Have any questions?
Your FAQs Answered
Do I need to register my business with the state?
Yes—if you’re using a business name (like “ABC Solutions”) instead of your personal legal name, or if you want to form a legal entity such as an LLC or corporation. Registering with the state gives your business legal standing, allows you to operate under a formal name, and is often required to open a bank account, get licenses, or sign contracts. If you’re just freelancing under your own name, registration may not be required, but it’s still smart to check your state’s rules.
What’s the difference between an LLC and a sole proprietorship?
A sole proprietorship is the simplest structure—it’s automatically created when you start doing business under your own name. But it offers no liability protection, meaning your personal assets (like your home or car) are at risk if your business is sued or incurs debt. An LLC (Limited Liability Company) creates a legal separation between you and your business. It protects your personal assets and gives you more credibility. It also allows for flexible taxation—you can be taxed as a sole proprietor, partnership, or S-Corp depending on your needs.
Should I get an EIN (Employer Identification Number)?
Yes, even if you don’t have employees. An EIN is like a Social Security number for your business and is used to file taxes, open a business bank account, and apply for licenses. It helps you avoid using your personal SSN, reducing the risk of identity theft. Plus, many banks and payment processors require one. You can apply for free at the IRS website, and it only takes a few minutes.
Do I need a separate business bank account?
Definitely. Keeping your business and personal finances separate is not just good practice—it’s essential for accurate bookkeeping, proper tax reporting, and protecting your legal status (especially if you’re an LLC or corporation). A separate account also simplifies expense tracking and makes your business appear more professional and credible to clients, lenders, and the IRS.
When should I switch from a sole proprietorship to an LLC or S-Corp?
If you’re earning steady income, hiring people, taking on risk, or want to grow, it’s probably time to upgrade your structure. An LLC gives you liability protection, while an S-Corp may offer tax savings by allowing you to pay yourself a reasonable salary and take the rest as distributions (which aren’t subject to self-employment tax). The best time to switch is before your income or risk level rises significantly—it’s easier to set up properly early than fix mistakes later.
Your FAQs Answered
What is bookkeeping software and why do I need it?
Bookkeeping software helps you track your income, expenses, invoices, and financial reports in one place. Whether you’re a freelancer or a growing business, it saves time, reduces errors, and helps you stay organized for tax season. It also makes it easier to understand how your business is performing in real time.
Do I need bookkeeping software if I’m just starting out?
Yes—starting early with a good system sets a strong foundation. Even basic income and expense tracking helps avoid chaos later. Software like Wave (free) or QuickBooks Simple Start can grow with you and keep your finances clean from day one. You’ll thank yourself at tax time and if you ever need to apply for a loan or grant.
What’s the best bookkeeping software for small businesses?
It depends on your needs. QuickBooks Online is great for most businesses—it’s popular, powerful, and integrates with banks and apps. Xero - is ideal for teams and international businesses. Wave - is free and perfect for freelancers or very small businesses. Check out our comparison guide here to see which fits you best.
Can bookkeeping software replace my accountant?
No—bookkeeping software handles data entry, reports, and tracking, but it can’t give you strategic tax advice, help with compliance, or guide your business decisions. Think of software as your digital assistant, and your accountant as your advisor or CFO. The two work best together.
What features should I look for in bookkeeping software?
Bank syncing for automatic transaction tracking, Invoicing and payment tools, Expense categorization, Tax reporting or 1099 prep, Mobile access if you’re on the go. Some tools also offer payroll integration, inventory tracking, or time tracking if you need them.
Your FAQs Answered
Do I need to run payroll if I’m the only person in my business?
It depends on your business structure. If you’re a sole proprietor or single-member LLC taxed as a disregarded entity, you generally don’t pay yourself through payroll—you take owner’s draws. But if you’re taxed as an S-Corporation, the IRS requires you to pay yourself a “reasonable salary” through payroll before taking profits. Not doing so could result in penalties.
