions about ownership when your working relationship with the freelancer comes to an end.\n2. How am I obtaining rights to the IP?\nIf you plan to obtain exclusive or nonexclusive rights, you should explain it in clear terms. Again, defining the terms of the agreement in as much detail as possible helps avoid the risk of confusion on either side of the agreement.\nYou must place exclusive rights in writing in the agreement or they cannot be enforced. If you and the freelancer are sharing ownership in some capacity with a form of nonexclusive rights, it’s a good idea to include those terms, too. That way, you have clear terms for the usage of your IP rights.\n3. What am I willing to compromise on?\nFreelancers create work that supports their livelihood, and they may ask for some concessions in the agreement. An agreement is always between at least two parties—you might want to talk with the freelancer and see how your thoughts about the project compare. \nFreelancing may be their \nside hustle\n, or it could be their fulltime gig, and you might build a great working relationship by allowing a freelancer to retain the rights to use your content in their portfolio or something else within limits.\nIP agreements can be good business sense\nNo matter the size of your business, an IP agreement’s purpose is to protect you and your interests. Even if you’re a \nsolopreneur\n that hires a freelancer for a one-off project, including an IP agreement in your contract can help clearly define who owns what when the project comes to a close.\nIf you decide to move forward with hiring a freelancer, Solo is the easy way to pay them and keep track of your spending. Learn more at \nSolo.co\n.

Why you need a freelancer intellectual property agreement + free template

Starting your own business can feel overwhelming, especially when it comes to costs and filing taxes. Luckily, there are tax break benefits you can take advantage of, including car, home, insurance, education, and retirement costs. \nIf you want to \nstart your own business\n or already work for yourself, here are 15\n \nself-employed tax deductions to take this year.  \nNOTE: We have made a reasonable effort to provide accurate information, but we are not tax attorneys or accountants. This article is for informational purposes only, and Solo does not accept any liability for the use or misuse of this information. Consult a tax professional familiar with your state's laws.\nWhat is the self-employment tax deduction? \n\nThe self-employment tax deduction is a deduction the IRS gives to self-employed workers to soften the heavy costs of starting your own business. This self-employment tax deduction provides great benefits for entrepreneurs who have sole proprietorships, partnerships, and limited liability companies (LLCs).\nThose who are self-employed can deduct their business-related expenses on \nSchedule C\n of Form 1040 during tax season. If you’re eligible, you can deduct up to 20% of your qualified \nbusiness income\n (QBI). \nNote: \nAs of 2022, the self-employment tax rate is 15.3% of net earnings, consisting of 2.9% Medicare tax and 12.4% Social Security tax.   \n15 Tax deductions for the self-employed \n\nMany self-employed individuals can take advantage of tax deductions, including writers who work from home, rideshare drivers, designers, photographers, consultants, and more. \nHere are 15 self-employed tax deductions you can file on your next tax return.\n1. Vehicle use  \nIf you use your personal car to make business-related trips, such as making deliveries or performing other services, you can deduct the mileage when tax season rolls around. When it comes to claiming vehicle use on your taxes, there are two options: \nStandard mileage: \nThis allows you to deduct the number of miles you used for business purposes. \nActual expense: \nThis option requires you to calculate how much it costs to operate and maintain your car for business use. \nWhat you need to know: \nYou can file tax deductions for vehicle wear and tear or mileage on your tax returns.  \n2. Home office \nRunning a business out of your home has its perks—including deductions on home office expenses. With this, you’re able to deduct the costs of: \nUtilities \nA portion of your rent or mortgage \nProperty taxes \nMaintenance \nYou can also deduct your home office supplies that you use in day-to-day operations. \nWhat you need to know: \nFirst, find out the percentage of the square footage in your home that you use for your business-related activities. That percentage of your rent or mortgage may be deductible according to the \nIRS\n. \n3. Business insurance \nIf you run your own business and have employees, you can consider deducting your business insurance premiums. This includes: \nEmployee accident insurance \nEmployee health insurance \nWhat you need to know: \nWhen deducting business insurance, you’re only able to claim the amount for the tax year it relates to. For example, if you paid $20,000 on Jan. 1 2022 for a business insurance policy that covers two years, you can only deduct $10,000 each of those two years. \n4. Advertising expenses \nBoosting your business’s or \nside hustle’s\n presence can carry a cost—especially when it comes to advertising efforts. You may be eligible for a deduction if you pay for any of the following: \nFacebook ads \nGoogle ads \nBillboards\nBusiness cards \nTV commercials \nFlyers \nWhat you need to know: \nSchedule C\n contains a line where you can report your advertising expenses.  \n5. Some memberships  \nSome memberships may be tax deductible, such as for a professional organization related to your industry of expertise. A professional organization can include: \n\nChambers of commerce\n\nBusiness leagues  \nMedical or bar associations\nReal estate boards \nTrade associations\nPublic service organizations \nWhat you need to know: \nThis does not apply to country club memberships. A legitimate membership does not provide entertainment or access to facilities that provide entertainment. \n6. Education development \nRunning or starting your own business takes expertise and knowledge, so continuing your education is important. You can deduct educational development from your self-employment taxes — this can be anything educational, including:  \nBooks \nSupplies \nSchool tuition \nClass costs \nLab fees\nTransportation to and from education-related locations \nWhat you need to know: \nAccording to \nPublication 970\n from the IRS, you can deduct these expenses only if they “maintain or improve skills needed in your present work.” \n7. Start-up costs \nCosts can add up when you \nstart your own business\n—but there may be an opportunity for you to deduct the expenses you made to get everything up and running. This self-employed tax deduction usually includes the costs of: \nGrand opening advertising \nWages and salaries for your employees\nConsulting fees \nBusiness-related travel \nWhat you need to know: \nAccording to \nPublication 535\n, if your organization’s start-up costs do not exceed $50,000, you may be able to deduct up to $5,000. \n8. Health insurance premiums  \nHealth insurance premiums may also be deducted from your tax returns. Self-employed workers can obtain health insurance by filling out a \nMarketplace application\n or qualifying for low-cost coverage through \nMedicaid and CHIP\n programs. \nIf you’re self-employed, you can usually deduct these as a business expense. To do so, you must show one year of a net business profit. \nWhat you need to know: \nThese deductions include dental, medical, and long-term care plans for you and your spouse, dependents, and kids under the age of 26.  \n9. Phone and internet bills \nPhone and internet bills are usually all part of the job—especially if you \nwork from home\n. As a self-employed worker, you can have your phone and internet bills deducted. \nWhat you need to know: \nMaintain a record of your internet and phone usage and only deduct the percentage that was used for business-related purposes.  \n10. Travel expenses \nIf your business operations require you to travel frequently, then you may be able to deduct those expenses. This business travel deduction covers accommodation and travel costs but does not include leisure or entertainment costs. Some of these expenses include: \nCost of plane or bus ticket\nCost of meals \nCost of hotels \nBe sure to keep accurate records and receipts of all business-related travel expenses to make reporting easier. \nWhat you need to know: \nThe \nIRS\n allows you to deduct 100% of all business-related travel and 50% of meals. \n11. Loan and credit card interest  \nKeep track of your business \ncredit card\n statements to receive potential tax deductions on interest that was gained from business-related purchases. Additionally, almost any interest you pay on a loan is tax deductible. \nWhat you need to know: \nA tax-deductible loan can include term loans, business lines of credit, short-term loans, and personal loans, but only if they're business-related. \n12. Retirement plan contributions \nIf you’re self-employed, you may be able to expense retirement plan contributions that you make to a qualified retirement plan, such as a 401(k). Even if you’re a small, one-person business, you can still set up your own 401(k).  \nWhat you need to know: \nDuring tax season, you’re able to make annual salary deferrals up to $20,500 as of 2022. \n13. Subscriptions and publications  \nThose business-related subscriptions and publications you’ve signed up for can also be tax deductible. The types of subscriptions you can deduct as a business expense include: \nTrade, medical, technical, or professional magazines or journals that are related to your business \nTool, software, and even business supply subscriptions like printer ink\nFees from hosting your business website \nWhat you need to know: \nAdd these deductions on Form 1040 Schedule C as “other expenses.” If you have a subscription that is prepaid for over a year, you can prorate the cost for each year to deduct that. \n14. Qualified business income  \nThe qualified business income (QBI) deduction is the net amount of qualified items of deduction, loss, income, and gain that are related to any business or trade. In general words, it’s your business’s net profit. This does not apply to any business income earned outside of the U.S. \nWhat you need to know: \nThe qualified business income (QBI) deduction allows those who are self-employed to deduct up to 20% of their QBI on taxes—this only applies if your combined business and personal income is below $164,900 for single filers or $329,800 for joint filers. \n15. Self-employment taxes  \nAdditionally, you can deduct self-employment taxes as a \nbusiness expense\n. Social Security and Medicare taxes are deducted from self-employment taxes. The self-employment tax rate is 2.9% for Medicare and 12.4% for Social Security—15.3% total of all net earnings.  \nWhat you need to know: \nWhen filing your income tax return, you can deduct half of your self-employment tax on \nForm 1040\n.  \nHow to calculate self-employment tax \nTo calculate your self-employment tax, you first need to figure out the net earnings that you made in self-employment for the year. This is usually \ngross income minus business expenses\n. \nAbout 92.35% of your net earnings may be subject to taxation—once you’ve figured out how much net earnings are subject to taxation, apply the 15.3% tax rate.\nSelf-employment tax deductions FAQ \nStill curious about self-employment tax deductions? Explore the frequently asked questions below.\nWhat is the 20% self-employment deduction? \nThe 20% self-employment tax deduction is placed on net business income. This tax deduction applies to sole proprietors, \nLLCs\n, partnerships, pass-through entities, and shareholders in S and C corporations. \nWhat deductions can I claim without receipts?\nIt’s difficult to keep track of all of your day-to-day receipts. With that being said, there are some deductions that you can claim without receipts. These deductions include: \nLoan interest\nMaintenance \nInsurance \nFuel \nRegistration \nCharitable donations \nMembership fees \nIt’s always safe to keep track the best you can and log your credit card statements to make things simpler when tax season approaches. \nIs car insurance a tax deduction?\nCar insurance is considered a self-employment tax deduction. Those who are self-employed can deduct car insurance from their taxes. When it comes to your business-related vehicle, there are a few other deductions you can add, including: \nGas and oil \nTires\nTolls and parking fees\nCar repairs \nGarage rent \nLease payments \nRegistration fees \nDepreciation \nReceive a tax break as a one-person business  \nConsider these self-employed tax deductions if you \nwork for yourself\n or are looking to get your new business off the ground—they can be especially helpful if you want to find ways to save some extra cash. Be sure to sign up for a separate \nbusiness credit card\n to make reporting your expenses simpler when tax season begins.  \nSolo makes it easy to pay, get paid, and track spending\nSolo is not a bank, but is a financial super-app for small businesses, freelancers, sole proprietors, contractors, and more. Solo is the easy way to pay, get paid, and keep track of your spending. Your customers don't have to sign up to pay you, and can use several payment methods, including Apple Pay, Google Pay, and cards. QR codes make it easy to get paid, and you can easily cash out your Solo account balance for free, or spend it using your Solo Cash Card anywhere Visa is accepted. Learn more at \nSolo.co\n.

