Understanding how to properly import and categorize your business transactions is key. This not only ensures your monthly financial reports are accurate but also helps you become savvy in analyzing and acting on this data. Let’s break down the types of transactions and accounts, and introduce you to the tools that make managing your books a breeze.

Understanding Transaction Types

Business Transactions: These are your typical income and expense transactions related to your S Corp’s operations.

Accountable Plan Expenses: These are expenses from personal accounts used partly for business. The IRS allows for the business portion of these mixed transactions to be calculated and added to your S Corp Books.

Personal Transactions: These involve income and expenses from your personal life. Some classifications are straightforward, while others are determined by the tax code and IRS guidelines.

Types of Bank Accounts

Business Accounts: Primarily contain business transactions and ideally, are opened using the S Corp's EIN. If personal transactions occur, they’re categorized as Shareholder Distribution or Contribution.

Personal Accounts: These should only contain personal transactions and accountable plan expenses.

Mixed Accounts: In reality, mixed accounts are either business or personal accounts that need proper categorization.

Import Tools by Transaction and Account Type

The type of transaction and the type of bank account determines the import tool used to add business transactions to your S Corp Books.

*The Spreadsheet Import is for exceptions only. As an S Corp owner, you must have Business transactions occur in Business accounts. It is sound business practice that keeps the corporate veil unpierced.

Practical Examples to Guide You

To help ensure your experience at Collective (and beyond) is successful, check out the following examples of transactions. All the nuances are not covered here, but this is a good place to start!

Business Transactions from Business Bank Accounts:

• Software required for work

• Legal fees

• Professional fees (like those for Collective)

• Business meals

• Travel expenses (airfare, hotels, car rentals, etc.)

• Contractor payments,

• Office supplies

• Equipment

• Advertising

• Insurance premiums

For more examples of common business expenses, click here. The full chart of accounts used by Collective can be found here.

Accountable Plan Expenses from Personal Bank Accounts

While Onboarding:

1. Use the Reimbursements tool on your dashboard for home office expenses, business miles driving on personal cars, and phone and internet expenses.

2. Complete it for each month back to your S Corp Books Start Date.

3. If you are unable to complete this in time, it will not hold up the completion of your Onboarding, but your published financials statements will be incomplete, and quarterly estimated tax payment calculations will be inaccurate.

Ongoing:

The mixed expenses below should be paid from personal accounts (and then the company will claim a percentage of these expenses via the accountable plan).

• Phone

• Internet

• Home Office Deduction (Rent, Utilities, etc.)

• Mileage

See here for more info on mixed expenses.

Personal Transactions from Personal Bank Accounts

Below are examples of expenses that should be paid from personal accounts.

• Charitable contributions (non-advertising)

• Most food / meals (for business meals, see here)

• Direct auto expenses (gas, car payments, repairs, etc.)

• Federal and state income tax payments (including quarterly estimated taxes)

• All client entertainment that does not involve food

• Most subscriptions like netflix, hulu, youtube, spotify, ny times, etc.

  • Exceptions are discussed here

Understanding how to manage and categorize your transactions can significantly enhance your financial management skills and help keep your business's financial health in check. If you ever find yourself stuck or in need of more detailed guidance, don't hesitate to reach out or explore more resources available on your dashboard. We’re here to help you streamline your financial processes and make your entrepreneurial journey as smooth as possible!

Disclaimer: The information contained in this document is provided for informational purposes only and should not be construed as financial or tax advice. It is not intended to be a substitute for obtaining accounting or other financial advice from an appropriate financial adviser or for the purpose of avoiding U.S. Federal, state or local tax payments and penalties.