Next, you need to get a good understanding of what qualifies as a business expense and what does not. You may want to consult with your accountant on this one. You will find that many expenses are questionable so you will want to get their advice on what they count as a business expense and what is personal. This way you can correctly record things throughout the year and not have to make a bunch of corrections during tax time.

Now that you have a record keeping system and you have educated yourself on the different types of expenses, you need to set up some business accounts. Probably the most important account that you can set up is a business credit card. This will help you keep a record of all transactions. Use the credit card to pay for everything even if you pay the credit card of every month. This will help you build credit and track your expenses. However, you will still need to keep all of your receipts.

You will also need a separate bank account for your home based business. Now make sure you use it. Too often business owners set up the account, but fail to use it because they are in the habit of paying for everything with their personal accounts. Often business accounts have higher fees than your personal accounts, but the utility of keeping your accounts separate is well worth the expense.

You will deposit all your business revenues into the business account, and withdraw any business related expenses or payments from the business account only. You will want to get a checking account and hopefully get one that delivers monthly statements and returns your cancelled checks to you. Most banks will at least send you a copy of the check. These records will help you to track expenses and make your record management easy because you can use the memo line on the front of each check to document the business purpose of each expense.

If you use your personal vehicles for business purposes, a mileage log will be a big help in record management. You will need to record the mileage by date for each trip you make with business purposes. This log will only be checked during an audit, but can be very helpful to explain the mileage used for your business and to justify the mileage deductions.

Keeping your mileage log in the glove box of your vehicle will make this task much easier. If you have more than one vehicle that you use for business purposes, keep a mileage log in each.

In summary, you will need to educate yourself on what business expenses are and personal expenses. You will then need to set up separate accounts and use them for those business expenses. You must keep an accurate record of your expenses for tax purposes and to protect your business entity for liability purposes.