What’s the easiest way to run payroll for my small business?
A sole proprietorship is the simplest structure—it’s automatically created when you start doing business under your own name. But it offers no liability protection, meaning your personal assets (like your home or car) are at risk if your business is sued or incurs debt. An LLC (Limited Liability Company) creates a legal separation between you and your business. It protects your personal assets and gives you more credibility. It also allows for flexible taxation—you can be taxed as a sole proprietor, partnership, or S-Corp depending on your needs.
What are the legal requirements for running payroll?
You must: Obtain an EIN from the IRS. Register with your state for income tax and unemployment accounts, additional state requirement vary by state. Withhold federal and state taxes (where applicable) File payroll tax forms quarterly and annually (e.g., 941, 940, W-2, W-3) Pay employer taxes like Social Security, Medicare, and FUTA Payroll software helps automate all of this, but it’s still your responsibility to stay compliant
Can I pay independent contractors through payroll software?
Yes—most payroll systems let you process payments for contractors and generate 1099-NEC forms at year-end. It keeps your records clean and makes it easier to manage both employees and freelancers in one place. Just make sure you classify workers correctly to avoid IRS penalties.
How much does payroll software cost?
Most platforms charge a base monthly fee (around $30–$50) plus a per-employee fee (usually $4–$10/month per person). For example, Gusto starts at $40/month + $6 per employee. The cost is usually worth it to avoid fines, missed filings, or errors—especially if you’re managing multiple workers.
What payroll processing companies do you recommend for small businesses?
Some of the most trusted and user-friendly payroll companies for small business owners include: Gusto – Best all-around for small teams. Handles direct deposit, tax filings, onboarding, benefits, and integrates with most accounting software. QuickBooks Payroll – Ideal if you already use QuickBooks for accounting. Seamless integration and strong automation tools. ADP – Good for growing businesses that may need more robust HR tools. Offers flexible plans and strong customer support. Square Payroll – Great if you already use Square for POS. Perfect for hourly employees or contractors. We’ve reviewed each provider in detail to help you choose the best fit. See our full payroll software comparison here
Your FAQs Answered
What business expenses can I deduct from my taxes?
You can deduct ordinary and necessary expenses related to running your business. Common deductions include: Home office expenses (if you use the space exclusively for business) Office supplies and software Internet and phone bills (business use portion) Business meals (usually 50%) Mileage or vehicle expenses Professional services (CPA, legal, marketing) Proper recordkeeping is key—keep receipts, categorize transactions, and use bookkeeping software to stay organized.
Do I have to pay estimated taxes as a business owner
Yes—if you expect to owe $1,000 or more in federal taxes for the year, the IRS requires you to pay quarterly estimated tax payments (usually in April, June, September, and January). This applies to sole proprietors, LLCs, freelancers, and S-Corps (for shareholder income). Missing payments can lead to interest and penalties.
What’s the difference between a tax credit and a tax deduction
A deduction reduces your taxable income (e.g., deducting $10,000 lowers what you’re taxed on), while a credit directly reduces your tax bill dollar-for-dollar. For example, a $2,000 credit reduces your tax due by $2,000. Both are valuable, but credits tend to have a stronger impact on your final tax liability.
Can I deduct the cost of bookkeeping and accounting services?
Yes—bookkeeping, accounting, and tax preparation fees are fully deductible as professional services expenses. Whether you’re paying for monthly bookkeeping, annual tax filing, or financial consultations, these costs are considered ordinary and necessary to run your business. Just be sure they are business-related and not personal (e.g., filing a joint return for your household wouldn’t be deductible unless tied to your business activities).
How do I avoid red flags that might trigger an IRS audit?
Be accurate, consistent, and honest. Common red flags include: Excessive deductions relative to income Large home office claims without a clear business use High meal or travel deductions Misclassifying employees as independent contractors Using a CPA or qualified tax pro, maintaining proper records, and filing on time all help reduce audit risk.
