One of the most understood small business principles is how to maintain your personal finances separated from business financial numbers. Keeping them apart is not about strict requirements but more about maintaining the level of comfort can be achieved. It’s not your comfort, the good you need to worry. This is the level of comfort of the auditor at your IRS must most care about because they love nothing more than a clear business record.
Simple this type of thought: if your notes are clean, your audit will be easy. A separate business and personal account made the IRS stay focused on the tax audit they were assigned to do. When you have business and personal funds in one account, the same business record now suddenly comes out in the open before the auditor might find a problem with what they are looking for. Here are some ways you can separate it:
Your business is a hobby – There are several federal and state government policies that set only businesses that are permitted to reduce business costs. Now let’s say your business is more than a hobby and not a means to make enough money. You might have a hard time telling the government that you did run a business and not a side hobby. Many business owners add to this problem by using a personal bank account too.
Tax Season is a nightmare – Your accountant may hate you more for this reason because it causes chaos. If you are a small business owner, it’s important for you to keep your personal finances separate from business. This includes all types of transactions. The reason why your accountant will really dislike you is because by not separating them, you created a lot of terrible work for him to look for everything.
Audit paper trail is limited – although you are advised to separate all your personal business and financial accounts, that does not mean you have to keep all your notes and documents. But you still have to. All you have on files must be accurate, complete, permanent and show clear income and cutting records. The last thing you want is mixed chaos stirring which doesn’t cause IRS problems for you. Maintaining a statement and business records separate from your personal account set a clear audit trail.
Lack of professional attitude – the only way people will take your business seriously if you do it too. Receive checks made for business and not your own personal name. This sets the gap between you and your business.
Forgotten reduction – don’t even make me start with a disaster that will be your account statement. Do all your small business banks on your personal account to Mash Mish from various transactions. You then need to spend time outlining what enters the account. You run a reduction risk you have the right. This type of note will cost more timely, money, and missed pieces.