Separate Business and Personal Expenses

If you find yourself needing to use personal funds to get your business started

, make a point of keeping separate records for each purchase or other expense that you have, carefully detailing each transaction. This is important, particularly if the IRS decides to come knocking at your door one day to take a look at your books.

Something else to keep in mind is that if the IRS realizes that you are self-employed and comingling your business and personal funds, they are far more likely to audit you.

While it may be easy to simply pay for business expenses with your personal funds (after all, it is your own money), you should try to avoid doing that as much as possible. If you simply do not have the business resources at some point, make sure you carefully mark your business receipts and keep them in a separate file so that you can easily locate them at tax time.

The most important reason for keeping business and personal expenses separate is the tax ramifications. If you pay for items with a credit or debit card that is clearly marked and intended for business purposes, then you will have much less difficulty convincing the IRS that your associated expenses are truly business related. If you pay for business items with your personal credit or debit card, you can certainly mark the receipts as business expenses, but you may have a much more difficult time trying to convince anyone of it.

One of the best investments you can make as a small business owner (particularly in the very beginning) is reliable bookkeeping software. Many of these systems will allow you to keep track of both business and personal expenses in separate areas. Having all of your different accounts in an easily accessible location is a huge convenience, and it makes it very easy for you to keep up with exactly what you are spending versus how much you are earning.

Separate Business and Personal Expenses

By: Adrian Hargraye

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