A Few Important Tips to Peel the Business Away From Personal Finances

About the Author: Stewart Smith is a financial writer associated with many finance related communities. He writes on various topics like bankruptcy.

Business owners often intertwine their business and personal finances, which leads a mess at the time of paying taxes. It is very essential to treat your business as a separate entity, and not to muddle up between the two. But there are many individuals who do not know how to peel their business away from personal finances. If you are also among them then here go a few important tips for you to follow.

Important tips to follow:

1. One of the most important steps to separate business from personal finances is to open a business checking account. Richard Salmen, a certified financial planner says, “If there’s a question as to whether it’s a hobby or a business, the IRS might like to see if you have a separate checking account.” He also says that if you use Quicken, Quickbooks or Microsoft Money, then you should have two separate systems for your business and your personal finances. Having two accounts are not only tax-smart but it also improves your organization. It helps you keeping record year long, which will give you proof of your business expenses if you do get audited.

2. Like a separate checking account, a separate business credit card helps you keeping record and gives you something to show the IRS if you are audited. Though lending requirements are quite strict in small businesses but you must try your best to acquire a business credit card. Another primary advantage of having a business credit card is that you will get an extra tax advantage.

3. Before starting a business, you must make everything official. You may consider establishing either a limited liability company or may consider establishing an S Corp for your business. However, before deciding on it, sit with your team of advisors – attorneys CPAs, financial planner and insurance agent, and consult them, which entity among the two will make more sense.
The team of advisors may also advice you on how this business will affect your taxes and financial plan, and what insurance coverage you must consider.
These business entities will also give your personal finances a new level of liability protection, which could come in very handy of your business is ever sued.

4. Having a checking account, business credit card and record keeping software help you to file your taxes, and prove to the IRS that your business is a business. However, apart from this, there are other considerations too. Like, if you have a home office, you are eligible for tax deduction. But you need to have it in a right way. Salmen says, “You cannot have a daybed in it for visitors.”
Many people are there who are way too afraid of taking a home office deduction because of being audited, but if it is legitimate then of course you must go for it.

In conclusion, you must keep the above mentioned tips in mind in order to separate your business from personal finances.