Particularly if you are a sole proprietor or just starting out, it’s tempting to keep your personal and business accounts together. After all, when you’re regularly moving cash from one to the other, it’s most convenient to do that within the same bank account instead of across two accounts. However, keeping personal and business accounts separate is critical when starting a business.
Why Should You Keep Personal and Business Accounts Separate?
- Taxes: Tax preparedness is one big reason why many Schedule C filers choose to separate their business and personal banking. If you have your personal and business accounts separate and are selected for an audit, it will be as straightforward as sending the relevant statements and receipts. However, if you are chosen and have the two combined, you will need to send all of your personal financial statements.
- Building Credit: Building a business credit history is a great idea. It also legitimizes your company when you keep your business accounts separate, as checks from you will come from a company and not an individual.
- Personal Liability: When you mix your personal accounts with corporate ones, you are increasing the potential that you might have personal liability. If tax reporting issues or other complications occur, it will be much more difficult to separate yourself from liability.
- Improved Budgeting: It can be easier to keep personal accounts together with business when you are a very small business, but you will want your personal and business accounts separate as you start to do more detailed budgeting, forecasting and tracking. Budgeting is much easier when you can accurately see your specific expenses and sort your transactions with ease. When your two accounts are together, it’s easy to confuse personal transactions at an office supply store with business transactions at an office supply store.
- A Clean Profit & Loss Statement: In the same vein as budgeting more easily, when you keep your personal and business accounts separate it is much simpler to create a clean profit and loss statement that does not contain extraneous transactions. A good P&L is essential to getting funding and growing your business.
Experience the Benefits of Separate Accounts and Skilled Bookkeeping Assistance with MKS&H
MKS&H provides tax and accounting services to businesses of every size and in every industry. We can work with you to explore the many tax benefits of investment properties and assess your real estate portfolio. Contact us today for a consultation.