When you’re operating your own business, even small bookkeeping mistakes can end up being painful. What are the most common blunders? And how can you avoid them? In part one of this 7-part-series “Top Seven Bookkeeping Mistakes and How to Avoid Them” we look at the mistake number one, “Co-mingling Your Person and Business Finances.”
Note: Remember, this post is for educational purposes only. Always consult a reputable accountant for bookkeeping advice related to your business.
Co-mingling Your Personal and Business Finances
If you’ve decided to start a small business, it’s imperative that you don’t fall into one of the biggest mistakes that entrepreneurs often make. That’s mixing your personal and business finances all in one bank account. You may think you can separate everything easily with the paperwork, but you’ll end up confused and cause yourself more problems.
There are many reasons, but consider the scenario of business meals versus personal meals. The IRS recognizes that you’ll have to eat anyway, so they have some very strict rules about which meals are deductible and which aren’t. If you’re pushing them all through your personal bank account, it might be even harder to differentiate for yourself and the IRS which is business and which is personal.
By keeping this separate you can easily use your business credit card or debit card for meals out that are for business reasons, and then write on the receipt who you met, for what purpose, and using IRS rules (you’ll have to check since they change sometimes) only deduct the portion of the meal they allow based on the rules.
If you’re ever audited, and you have a clear differentiation between your personal accounts and business accounts, everything will go a lot smoother. But, if it's all mixed up and the IRS sees that you eat out every single day for lunch already, they’re going to be a lot less likely to allow that.
In addition, you’re going to be more likely to spend money erroneously if you’re not thinking like a business owner and keeping things separate. Treat your business seriously; it’s not an ATM. Taking money out of the till for personal needs will deplete your ability to keep your business going and expanding.
Next time we’ll talk about the ways you may be cheating yourself out of money.
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