Entrepreneurs know it takes money to make money. Most embrace this concept begrudgingly. After all, money spent on advertising could be better spent on purchasing more inventory or visiting more clients. Still, it makes good business sense to advertise and schmooze clients when necessary.
Often, this is where the line between personal and business finances becomes blurred. Shelling out cash for a client’s meal directly from the business owner’s wallet is a legitimate write-off. Simply turn the receipt over to the accountant and it’s done. However, other instances aren’t so easily handled.
How does one separate personal and business finances?
- Maintain Separate Accounts
Business owners will find neater organization and IRS compliance by maintaining two checking accounts: a personal account and a business account. This not only allows for a speedy reconciliation when tax time comes around, it doesn’t leave the IRS wondering if any funds were co-mingled. When funds are mixed, even visiting BusinessInsurance.org for quotes on business insurance won’t solve the problem.
- Apply for a Business Credit Card
Your business will be allowed to deduct interest on the balance owed when filing the business’s tax return. What’s more, like a business checking account, it keeps a record of activity. Your accountant will thank you for using a business credit card exclusively because all the information is in one place.
- Create a Separate, Distinct Entity
Sole proprietorships are attractive on many levels. But forming an LLC or S Corporation will erect a barrier between your personal assets and those of the business. These legal entities create a professional appearance among your customers and the public at large. An added benefit is forming an LLC or S corporation is protecting your personal finances and property.
- Make the Right Choice
When it comes to business, keep it all business and leave the personal credit cards, cash and checks aside. In other words, don’t pull out the business credit card to charge air fare for a personal vacation to rack up points or miles. Simply use common sense and resist the spur of the moment urge.