If you answered “yes” to this question… you could be in for some challenges now or in the near future. You might not realize, especially if you are just starting your business, that separating your personal and business finances can help ensure you treat your business like the independent entity it is, while safeguarding your personal finances. Not to mention the stress of worrying if the IRS might come knocking one day.
How many hours do you spend during tax season going through your checkbook and credit card statements to sort out your business and personal expenses? Are you sure you are taking all the business tax write-offs? Luckily, the tax deadline has been extended until May 17 this year, but wouldn’t you’d rather be spending that time with family and friends?
What’s done is done, but don’t find yourself in the same situation next year!
Here are some tips to keep your finances separate:
Maintain separate accounts
Set up a business checking and a business credit card. Not only does this bring credibility to your business, to your suppliers, and your customers, it provides legitimacy if the IRS takes a closer look.
Determine a business structure
Establishing a legal structure such as a corporation, sole proprietorship, or limited liability corporation (LLC) can provide tax benefits, but more importantly help protect your personal assets. Be sure to discuss how to set it up properly with your attorney, CPA or financial adviser.
Pay yourself a salary
Most people don’t separate their finances because they need the business income to pay their personal expenses right away. In that case, still put the money in your business account then pay yourself from your business account.
Track shared expenses
Let’s face it, there’s going to be a time when you leave the business credit card at the office or purchased some business items at Staples while shopping for the kids’ school supplies. When this happens, create an expense report and have the business reimburse you. If you would like a copy of an expense report template, you can request one at firstname.lastname@example.org
It’s never too late
It’s still the first quarter. If you’re using the same account for your personal and business finances, I challenge you to open your business account before March 31!
If you’re finding yourself overwhelmed, I can help with cleaning up past years, set you up with a template to begin using for business expenses, and seriously reduce your stress and anxiety… and let you focus on what you do best. Contact Precise Books & Tax Solutions today with any questions, or to get started!