A small business account for both personal and business use has always been a problem for not only employees but also managers. When you have a small business and a minimal staff, it’s always tempting to purchase a personal item off the business account when you don’t have any immediate cash in your own pocket. But this can potentially create financial confusion down the road. When tax season comes around, trying to scope out exactly what a business expense is from a personal expense can create potential headaches for an accountant.
How do you solve this problem so it doesn’t become so much of an ongoing issue?
Open Two Separate Credit Accounts
If you’re a sole proprietorship, you’re legally able to use the same account for personal and business expenses. However, it’s best to open two separate credit card accounts so there isn’t any confusion if the books are done by an in-house accountant. Programs like TurboTax can usually help you distinguish between business and personal, though you shouldn’t trust that completely.
Opening two separate credit accounts shouldn’t be challenging. It might be smart to have the cards under different credit card companies so you don’t grab the wrong one by mistake when making a personal purchase.
Separate Accounts for an LLC or Corporation
If you’re a Limited Liability Company or straight up corporation, it’s illegal to use the same checking account for personal purposes. You’ll definitely need two accounts in this situation, and Mashable recommends opening a savings account for personal purchases. You can use that as a source for saving up tax money when small business taxes have to be paid later.
The Benefits of Using a Separate Card for Business
There may be a tendency to balk at taking on credit cards in the age when it’s so easy to abuse them. Some small businesses refuse credit and do everything in cash for easier transactions. This isn’t necessarily good because a credit card provides a complete record of all your business expenses that can be traced for taxes. Paying cash for everything can mean losing receipts and forgetting certain expenses that could be written off during tax season.
And speaking of receipts, there should be a separate folder for those as a form of a business account. Consider scanning receipts digitally so there isn’t a chance they’ll mysteriously disappear when tax time rolls around.
If you need more ideas to get your small business finances better organized, look to Roberts Tax Advisory for superior tax and accounting services. Located in Gilbert, Arizona we’re a proven leader and represent the entire state for the small business owner, the executive, or independent professional. Contact us so we can show you how close we work with our clients to ensure success in the organization of their finances.