4 Tips for Separating Your Business and Personal Finances
Guest Column By:
By Douglas Smith
SVP, Community Banking Sales Director
Sun National Bank
If you own a small business, it can be difficult to separate work from the rest of your life. Many owners use their home or personal vehicle for business or may combine work and leisure when they travel. Your business and nonbusiness activities may be intermingled, but your finances shouldn’t be. It’s important to understand what is and isn’t a legitimate business expense and to adopt spending and bookkeeping habits that help prevent confusion (and a potential IRS audit).
To separate your business and personal finances, implement these practices:
1. Keep Separate Checking Accounts
Always use the appropriate checking account for your business expenses and your personal expenses. At tax time, this will give you a clear picture of your spending, helping you claim the right deductions without having to scramble for long-lost receipts.
2. Be Careful about Mixing Business and Leisure
To be tax deductible, travel, meals, and entertainment must be directly related to or associated with your business. Keep business lunches and other work activities separate from events with friends and family.
3. Make Office Equipment Business-Only
When you claim a deduction for goods and services purchased for business, the IRS says these items must be “ordinary and necessary.” If you plan to write off that new computer or piece of furniture, make sure it’s something used for your business – and that isn’t more lavish than its function requires.
4. Keep Your Home Office Separate
If you operate your business from home, designating one room as your office can let you claim a home-office tax deduction. Also, consider having a business-only vehicle, phone service, and Internet provider to help keep your work and personal expenses separate.
If separating your business and personal finances is a challenge, consider speaking with an accountant. He or she can clarify IRS guidelines about business expenses and reporting. By keeping your business separate from the rest of your life, you can avoid tax mistakes, improve your bookkeeping, and have more financial details to inform your business strategy.
The information contained herein is for general informational purposes only and does not constitute tax, legal, or business advice.