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Arla Wallace is an accounting professional with over 20 years experience. She spent several years working for both publicly-traded and private entities before founding her own business. Today she partners with small business owners so they can focus on operations while leaving the responsibility of staying on top of accounting tasks to her. She is a Certified Public Accountant (CPA) and a Certified ProAdvisor for Quickbooks Online. |
Separating Business and Personal Finances Dividing business and personal finances can help small business owners avoid common tax mistakes and provide legal protection. Opening a bank account dedicated solely to a small business will make the business appear more trustworthy to customers, lenders, and even investors. A business bank account can also help a small business owner manage cash flow, accounts receivable, and accounts payable. Additionally, a separate business account can help a small business build good credit and support the business as it grows. Below are ways to separate business and personal finances and help minimize difficulties.
Tax Deductions & Benefits Tax time is perhaps the biggest motivator to separate business and personal finances. Small business owners can deduct a variety of qualified business expenses on their tax return for purposes of lowering taxable income. These deductions include, but are not limited to, business use of your car, rent, utilities, retirement contributions, and health care expenses. Using an accounting software to track your expenses will be well worth the time and expense when tax time rolls around. Legal Liability Establishing a business entity—LLC, partnership, S-Corp, or C-Corp—determines personal risk, liability, and tax responsibility. Even though an entity structure can provide legal protection, it is the responsibility of the business owner to separate business finances from personal finances in order to safeguard personal assets and limit personal liability. Sole proprietors are not considered to be separate legal entities, and profits, losses, and liabilities are tied directly to the owner. Thus, it is even more important for a sole proprietor to separate business and personal finances. |