The Importance of Separating Your Business Finances From Personal Finances
It’s important for sole proprietors and other small business owners to understand the importance of keeping their business and personal finances separate. While it may seem easier to maintain one bank account for everything, you could be creating a situation where your finances are so intertwined you could face tax, and other problems. Creating a separation between your finances is not difficult, and the sooner you begin, the better off you will be.
Some of the reasons to keep them separate include:
- Tax implications
- Liability for debt
- Business Credit
Steps to Take Immediately
Keeping your business and personal finances separate begins immediately upon determining you wish to start a business. These are the steps to take:
- Company Structure – The separation of business and personal finances begins with forming your company. Your company structure can protect you from personal liability for business debts, help establish your business credit, and provide credibility when doing business. Discuss your options with a capable business consultant who can provide you with the necessary guidance.
- Apply for an EIN – Once you have decided on a business structure, you should apply for an EIN (Employer Identification Number) with the IRS. This can be done online and can be used for establishing business bank accounts, applying for business credit, and filing your business taxes.
- Open a Bank Account – Once you have applied for an EIN, you should establish a bank account for your business. All income from your business should be deposited in this account, and all expenses, including your salary should come from this account.
- Speak with an Accountant – One of the most important things you will have to do as a business owner is make quarterly tax payments. These payments should be paid from your business bank account.
Record keeping is an important part of running your business successfully. Keeping your personal, and business expenses separate allows you to save time when preparing your taxes, and helps ensure you will have an accurate record of all business transactions.
Whether you are just starting a business, or you are in the process of separating your business and personal financial accounts, contact Rue & Associates, Inc. As an independent business consulting, and accounting firm, we have been helping individuals, and small business owners in Central Virginia including Mechanicsville, Richmond, Hanover, Henrico and surrounding areas as well as clients nationally with their financial and tax needs.