Should you keep your business accounts separate from your personal?
The short answer is “Yes.”
It may seem like a no-brainer but many small business owners, particularly solo entrepreneurs, do not separate their personal accounts from their business accounts.
Keeping your business accounts separate from your personal accounts can make your life easier primarily because it simplifies your financial accounting and planning process.
As a business owner, you are responsible for coming up with a system to keep track of all your income and expenses. By keeping your business finances separate, it can also help you reduce your legal liability and can help you manage your tax and bills more efficiently.
If you charge business expenses and personal expenses on the same account, it is an arduous task to separate line-by-line which was a business charge versus a personal charge. Additionally, commingling your expenses can make you susceptible to the risk of miscategorizing a personal transaction as a business expense. Because you make numerous transactions throughout the year, it’s highly likely that you could mistakenly count a personal expense as a business expense.
More importantly, by keeping your business transactions distinctly separate from your personal, it helps mitigate the risk of a red flag if you face an IRS audit. If an IRS auditor finds a personal transaction that you “mistakenly” classified as a business expense, you may face potential penalties and fees.
There are many business apps, such as Intuit’s Quickbooks, that prompt you to classify each expense as it is charged, but most people forget to do this or find it cumbersome.
By having a separate charge card for your business, you can avoid this extra step. Charge all your business expenses to your business credit card or debit account. If you sync your business account to your business app, it can automatically categorize your business expenses such as entertainment, meals, travel, etc.
My clients who are small business owners have found it beneficial to have a separate business account because they can simply download all their transactions to one place and give them to their CPA for tax preparation. Furthermore, it makes the financial planning for your business easier throughout the year because you can compare your year-to-date business spending with your projected annual budget more quickly.
You may not want to deal with carrying another credit or debit card solely for business expenses, but it can save you a lot of time rather than having to separately itemize each expense later on when you have to report all your business expenses for tax filing. By keeping two distinct, separate accounts, all business transactions are reported under one card and all personal transactions are reported on another account.
A Three Step Process:
- Carry two separate cards: one for business and one for personal
- Charge all business expenses on a card you’d use solely for business expenses
- Download all your business transactions from that card to do financial planning and accounting
Start building the life you’ve always wanted.
This data is for informational purposes only and Capital Benchmark Partners, LLC ("CBP") is not affiliated with any of the businesses mentioned nor endorses them. CBP is not endorsed by any third party entities for their inclusion in this article. Past performance is not a guarantee of future results. The information contained herein has been obtained from sources believed to be reliable but the accuracy of the information cannot be guaranteed.
© 2017 Capital Benchmark Partners, LLC. All rights reserved.