You probably spend a lot of your day dealing with the operation of your business — buying supplies, paying employees, and more. Just be sure that whatever you do, you keep your business and personal finances separate.
Unless you’re a sole proprietor, you must file a separate tax return for your business. When you keep your expenses separate, it makes this process much easier and more manageable. Plus, if you use a business account to conduct business with your customers, you’ll reflect more credibility and professionalism (think about your own experiences).
How to keep your business and personal finances separate
You may be thinking that keeping your finances separate is simple to do, but sometimes the line gets a little blurry. Check out these seven tips:
- Open a business checking account. Once you have your EIN, you can then open a business checking account. At Pinnacle Bank, you’ll find we offer free business checking, (LINK TO: https://www.pinnaclebank.com/business-banking/checking/) which is a huge benefit to your business. Do your homework and find the right account for your company’s needs. Keep your business checking information in a separate location than your personal information so you won’t accidentally intermix the two.
- Use a business credit card. You should establish credit for your business as soon as possible — and the easiest way to do so is to open a business credit card. (LINK TO: https://app.thecardservicescenter.com/SelectionBusiness/index/7990). Not only can you use this card to pay for much-needed supplies or develop your inventory, you’ll also improve your company’s borrowing power. Most importantly, though, it’s another way to keep your business and personal credit transactions separate.
- Pay yourself a reasonable salary each month. Work with your CPA to determine what’s best for your circumstances. You should try to avoid transferring funds from your business account to pay for personal expenses as much as possible.
- Track your expenses. It’s important to know where your business stands at any given time. Most companies use financial software to help track expenses, such as Quick Books, Quicken, and others. Using expense tracking software, you can also generate the reporting you regularly need to manage your business. Additionally, it’s easier to ensure that your business and personal expenses are separate. And, if you have to use your personal accounts to pay for business expenses, you can make immediate adjustments when necessary.
- File your taxes with a professional. Not only will this ensure that your business’ financial records are error free, but you can feel confident that all your tax deductions have been applied. While it may be more expensive for your CPA to file than doing so on your own, the cost is well worth your peace of mind (and time). If you don’t have a CPA, ask trusted colleagues, friends, or family members for a recommendation.
By following these tips, you’ll be on your way to keeping your business and personal finances separate. To learn other best practices to follow, talk to your CPA.