Are Your Home Business Finances Separate from Your Personal Finances?
April 30, 2008 by Yvonne Russell
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.
© Image courtesy of Yvonne Russell at Grow Your Writing Business.com
I agree. I don’t have a business checking account due to the charge the bank gives you, but I do have a separate personal checking account that I use for my business. Then I write a check to my hubby each month for our other account. I really helps keep things separate.
Great advice, Miranda. So many people transition from a hobby to a home business that it doesn’t even occur to keep their finances separate…or at least keep good records so they know which is which. Or when they start up their home business, it doesn’t even occur to them to set up a business account.
Debbie, thanks for visiting Home Biz Notes and giving your suggestions about setting up a separate account. You do need to check into bank fees because some banks do charge considerable more for business accounts. If you use an accountant, as Miranda does, he/she can advise you, too.
Also, thank you, Miranda, for being a guest at Home Biz Notes. You addressed a very important topic for home business owners.