Do you want your business independent of your personal dealings? If YES, here are 7 smart ways to seperate your personal and business finance. There are different ways to pay yourself through your business in the United States, and the method which you choose will depend on your circumstances.
To make the process simple and easy, here are different ways to separate your business account from your separate account and make cash transactions between both very easy.
7 Smart Ways to Separate Your Personal and Business Finances
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1. Solidify your business
Irrespective of your business structure (LLC, C Corp, S Corp); you will need to apply for an Employer Identification Number (EIN) via the IRS’s website. Don’t worry; it only takes a few minutes. But have it in mind that creating a separate legal entity for your business has many advantages, including the ability to protect your personal assets from business debts, losses, and lawsuits.
Acquiring a business debit card or credit card allows you to stop using personal accounts for business transactions, and it is an easy way to draw a clear line between personal and business expenses. A business credit card may help you build stronger business credit scores, as long as you pay your bills on time. A strong business credit profile may also boost your borrowing power and help you qualify for small business loans with lower interest rates.
3. Establish a business checking account
If you intend to keep your personal and business finances separate, opening a checking account strictly for your business is a no – brainer. If you’re strict about using it (along with your business debit card) for business needs, then getting a clear picture of your expenditures when tax time rolls around becomes a simple matter of reviewing your bank statements.
4. Pay yourself a salary
Since you are your own boss; it is advisable to make it official and write yourself a check each month from your business checking account. You can transfer this to your personal checking account, and then behave as you would if you were working for someone else.
Howbeit, once the money runs out, tighten your belt and wait patiently for the next payday. Irrespective of your personal needs, treat your business checking account and your business credit card as you’d treat a former employer’s — hands off.
5. Separate your receipts and keep them
There is no better way to demonstrate your commitment to keeping your personal and business expenses separate than by physically separating your respective receipts. You might think this strategy old – fashioned, it is still a simple practice that will help you sleep easier knowing that if the IRS ever comes knocking, you’re prepared.
One benefit of being a small business owner is that many business expenses are tax deductible. Taking a prospective partner to a nice lunch to talk things over? Stocking up on coffee for your employees? However, always remember to write it off.
At the same time, avoid the temptation to use the business card for personal needs. You can ask a cashier to ring up purchases as separate transactions every time. Or you can use a business debit card that allows you to label your personal and business expenses.
There is a key difference between a personal and business expense; now make sure that the other people involved in your business know that, too. Get everybody on the same page, committed to the same goals. Staying disciplined is easier if others are doing it with you.
Even though the information shared above will help you understand how you can get paid as an LLC member, C Corporation or S Corporation shareholder, it is not a substitute for professional financial, tax, or legal advice. Always endeavour to ask a licensed accountant (and/or tax advisor) and attorney for guidance as you establish how your business will compensate you for your investments of time, money, blood, sweat, and tears.
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