economics-headerSeparating Your Personal and Business Finances: Why and How

New business owners may prefer not to complicate things by mixing their business and personal finances together, however, this is a huge mistake. Here is the reason, and what you can do to separate the two finances from each other.

Why Keep Finances Separate?

There are vital legal, tax and financial motives for separating your finances:

  • It’s hard to determine how your business is performing if you don’t have a separate bank balance for the establishment. The problem of cash flow is a possibility when you are using a single account to cover business and personal expenses. In addition, s separate credit card for your business assists in building business credit scores.
  • You can easily lose the personal liability protection you’re after by building such an entity when you mix your finances together if your business is a limited liability company or a corporation. This is because if you disregard the separate legal status of your establishment, creditors may or may not have to chase after your personal assets so as to satisfy their claims.
  • For the purpose of the federal income tax, you must keep good books and records according to the law and this is possible if you possess a business bank account, which will oversee income and expenses.  A starter’s mistake is when you disregard having to separate business finances from personal finances by thinking that you can always remember what expenses was used on Business when you want to prepare your tax return. It’s not possible that way and this leads to a ‘potential’ tax deduction.

How to Keep Finances Separate

The act of keeping your finances separated is a must and all that is required for you to keep business money matters away from your personal finances is for you to have a separate credit card as well as a separate business bank account. If you normally use PayPal, make sure you set-up an account for your establishment.

When your office is at your residential place, there is every likelihood business and personal matters will clash. To avoid this and also claim a home office deduction ensure that the space is exclusive for business only. Unconscious personal use may spare the deduction however it is important to keep personal things away from the home office area. Tell your paid professional tax expert to ensure that you get separate invoices for business and personal income and expenses.


It is important to keep your business and personal life away from each other. This can easily be achieved with the aid of housekeeping to start things, and then follow through.