5 Tips to help keep them separate
Being a business owner definitely comes with its perks. You get to be your own boss, make your own hours, and create policies that align with your own morals. However, business ownership also comes with the lion's share of challenges—one of which is keeping your business spending separate from your personal spending. Come tax time, if all of your transactions are intermixed with one another, you and your accountant will face a lot of headaches. So how do you go about keeping your business and personal spending separate? Follow these tips:
1. Create a Separate Bank Account
You should absolutely have a separate bank account for your business. This applies whether you own a mid-sized business with a few employees, or you're a sole proprietor who sells $100 worth of goods a month on the side. Maintaining a separate bank account enables you to deposit all of your business income into that account, and spend that business income directly on business expenses.
2. Carry Two Separate Credit or Debit Cards
Always carry both your personal and your business credit cards with you. This way, you won't end up having to swipe your personal card for a business purchase because your business card is at home in a drawer. Make a rule for yourself, too. If you forgot to bring the business card, you can't buy something for the business until you go get it. If you forgot the personal card, you can't buy something personal until you go get it. Making that trip back to the office or back home is easier than trying to sort through piles of financial statements a few months from now.
3. Figure Out What's a Business Expense and What Is Not
You may have some questions as to what qualifies as a business expense, and what does not. For instance, are those shirts with your logo printed on them a business expense or a personal expense? What about the social lunch you had with your aunt, during which you ended up talking about new marketing strategies? Ask your accountant or business attorney these questions, so you can be sure you're making such purchases from the right accounts.
4. Keep Your Partners Informed
This applies to both business partners and to spouses! Make sure that anyone else who has access to your personal account or makes purchases for the business is clear on what is a business expense and what is not. It may help to make a clear list, based on the information you get from your accountant or business attorney, and share this list with your partners. If one of you intermixes personal and business expenses, it could make things complicated for all of you come tax time.
5. Pay Yourself a Salary
Do not simply spend a certain amount of money from your business account on personal expenses and consider it your income. This is tough to track and could land you in hot water with the IRS. Instead, transfer a set amount of money from your business account to your personal account once a week, biweekly, or even monthly. Essentially, pay yourself a salary that you spend on your personal life and expenses.
Keeping your business and personal expenses separate may take a little time to adjust to, but it's worth the effort. Creating a separate business bank account is an important first step; everything else will come together from there.