15 self-employed tax deductions and benefits

Sorting through credit card charges and paper receipts can be an overwhelming and time-consuming process to handle while running your own small business. Especially if you have to retroactively sort through and categorize personal and business expenses, it can cause even more wasted time and unnecessary stress. \nOverall financial management is essential for the success of any business—it can help you track your cash flow and determine where to cut down or supplement certain areas of your company. To get a more clear picture of these factors, you’ll need to stay organized with your finances. Read more to learn how to keep track of your small business expenses and why it’s important. \nQuick overview: What are business expenses? \n\nBusiness expenses are the costs related to running a business. Also known as deductions, business expenses are recorded on your income statement. These expenses are subtracted from the revenue to determine the net profit or loss, as well as taxable income. \nAccording to \nSection 162 of the Internal Revenue Code,\n as long as the expense is considered necessary and ordinary, it can be reported to the IRS to reduce tax liability. \nOrdinary expenses refer to those that are common in the trade or industry in which your business operates. Below are some common business expenses that can be \npartially or fully tax deductible: \nBusiness mileage and some business travel costs\nFurniture\nMarketing and advertising\nInsurance\nLegal fees\nRent or office lease\nSoftware\nOffice equipment and supplies\nEmployee benefits\nEducational expenses for employees\nCommissions\nBank fees and interest\nExamples of business expenses that are\n not tax deductible include: \nDemolition losses or expenses\nEducational expenses required to conduct a business\nFines and penalties from the government\nPolitical contributions\nAny illegal activities\nWhy is tracking business expenses important? \n\nThere are many benefits of tracking business expenses. It’s not only important for seeing what qualifies as a tax deduction but also helps you understand how to better manage your cash flow. Here are some reasons why tracking business expenses is so important:\nHelps you create a budget and manage cash flow \nTo know how much money your business has and how much room you have to spend, you need to create a budget—that’s where tracking expenses comes in. As you develop better tracking habits, you’ll be able to categorize your expenses and create an accurate budget for your business to manage your cash flow.  \nTracking expenses and making a budget can help you become more financially aware, which is beneficial to the overall health of your business.    \nIdentifies real-time ways to save money \nHaving a visual of what your business spends each month can help you spot areas where costs have either increased or decreased and where you should allocate your money. You’ll also be able to see if there are any areas where you can cut costs altogether, saving you money in the long run. \nAllows you to take advantage of reward perks \nCreating a separate business account and obtaining a business credit card is part of the process of tracking your business expenses. Business credit cards offer many perks, such as free hotel stays and airline points that can keep you and your employees (if you have any) happy.  \nTracking your business expenses enables you to provide any employees with quick reimbursements when they pay for meals, gas, or flights out of their own pocket. By staying organized with these expenses, you can ensure you pay them back quickly, which also helps with employee satisfaction. \nProvides a benchmark against other industries \nIf your business begins tracking expenses, you can compare and contrast these expenses with competitors in the industry. You’ll have a clear idea of where your money is going and will allow you to create benchmarks to see how you stack up against others. \nThis can help you look for opportunities to cut expenses if you see you’re overspending compared to competitors. \nNow that you’re aware of the importance of tracking business expenses, read on to learn how to get started in seven simple steps. \n7 steps to track business expenses  \n\nBusiness expense tracking requires a little more effort than just storing paper receipts in a dusty shoebox. Keep reading to explore the steps involved in the expense tracking process. \n1. Open a business bank account  \nThe most important step to successfully tracking your business expenses is to make sure that your business expenses are separate from your personal expenses. With separate finances, you can more easily do your taxes and avoid overspending.\nIf your business is a corporation or LLC, you’ll be required to open a \nbusiness bank account\n. There are many business credit cards to choose from, so review your options carefully. Here’s what you’ll need to open a business bank account: \nBusiness name\nEmployer Identification Number (EIN) \nSocial Security number (SSN)\nOrganizing documents (LLC, corporation, partnership docs, etc) \nBusiness license\nAfter opening a business bank account, apply for a \nbusiness credit card\n to take advantage of the different rewards and perks it offers, as well as build business credit. If you have employees, consider also getting employee expense cards to track their payments—these types of cards have personalized spending limits and are linked to an approving manager, limiting the risk of reckless spending.  \nTip: \nIf you operate as a sole proprietorship, it’s not required to open a business bank account, but it’s recommended to get a business credit card to help separate your finances. \n2. Determine your accounting method  \nAs a business, you must decide how to report income and expenses, which helps establish a consistent and accurate process for tax season. Small businesses with $25 million or less in annual gross receipts for the last three tax years can choose between the following:\nCash accounting: \nThis is the most common method used by small businesses. It’s the process of recording income as you receive payment and recording expenses after they’re paid. \nAccrual method:\n This method records income when it’s earned and records expenses when they’re incurred, rather than when you receive payment.\nTip: \nCash accounting is a much simpler process than the accrual method because it only accounts for cash received. The accrual method doesn’t track cash flow and might not identify major short-term cash shortages, plus you also have to account for things like prepaid expenses and unearned revenue. \n3. Get accounting software\nAutomate your business expense tracking with accounting software. Many business owners will try to track these expenses themselves with Microsoft Excel, but this method is more prone to human error.\nAccounting software is a simple and easy way to monitor, pay, and organize expenses, allowing you to allocate more time to other business needs. Popular software includes: \nQuickBooks Online \nXero \nFreshbooks \nWave \nZoho Books \nTip: \nMany accounting software programs are cloud-based solutions, meaning you can avoid misplacement or loss of information. They tend to also come with reporting tools that provide insights into your spending on a year-over-year basis. \n4. Digitize your receipts   \nAfter obtaining accounting software, start getting into the habit of digitizing your receipts. This is one of the many helpful features of accounting software—it will also likely feature the ability to scan receipts using a mobile phone camera through the use of an app. \nAccounting software uses optical character recognition (OCR) technology that turns text from receipts into machine-readable code, which is then stored in your expenses tracker. Some paper transactions you’ll want to consider digitizing include: \nInvoices \nExpense claims \nReceipts\nTip: \nMake sure you scan your receipts clearly. As you scan, ensure you can read the vendor’s name and address, the purchase date, and the amount you paid.\n5. Connect your small business bank account   \nThe next step involved in tracking your small business’s expenses is to connect your business bank account to your accounting software so you can import all transactions. There are several ways to do this: \nManual upload:\n You may choose to download bank and credit card statements into a CSV file, which you can then upload into the software. \nData import:\n Many accounting software tools have a connectivity plug-in that you can use to automatically import data dailys. \nConnect with bank account:\n Some accounting software programs offer integrations with your bank—in that case, you would connect your small business bank account. With this method, you’d be able to complete and manage all banking within the accounting software without needing to also input data to your bank account portal. \n6. Hire a bookkeeper \nIf your company is growing or you don’t want to spend additional time sorting through numbers, you may want to consider hiring a bookkeeper. They can use the accounting software to track invoices and receipts and do the heavy lifting for you. \nUsing a professional bookkeeper can also help avoid tracking errors and ensure proper records, so that you stay off the IRS’s radar. \nTip: \nIf hiring a full-time bookkeeper is out of your budget, you can also consider hiring one on a contract basis, like before tax season.  \n7.  Categorize and review your expenses regularly\nOnce you’ve implemented a tracking process, it’s crucial that you review and categorize your expenses regularly. If you’re unsure of how to categorize your expenses, some common categories include: \nOffice supplies \nTravel expenses \nDaily expenses \nUtilities and office rent \nVehicle expenses (like gas and maintenance)\nEmployee expenses \nTip: \nCreating categories of your expenses also makes it easier to look up data when needed and will help you stay better prepared for tax season. \nTracking business expenses may seem like a ton of work, but with these tips and the right tools, you can simplify the process and avoid stress during tax season. You’ll be able to rest assured that your business’s documents are organized and know that you have a better idea of your financial standing. \nSolo makes it easy to pay, get paid, and track business spending\nSolo is not a bank, but is a financial super-app for small businesses, freelancers, sole proprietors, contractors, and more. Solo is the easy way to pay, get paid, and keep track of your business spending. Your customers don't have to sign up to pay you, and can use several payment methods, including Apple Pay, Google Pay, and cards. QR codes make it easy to get paid, and you can easily cash out your Solo account balance for free, or spend it using your Solo Cash Card anywhere Visa is accepted. Learn more at \nSolo.co\n.

