If you’re an entrepreneur or business owner, chances are your business and personal lives are irrevocably intertwined – and unfortunately, perhaps so are your finances. But while work-life balance may be a forever-dropping goal on the task list, effectively dividing your personal and business’ finances should be top of the mark, especially come tax time.
These seven simple strategies can help you seamlessly separate the two:
1) Be official. Sure, you’ve hung out your shingle, and you’re open for business. Make it official with the government by adding another layer of records. Consider an S corp, a C corp, an LLC (limited liability company) or another option—consult with your business advisor team, such as financial planners, accountants and attorneys to find the right choice.
2) Separate expense tracking. Though often the two can feel the same, track your business expenses completely separate from your personal expenses. If you’re a one-man-band this can be particularly challenging, but it’s essential for recordkeeping.
3) Get a business credit card. In addition to helping with expense tracking, this offers many benefits, including additional documentation for the IRS. Some cards may provide an extra tax deduction (business credit card interest is deductible).
4) Open a business checking account and receive instant credibility with the IRS. Your records will automatically be separate from your personal expenditures, with no checks and balances necessary to find a clean slate. If you use software like Quicken or QuickBooks, ensure you have two different accounts too.
5) Speaking of software, the version you use to manage your personal finances may not be enough for your business needs. In addition to features like invoicing and crediting, upgrading to the business version offers benefits for tax management, expense tracking and financial guidance.
6) Talk the talk. Talk to your team before you get too far down the path of any money management strategy. Understand what services you need from your checking account (for example - payroll handling and merchant services to accept credit cards), plan your estimated tax payments, and know how to record investments both on the business and personal sides without muddying the waters.
7) Limit your liability. Especially in today’s economic times, separating your business and personal finances is just smart. If your company faces a lawsuit or falls into debt, your personal liability is more significantly impacted if the two are intertwined. For these reasons, keep your company’s tax and legal liabilities separate.
Not sure where to start? Your very own financial team is waiting to assist at Busey! Contact us today at 1.800.67Busey or visit one of our many convenient locations to determine which products and services are right for your business.