Running a small business often feels like juggling a dozen tasks at once. Between managing your team, handling sales, and keeping customers happy, your business finances can sometimes slip through the cracks. However, if there’s one area you absolutely need to get right, it’s separating your personal and business finances.
The Risks of Mixing Personal and Business Finances
Mixing personal expenses with business transactions is a common mistake, especially for businesses earning less than half a million dollars annually. It’s convenient to use your business card for personal purchases, but this practice can put you at serious risk if the IRS ever audits you.
When your personal and business finances are combined, it becomes difficult to prove which expenses are truly business-related. This lack of separation opens the door for IRS agents to question your deductions, leading to potential fines, penalties, or worse.
The Solution: Separate Your Accounts
The good news is that this is a straightforward problem to fix! Start by creating separate bank accounts for your business and personal finances. If you’re already in the habit of using your business account for personal expenses, it’s time to make a change. Schedule regular automatic transfers from your business account to your personal account to cover your income, and always keep detailed records of all business transactions.
Track Your Business Expenses with Receipts and Invoices
Another crucial step is tracking all of your business receipts and invoices. Many small business owners fall short in this area, but having an organized system for your documentation is essential.
Consider using a tool like Dext, which syncs with QuickBooks Online. With Dext, you can easily snap a photo of your receipt or forward email invoices, and the tool takes care of the rest by automatically organizing and storing them for you.
Benefits Beyond Audit Protection
By separating your personal and business finances and tracking your receipts, not only will you protect yourself from audit risks, but you’ll also simplify the management of your business finances. You’ll be able to track expenses more effectively, claim deductions with confidence, and prove your financial accuracy if ever questioned by the IRS.
You Don’t Have to Do It Alone
If you’re feeling overwhelmed or unsure about how to start, don’t worry. You don’t have to do it alone. Working with a financial advisor who specializes in small businesses can provide you with the guidance and support you need to ensure your business is financially sound and audit-proof.
Take Action Today
Protect your business by making these small but important changes today. Separate your accounts, track your receipts, and set yourself up for success. These simple steps can save you from big problems down the road.
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