Chances are if you own your own business, you will have a business account at some point. Having one can really simplify managing your business’s finances, but it can also be tempting to use that business account for personal expenses.
If you’ve found yourself mixing up personal and company accounts, you may want to consider the following reasons to avoid using your company account for personal reasons.
Keep Them Separated
If your business is a corporation or if you are planning to incorporate, things are pretty cut-and-dry. Corporations are separate tax-paying entities, so those expenses absolutely need to be distinct from your personal expenses. It may help to think of the corporation as a separate person completely — you wouldn’t combine accounts with another person and then file separate taxes. Corporations, LLCs and partnerships should also have their own accounts.
If your business is not a corporation, it can be less clear. The IRS requires that business and personal transactions be reported separately on your tax returns. While you don’t necessarily need separate bank accounts for each, you do have to be able to differentiate between expenses for each.
For example, if you buy printer paper for your business, that’s a business expense. If you decide to pick up an ink cartridge for your family printer while you’re at it, that’s a household or personal expense. Co-mingling the two can make it hard to differentiate between how much money went to each purpose. Eight months down the road, you are less likely to remember where you used the ink, even if you keep the receipt.
Simplify, Simplify, Simplify
Keeping your business and personal accounts separate also simplifies things come tax season. The last thing you or your accountant wants to do is go through an entire year of bank records line by line separating and tallying business and personal expenses. If you frequently use the same account for each, this is what will have to happen.
Want more tips on keeping business accounts? To learn more about Hacker Accounting’s services, give us a call at 602-375-5251.