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How to Keep Your Family Finances Separate from Your Business Ones

 

Small business owners should keep from intertwining business and family finances for a number of reasons. First, mixing business and personal finance records makes it harder to find data when you need to find it quickly. When operating a business, sometimes it is imperative that you be able to find statements and figures relating to your business easily. Secondly, one of the more important reasons to distinguish between your business and personal financial records is to make it simpler to have tax documents prepared when they are due, correctly and on time.

Below are some tips on how to keep your business finance records separate from your personal family finance records.

Form an Official Business Entity

Consider forming a limited liability company (LLC) or an S Corp for the business entity. Review the possibilities with your financial planner, CPA, lawyer and insurance agents to determine whether it is feasible. Go over which entity would make the most sense to use. Be sure to understand fully how the business will affect your financial plan and taxes. See that adequate insurance coverage is purchased to protect the business entity. Discuss with an attorney how an official business entity could also provide a certain kind of legal liability protection against lawsuits.

Open a Separate Checking Account

Once you have decided whether or not to form an official business entity, open a business checking account with your local bank. Check around to see which banks offer the best perks, i.e., interest-bearing or interest free. One of the key things that the IRS will review when determining if a business is valid or simply a hobby, is if there are bank accounts in place used specifically for business purposes.

Use Separate Accounting Systems

Having separate accounting systems is crucial to divide business finances from personal and family finances. For example, if you use Quicken for business, consider using Microsoft Money or Quickbooks for your personal accounts. Using two different systems is a smart tax advantage as well as a way to more easily improve organizing and monitoring your finances. This is because at year's end, your  income and expenses will be located in one place, to make record keeping and filing taxes a much easier process. Attending to good record keeping throughout the year is much better than trying to separate records in March or early April. If you wait until the last minute, there is also a good chance for error and inaccuracy that could hurt your profit and loss standing.

Obtain a Business Credit Card


Using a credit card for your small business can make it much easier to track expenditures with your bank. While lending requirements can be strictly for small businesses, your local bank is a good place to start with an application for a small business credit card. As with having a separate checking account, a business credit card will assist greatly with record keeping as well as provide documentation for the IRS as proof, should you be audited for any reason.

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