Paying for Business Expenses Applying for a business credit card is something a small business should seriously consider for itself. Business credit cards can provide a range of benefits to a business. They allow a company to build up credit for better borrowing conditions down the road. They’re also quite easy to apply for. In this article, we’ll go over how to apply for a business credit card and other important points to note. What Is a Business Credit Card? A business credit card is a credit card that is intended for business expenses. These cards are not meant for any individual’s personal use, but they are available to businesses of all sizes. What Is a Business Credit Card Used For? Business credit cards are meant for business expenses, and as such, they come with several perks that you wouldn’t get with a normal credit card. Business credit cards typically have far higher credit limits than normal cards, but they are also harder to qualify for. [youmaylike] As a business phenomenon, business credit cards vary their offers greatly, and certain cards are meant for certain businesses. They are also highly customizable when it comes to individual payment terms. Businesses don't always have consistent incomes like individuals do, and business credit cards handle this problem. These cards are used to gain access to a long line of credit, to control employee spending on business expenses and more. One of their other common uses is to make accounting easier, as putting all business expenses on one separate account makes reporting to the Internal Revenue Service easier. In the end, there are many uses for a business credit card. Why Would I Need a Business Credit Card? You might not need one, but if you run a business, you’ll be leaving money on the table by not at least looking into them. Business credit cards can solve many of the problems business owners face. If you need employees to make purchases for the business, a business credit card is the safest option. These cards can be given to authorized users, a status you can easily give to any of your employees. From here, these cards make it easy to monitor employee spending and spot any discrepancies. You can attach customized user privileges to each card to limit spending and place limits on where the card can be used. As mentioned, if you feel like your credit is too limited, business credit cards are a sure way around low credit. According to the American Bankers Association, the average monthly payment on a business credit card is twice as high as the average payment on a normal one. If you’ve found yourself annoyed with the Internal Revenue Service over the complicated reporting processes for business owners, you’re not alone. This is where a business credit card can solve another problem. Simply handing over your business credit card statements to your accountant will make them love you. It will also provide them with the information they need to predict future spending. Another great use for a business credit card is lifting your liability for debts. Liability for credit card debt is determined by the liability offered by the card. If you’re using a personal credit card for business expenses, you are liable for all debts. On the other hand, if you use a business credit card with commercial liability, your business is liable for any debts, which changes the game. Keep in mind that some cards offer joint liability, which leaves both you and your business liable for any debts. Make sure you know what you’re getting into before signing any paperwork. Lastly, just as personal credit cards offer rewards programs, so do business cards. The main difference here is that business credit card rewards are tailored to your business needs. How to Apply for a Business Credit Card Before you apply for a business credit card, you should make sure you’re eligible. For the most part, you only require the following to be able to apply for one: A legal name for your business. A business structure to apply with, such as a Limited Liability Corporation. An explanation of the nature of your business. You’ll typically be given a list of industry types to choose from. A tax ID number issued by the Internal Revenue Service Your roll in the business you’re representing Various business/financial information including: Annual revenue. Number of employees. Length of time in business. Estimated monthly expenses. If you have this information ready, you can apply for a business credit card. At this point, it would be wise to shop around and find the best option for your business. Your decision on the business credit card you choose will have larger ramifications than your choice of a personal credit card. Applying for a business credit card is much the same as applying for a personal one. There are a few differences, but the main thing to remember is that business credit cards are taken more seriously than normal ones, so you’ll have to face a higher bar of entry. This doesn’t mean getting a business credit card is hard, but it does mean you need to arrive more well-prepared than you normally would. To make things easier, you can prepare for certain obstacles in advance. You may need to sign a personal guarantee that you will pay off any debts. Also keep in mind that if you’re the one applying for a business credit card, and your business doesn’t already have one, they will conduct a personal credit check. It may be best to try to optimize your personal credit if you plan on applying for a business credit card in the future. Some Options at a Glance Here are some of the most popular options for small business credit cards: Chase Inc Business Preferred This is a great option for a few reasons. With the Business Preferred card from Chase Inc, you get 80,000 ultimate reward points when you spend $5,000 with the card in the first three months. The card also provides generic, but highly useful benefits for business owners. Business Platinum Card from American Express The Business Platinum is ideal for businesses that spend a lot on flights and travel. This card offers numerous rewards on flight and hotel expenses and makes sure you get something serious back if you use it for these expenses. Chase Inc Business Unlimited The Chase Inc Business Unlimited offers unlimited 1.5% cash back. While we’ve said enough already, they also offer several other perks that are overshadowed by their first one.
What Is an IRA Account?
When it comes to saving for retirement, the 401(k) gets all the attention. It’s easy to see why, too.
Many people are offered employer matching options in their 401(k) plans, a major incentive to save in those specific accounts. There are very few things better than free money.
But investors should also utilize some of the other retirement savings vehicles out there, especially their IRA accounts.
