How to separate Personal and Business Finances?
Businesses often face financial issues and stress about separating personal and business finances. It can be difficult to determine how to draw a salary and reinvest in your business on a variable income. To get the most out of your money, it’s important to understand the difference between tax deductions available for your personal life and those for your business expenses.
Here are some tips to help you separate your personal and business finances.
- Open separate bank accounts- The first and foremost thing to do is open separate accounts for personal and business purposes. Transfer your share of salary into the personal account and forbid from using our business account for making any personal purchases. This will allow keeping savings in your account and help you keep your finances for the business on bad days.
- Keep separate cards for business and personal use- These days, people make most of their purchases with credit cards. Several banks offer credit for businesses, which makes the purchase for businesses easy and convenient. But most often, people forget to keep different credit cards for personal and professional purposes. So, to keep the finances separate, different credit cards must be taken.
- Keep your business travels separate from business travels- Most often, business and personal travels are mixed, and get confused while counting the miles. So, wasting personal miles on business trips will not help in any way. You can use your business card and earn even more miles while still securing a tax deduction.
- Don't confuse business and pleasure- Entertaining clients and employees with the business expenses is a clear no for spending money. There is a fine line between business and pleasure, and we must maintain that border to save the expenses. Conducting business through wooing potential clients and just trying to invent a business expense on something you wanted to do. Always keep your receipts if you plan to write something off as a business expense. You should also mark it on your work calendar and keep track of invitations, official guest lists, or RSVPs. That’ll help you further prove the legitimacy of expenses if the IRS asks for more confirmation.
- Remember personal tax deductions- Being a business owner, tax seasons are always hectic. It’s easy to get so caught up in your business that you forget to account for your life outside the job. Don’t fall into that trap when it comes time to file your tax return. Filing tax returns is your right, and you must do it. Charitable giving, dependent care, and educational taxes are common deductions that must be considered while filing returns.
So, you must take care of your finances and keep your expenses separate to manage the tax deductions.
NSKT Global is a consulting firm that provides aid to businesses and provides consultation for taxes and for keeping the personal and business finances separately.