How to track small business expenses: 7 steps and tips

If you’re a small business owner, getting a business credit card can help you organize your finances and build strong credit. And with the right card, you can earn rewards, such as cashback, redeemable points, and free hotel accommodations, allowing you to run your business with ease. \nThere are many business credit cards to choose from and it can be overwhelming when faced with choosing the best fit for your business’s needs—however, with this guide, we’ll break down everything you need to make the process of getting a business credit card as smooth as possible. \nLearn how to get a business credit card, its requirements, and tips to use the card successfully.  \nPros and cons of business credit cards\n\nEven if you have a very small business or are a sole proprietor, a business credit card can still be advantageous to the financial progression of your company. Learn more about the advantages and disadvantages of business credit cards below.  \nAdvantages of business credit cards\nBusiness credit cards offer many advantages over personal credit cards, such as being able to keep better track of your business finances and earning reward points that are specific to your business’s needs. On the other hand, there are also some disadvantages that you need to consider before applying.\nSome advantages of a business credit card include: \nAllows you to separate your personal finances from business:\n This helps make tax season more organized and will protect your personal finances from anything that may happen to your business. \nBuilds business credit:\n Unlike credit for personal finances, business credit is tied to your EIN and the payments and spending your company makes, which includes what you spend with a business card. A business with a strong credit score is more likely to be approved for things like business loans.\nEasy access to working capital: \nA business credit card can grant you access to working capital—this can be useful if your business is new, since you most likely won’t qualify for traditional bank-financed business loans. With a business credit card, you will have instant access to a line of credit you can use for any business purpose. \nAbility to earn perks: \nSimilar to personal credit cards, business credit cards allow you to earn reward points. This includes sign-on bonuses, cashback points, and gift cards, plus flight miles and hotel discounts, which can be particularly beneficial if you or your employees (if you have any) are required to travel for work. These perks will allow you to earn more for your business as you spend. \nDrawbacks of business credit cards  \nAlthough there are many \nadvantages of having a business credit card\n, there are a few drawbacks that are worth considering. This includes: \nSecurity risk: \nWith all credit cards, there is always the risk of your card number being stolen and used fraudulently. However, there may be an increased risk if you have employees who handle or who are authorized users of your business credit card. Consider implementing strict policies on who can access the card and what purchases can be made. \nReduced purchase protection: \nBusiness credit cards tend to offer less purchase protection than personal and consumer credit cards, meaning that they don’t have the same level of guaranteed services when it comes to fighting billing errors or needing to make merchandise returns. Be sure to review your business credit card purchase protection terms before applying. \nLegal liabilities: \nTo repay any debts, many small business credit cards will require a personal liability agreement showing that you have backup funds. \nMore costly: \nBusiness credit cards tend to carry a higher annual fee compared to personal credit cards. They also may charge higher interest rates than you would receive for something like a fixed line of credit or a small business loan from a bank or community lender. \nIf you’ve decided that getting a business credit card is the right move for your business, it’s important to become aware of all the information needed in the application process.\nBusiness credit card considerations \nThere are many different types of business credit cards to choose from, but there are limitations on who is qualified to apply for one. These restrictions include:\nType of industry:\n Some financial institutions won’t issue business credit cards to certain industries. This may include businesses that operate in cannabis, firearms, gambling, adult entertainment, or multilevel marketing. \nType of organization:\n There are some financial institutions that don’t give out business credit cards to those who operate as sole proprietors (working for yourself) or as a nonprofit—be sure to double-check before applying. \nPersonal qualifications:\n Even though a business credit card isn’t for personal use, your approval is still based on your own qualifying criteria, such as your personal credit score and proof of income. \nNote:\n If your business has been in operation for more than three years, you will likely have a business credit score that you can use in place of your personal info. \nRequirements for a business credit card \n\nBusiness credit card requirements include: \nYour business’s legal name\nContact information, both personal and business\nDescription of industry \nNumber of employees \nFederal tax ID (or EIN)\nBusiness revenue and monthly spend \nAnnual income information \nLegal personal information \nCredit history \nPersonal guarantee \nBelow are some additional details and in-depth information you need to have on hand when applying for a business credit card. \nThe legal name of your business  \nWhen you first apply for a business credit card, you’ll need to list the basic information of your business, like its name. Depending on the type of business you have, this information may vary. \nLLC, limited partnership, S-corp, or C-corp:\n You’ll provide the business name that you registered with the state\nSole proprietorship or general partnership:\n You’ll be able to provide just your own legal name \nContact information\nYou’ll also need your contact information to apply for a business credit card. This information includes \nyour business’s phone number and mailing address.