Balancing between your personal and professional lives is not an easy feat, but we know how to help simplify this dilemma: don’t co-mingle your business and personal finances! Combining these accounts causes confusion, unnecessary hassle during tax season, and could potentially lead to an IRS audit. Also, most importantly, the co-mingling of business and personal funds are in direct violation of the standards set forth in the lengthy and complicated US Tax Code. Business tax deductions and personal tax deductions operate under different sections of this code which can get extremely complicated. Below are a few tips to keep these accounts separate, so you can save on time and effort!
Different bank accounts
Create separate checking accounts for your personal and business expenses. Detailed documentation of expenses will come in handy when you file your taxes. Additionally, set up automatic online payments for your respective bills, so you do not accidentally pay with the wrong account.
Once you establish your business bank account, apply for a credit card that is specifically for professional expenses. Separate cards will keep your business card from affecting your personal credit score and history.
Business vs. personal expenses
Although it may seem complicated, business expenses usually come down to what you purchased for professional use rather than what you bought for strictly personal use. In other words, don’t write off birthday gifts for your spouse or football tickets with your friends as business expenses.
Since you will likely carry both credit cards in your wallet, this is where things can get complicated. You may reach for your wallet while paying for dinner with your family and accidentally pay with your business card. If this happens, do not panic; reimburse your business account and keep the receipt.
Stay on budget
Create a budget and record all expenses, including your salary. It may be tempting to take a fraction of your personal paycheck to help your business through a tough quarter, but this not advisable. Staying on budget makes it easier to finance expenses and file taxes.
Talk to an accountant
Accountants can classify expenses and help you identify how to differentiate between your business and personal bills. If you need assistance separating your various expenses, contact us at (781) 436-5810 or hylencpa.com/contact-us.