Business and Personal Separate AccountsIf there was a single, critical, key message I could give to every home business worker / writer / author about their working habits, it would be this: you MUST keep your personal and business finance completely separate. Here's why.
The IRS and other government agencies have strict rules about what counts as a business and what counts as a hobby. One of their key tests about what you are doing is how you are managing the finances. If you're just putting all the money into your own personal account, they won't see that as a business. They'll see it as a hobby you're using to get spending money. This will greatly harm you on taxes. It also means you can't tax deduct against that income, so you could be losing a lot of benefits.
Shop around at your local banks and find someone who will give you two separate accounts. One will be for you personally and one will be for your business activities. It should be free to do this, and they should be able to tie together to transfer money when necessary. That way your business income goes into the business account. Business expenses are paid from the business account. When you are ready to pay yourself your salary, the transfer is made.
The same is true for credit cards. Get multiple credit cards. Your personal ones should be entirely separate from the ones you make your business purchases on. The business one doesn't have to be in the "company name" if you don't want. It can just be another card in your own name. The key is that it's used for business purchases only. Take a sharpie and write "business" on it to help you keep track of which is which. Pay off the business card from the business bank account. Pay off the personal card from the personal bank account.
If you haven't done this before, it might seem confusing at first - but actually it makes life SO much easier. It means to determine your business expenses and income all you do is look at those business accounts. You don't have to do anything complicated. It's all right there. The business accounts clearly show you how well you're doing.
And it means when you start doing all your business tax deductions, to save you money, that it's nice and clear how much you can deduct.
In my case, when I first started up I got a DBA (doing business as) name for free from my local town hall and created the business bank account with that name. When I then "upgraded" to a LLC, the business bank account was put into that name. That name, Minerva Webworks LLC, is on my business checks. It's a free account, so there's no charge for this. I have my personal account separately, and they tie together. On my credit card side, I simply have multiple credit cards in my personal name and some I use for personal use only and some I mark with "business" on them in sharpie and use only for business purchases.
To summarize, keeping your accounts separate is free to do, easy to do, and it is greatly helpful in your financial success.
Basics of Home Business Finance
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