Are Your Home Business Finances Separate from Your Personal Finances?
By Miranda Marquit
One of the toughest things for me to get used to, in terms of running a home business, has been the fact that there needs to be separation between my business finances and my personal finances. This became painfully clear when I talked to an accountant about transforming my home business from a sole proprietorship into an LLC.
He was shocked - shocked! - at how deposits to my bank account mixed checks from clients with cash birthday presents. I had to get itemized records from the bank (at a cost, mind you) to show the breakdown so that we could “prove” which items were for business, and which were personal.
Then he had me set up a business bank account. My money from freelancing goes into the business account. Then I write a check to myself or my husband (who is my partner in the LLC) as a “distribution.” I try and keep some money in the business account, though, so that on the rare occasions that I make a purchase I can use my business debit card.
It’s kind of a pain, but this year my taxes were much less messy, since it was easy to pick out business expenses and income from my personal finances. And it meant that I could deduct more, since now I only use business type things in connection with my business. (If you use something personally, it can’t be deducted.)
At any rate, no matter your home business, it is important to keep things - whether it is income, debt or expenses - separate. Besides making your taxes easier, having a business account also adds an element of legitimacy to your home business.
Miranda Marquit writes about personal finances for Yielding Wealth, and about debt consolidation for Destroy Debt.
Tags: , home business finances, Miranda Marquit, personal finances
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