As a small business owner, mixing your business and personal expenses can cost you BIG at tax time. In this post we’ll be covering why you need to keep your finances separate and share simple strategies to help you.
What Classifies as a Business Expense?
Investopedia defines a business expense as costs incurred in the ordinary course of business. Section 162 of the Internal Revenue Code (IRC) discusses guidelines for business expenses, but they typically are related to the following:
- Advertising and marketing expenses
- Credit card processing fees
- Education and training expenses for employees
- Certain legal fees
- License and regulatory fees
- Wages paid to contract employees
- Employee benefits programs
- Equipment rentals
- Insurance costs
- Interest paid
- Office expenses and supplies
- Maintenance and repair costs
- Office lease
- Utility expenses
Why You Need to Keep Business and Personal Expenses Separate
Technically, you can use the same account to fund personal and business expenses–but please, for the love of all things financial, DON’T.
Here’s why:
- Your expenses still need to be separated for tax purposes.
- It’s honestly just going to take more of your time to sort through everything when tax time comes along.
- Billing personal expenses to your business account (or vice-versa) does not showcase the true financial health of your organization.
- You’re probably going to lose track of your reimbursements and end up with less money.
3 Tips to Help Keep Track of Business Expenses
Open a Business Bank Account
Open a separate bank account for your business and pay yourself a weekly stipend for personal expenses. It is as simple as adding an automatic weekly transfer from your business account to your personal account.
Use an Expense Tracker Like QuickBooks
QuickBooks and other bookkeeping systems make expense tracking easy, so you always know where your money is going. You can connect your business bank account and upload your receipts to keep track of your costs. Most systems allow you to snap and save photos of receipts from their mobile app, and typically will automatically match receipts to transactions.
Hire a Bookkeeper to Help
With a team of expert bookkeepers on your side, you’ll never have to worry about the health of your business. With Grow Thrive Succeed, we help you organize your business finances so you don’t have to stress over the numbers and can focus on what you love.
Key Takeaways
As a small business owner, it’s easy to mix your business expenses with your personal expenses. This is the top mistake we see small businesses make, but by following the strategies listed above, you’ll be well on your way to improving your organization’s finances.
With a team of expert bookkeepers on your side, you’ll never have to worry about the health of your business. With Grow Thrive Succeed, we help you organize your business finances so you don’t have to stress over the numbers and can focus on what you love.