Here’s an overview of IRA accounts, including what they are, the benefits and how you can start using one today to save for your future.
The Basics of IRAs
An IRA (it stands for individual retirement account) is a type of investment account that shields gains from taxes. Depending on your employment status, there are several types of IRAs. Folks with regular jobs will open traditional or Roth IRAs, while self-employed people or business owners will use SEP or SIMPLE IRAs.
While each of these IRAs offer slightly different rules, we’ll just focus on the major difference between the two types of IRAs for regular folks – traditional and Roth IRAs. Your contributions for a traditional IRA are tax deductible (provided you make under $75,000 per year filing individually or under $124,000 filing jointly), while Roth IRA contributions are made with after-tax dollars. That means any gains from a Roth IRA will accrue on a tax-free basis, while you’ll be stuck paying taxes on traditional IRA gains once you start pulling the cash from your account, something that is mandatory starting at age 72.
You can only open an IRA account with a company that is registered with the IRS, a list that typically includes major banks, brokerages, or other types of investment firms.
Additionally, you can only contribute to an IRA using traditional earnings. That means that income like social security, child support or investment gains are not eligible.
Each of the different types of IRAs have investment limits. Both traditional and Roth IRAs are limited to a maximum contribution of $6,000 per year, with Roth IRAs offering a maximum investment of up to $7,000 annually if you’re 50 or older.
Most IRAs are self-directed, which means the account holder will be making all the investment decisions. You’ll have your choice of a multitude of different investment products, including individual stocks, bonds, mutual funds and exchange traded funds. You can also buy real estate or tax liens through a traditional or Roth IRA.
And finally, since IRAs are only supposed to be used for retirement, you’ll be hit with an early withdrawal penalty if you start taking your cash out before age 59 and a half. This early withdrawal penalty is usually 10% of anything taken out of the account.
Which Is Better – IRAs or 401(k)s?
The big benefit of an IRA over a 401(k) is the tax status of the former. Remember, Roth IRAs grow on a tax-free basis. You’ll end up having to pay taxes on both traditional IRAs and 401(k)s when it’s time to start making withdrawals. That’s a big advantage for Roth IRAs right there, and it’s a main reason why so many Americans focus on that account.
Another advantage to Roth IRAs is you don’t need to start making withdrawals by the age 72 deadline. You can, in theory, let your Roth grow forever. Just remember that unless you’re working, you can’t add anything to the account.
The big advantage to 401(k) plans is the employer match. Your employer must open a 401(k) for you, while opening an IRA is usually an individual’s responsibility. You can also contribute much more to a 401(k), with the limit for the 2020 tax year up to $19,500 if you’re under the age of 50 and $26,500 if you’re older than 50. There’s potential for your 401(k) to get quite big over time, while IRA account balances are usually a little smaller.
Many Americans are using a combination of the two to save for retirement, with many focusing on Roth IRAs because of their tax-exempt withdrawal status. The tax savings from contributing to a traditional IRA aren’t especially needed because these folks are also saving in a 401(k) plan.
When Should You Start Using IRAs?
The obvious answer is as soon as possible. The miracle of compound interest means time in the market is the easiest way to really goose your retirement savings.
Before you invest in an IRA, be sure to think about a few things. If your income is low, for instance, don’t put money to work in a traditional IRA. The tax savings will be negligible. Instead, use a Roth IRA and save the traditional IRA contribution for a better time.
Most people use both kinds of IRAs in a more traditional sense. They graduate from college, start working, and then it’s time to begin putting money aside for retirement. This is exactly when the average person would start using an IRA, and it’s a sound strategy. Leave the fancy tax avoidance strategies for the pros and just start saving in a normal way.
How to Set Up an IRA
Most IRAs are self-directed, which means it’s up to you to set one up. Fortunately, the process is straightforward.
The first step is to find a company to host your IRA account. There are hundreds of different companies out there that have the proper IRS approval to offer IRAs. One way to pick the correct one is to identify the type of IRA you’re looking for. If you’re looking for a hands-off approach to investing, a company specializing in that would be a good idea. Or, if you want to actively trade, then a discount stock brokerage would be a better solution.
Remember, the institution that has your IRA shares this info with the government. This means applying for an account will take a certain amount of patience and paperwork. They need to do things correctly or risk losing all those accounts.
One solution that will make the IRA application process a little easier is if you go with your existing bank or stock brokerage house. Remember, they have all your information on file already. That’s the biggest part of the process, and an important step you’ll skip if you have an existing relationship with the company.
Finally, once the account is set up, you’ll have to decide what to do with it. Even if you take a hands-off approach and just throw the cash into a diverse portfolio of passively managed exchange traded funds, you’ll still have to monitor it and ensure everything is going to plan.
The Bottom Line
Opening an IRA is one of the most important moves you can make to secure your future. Now you must move onto the hard part, which is making sure you’re consistently throwing money into the account. Save consistently for a few decades and you’ll be well on your way to a prosperous retirement.