\n However, if you operate your business from home, you can also just list your personal address. \nDescription of industry \nNext, you’ll provide a description of the type of industry your business operates in. Online applications will usually have a drop-down menu that features a list of options to choose from. Pick the closest option that relates to your business or fill in a custom field if they allow. \nLegal structure or business entity  \nAn application for a business credit card will ask that you state your business’s entity type. These types of businesses include LLCs, nonprofits, corporations, partnerships, government, and sole proprietorships. \nNote: \nIf you register your business as a partnership or corporation, you may be asked to provide beneficial owner information—this includes individuals who own at least 25% of your business. If you do have beneficial owners, you’ll be asked to provide their personal information as well. \nNumber of employees and time in business \nA business credit card application will ask you how many employees you have and how long your business has been in operation.  \nIf you’re a new business:\n Choose the lowest time option in the application \nIf you don’t have any employees:\n List the number of employees as “1” in the application\nFederal tax ID (aka EIN)\nWhen applying for a business credit card, you’ll also need your federal tax ID on hand. Also known as your \nEIN (employer identification number)\n, this nine-digit number is what’s assigned to you once you’ve registered your business and is what credit card companies use to verify its legitimacy. \nThere are several places you can locate this number, including: \nA letter from the IRS pertaining to your business, like a Form W-7 or SS-4 \nPayroll paperwork\nOld tax returns \nBusiness loan applications\nIf you’re still unable to locate your federal tax ID, you can contact the IRS and they will provide it for you. \nNote: \nIf you’re operating as a sole proprietorship, you can list your Social Security number instead. \nEstimated monthly spending and annual business revenue \nThis information is a bit more involved and will require some digging. A business credit card issuer will want to see evidence that you can spend money responsibly and that your business will have enough revenue to cover card payments. Therefore, you’ll need to calculate your estimated monthly spending and annual business revenue. \nIn most cases, the larger your annual business revenue, the more likely you are to have your application approved. \nNote: \nIf you’re a new business and don’t yet have annual business revenue to report, the issuer will look at your personal income instead. \nAnnual income information   \nCredit card companies will also look at your annual income information to ensure you have backup funds required to repay outstanding balances and to \ndetermine your debt-to-income ratio. \nNote: \nWhen reporting your annual income, you can also include anything you have already earned from your new business. In some cases, you can also include your spouse's income in your calculation. \nLegal personal information  \nRegardless of the type of business you have, you’ll need your legal personal information, including your: \nLegal name \nSocial Security number\nContact information \nThe issuer will use this information to \ncheck your personal credit score\n if you have not yet established a business credit score. \nCredit history of personal account(s) \nWhile checking your personal credit with the information above, the issuer will also check the credit history of your personal accounts. They’ll do this to determine how reliable you are as a borrower of funds. Certain red flags from your accounts that might deem you less qualified include: \nBankruptcies\nCollections \nJudgments\nTax liens\nLate payments\nNote: \nHaving an issuer do a credit check will result in a “hard inquiry” on your credit report—this will temporarily drop your credit score, usually only a few points. For this reason, you’ll want to avoid applying for too many credit cards at once so that your score doesn’t take too many hits. \nPersonal guarantee \nMost business credit cards will require a personal guarantee with your application. The guarantee that you are financially responsible as the primary payer of the card, meaning you’d be on the hook personally for any late and outstanding payments. You’ll usually see this personal guarantee in the terms and conditions of the agreement portion of the application. \nNote: \nIf you do not want to sign up for a credit card that requires a personal guarantee, you can either prove that you have a solid relationship with your bank (good payment history, low debt-to-income ratio) or you can meet the annual revenue requirements. \nHow to get a business credit card\nApplying for a business credit card is similar to applying for a personal credit card—but with a twist. Here are the various steps involved with getting a business credit card: \n1. Research your options  \nThere are many different types of business credit cards available, so it’s important to take some time to research all the different options. To start, be sure to take a \nlook at your business expenses \nto see what categories you spend the most on—this can guide you on what type of card you should get, whether it be a travel card or a cashback card. \nAlso, be sure to consider other business credit card factors, such as fees and interest rates.  \nBusiness credit cards vs. charge cards\nWhile there are many business credit cards with different rewards and perks, you might also want to consider charge cards. The main difference between the two is that a charge card does not have a preset spending limit. \nNot having this preset spending limit is best for businesses or individuals who need to make very large purchases at once. However, unlike business credit cards, you’ll have to pay off the entire balance in full at the end of the billing cycle. \nIf you want to consider a charge card instead, make sure that you are in good financial standing to be able to pay off large balances within the statement period to avoid hefty penalties.   \n2. Review your credit score \nYour credit score—whether it be a business credit score or a personal one, depending on your situation—is important in the application process and is a large factor in determining your eligibility.  \nBefore applying for a business credit card, it’s beneficial to review this beforehand and take the steps necessary to make sure your score is high enough to likely get you approved. You can help improve your credit score by paying down debts and resolving any outstanding credit disputes.  \nNote: \nMost business credit cards require a score of 650 or above—if your credit score is below this, you should hold off on applying and work on boosting your score first. \n3. Gather information \nAfter reviewing your credit score and making sure it’s in good shape, gather all the information you need before filling out the credit card application. This information includes your: \nFederal tax ID number \nSocial Security number \nBusiness documents that confirm the number of years in operation\nFinancial documents that state your monthly spend estimates and revenue \nList of employees (if any) who need access to the business credit card \n4. Fill out and submit the application \nOnce you have your business credit card picked out and all of your documents and information ready, you can then apply. \nMost applications are done online, \nbut you can also print out the application, fill it out, scan it, and send it to the credit card company via email. \nIf you’re filling out the application online, the approval process usually happens within a few minutes. If approved, you’ll receive your card in the mail to activate and begin using. \nNote:\n If your application is denied, review the reason why you weren’t qualified and remedy that issue to help ensure you’ll be approved in the future.  \n5. Activate your business credit card \nAfter you’ve received the business credit card in the mail, you’ll need to activate it in order to use it. To activate most credit cards, all you need to do is call the number provided or simply use it. Be sure to \nreview the credit limit granted to you before buying anything\n—spending wisely and staying below that limit is in your best interest.  \nRead on for important tips on how to make the most of your business credit card. \nTips for successfully using a business credit card\n\nWhen used responsibly, a business credit card can help you grow and achieve many things for your business. Here are some tips on how to maximize the benefits that a business credit card offers: \nSet spending limits for employees \nIf your business has employees, consider setting a spending limit that they have to follow. This will ensure that your employees are sticking to the business’s budget and that they’re not taking advantage of the card. \nIf you don’t have employees, pay close attention to your own spending (which you should be doing anyway) so you don’t get in over your head and end up carrying a large balance for a long time.\nDeduct interest during tax season\nBusiness credit card payments can add up—if you end up having to pay interest, you can deduct that interest from your taxes if those purchases were business-related expenses. Annual fees and other charges made on your business credit card may also be deductible. \nAdditionally, you can pay your balance in full to avoid having to pay any interest at all and decrease the risk of your credit score dropping. \nAvoid personal expenses\nIt may be tempting to charge personal expenses on your business credit card. However, doing so will make it much more difficult to keep track of your business profits and expenses once tax season rolls around. It’s best to just avoid this habit altogether. Keeping your personal and business expenses separated is one of the main reasons for getting a business credit card in the first place, right?\nReview and track your financial statements \nSince you’ll likely be making larger purchases on your business card, make sure to review and track the statements that you receive each month. \nKeeping a close eye on these statements will give you a clear picture of how your business is doing financially. Plus, you’ll be able to spot any errors or \nfraudulent charges\n. \nUtilize rewards\nKeep track of the rewards benefits your business credit card offers and take advantage of them. Many of these rewards cards automatically give you what is promised. However, points and perks can expire. To take full advantage, ensure you know how your rewards program works and make purchases accordingly. \nFor example, if you need to make a purchase from a merchant that currently has a credit card reward, be sure to do so before the points expire.  \nReach your goals with a business credit card \nUsing a business credit card can help you pay business bills and take advantage of rewards perks. Now that you’ve learned how to get a business credit card, use the tips above to help you get the most out of your card and reach your business’s goals, as well as build your business credit.\nSolo makes it easy to pay and get paid\nSolo is not a bank, but is a financial super-app for small businesses, freelancers, sole proprietors, contractors, and more. Solo is the easy way to pay and get paid. Your customers don't have to sign up to pay you, and can use several payment methods, including Apple Pay, Google Pay, and cards. QR codes make it easy to get paid, and you can easily cashout your Solo account balance for free, or spend it using your Solo Cash Card anywhere Visa is accepted. Learn more at \nSolo.co\n.

41 articles found in “Running your business”

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