Under law, owners of corporations and LLCs must keep their business finances separate from their personal finances, but it is important to do so no matter how you have structured your business. Separating your personal and business finances will make it easier to do your taxes each year, can contribute to your business’s professional image, and can potentially save you time and money in the long run.
Benefits of Separating Your Finances
Separating your business and personal finances can be helpful with the following:
- Borrowing Money for Your Business. When taking out a business loan or a line of credit for your business, you will typically need to put up some type of collateral. If all of your business finances are tied in with your personal finances, you could end up personally-responsible for the loan. However, if you have your business finances separate from your own, you can potentially secure financing with your company’s assets.
- Your Business’s Professional Image. Keeping your business finances separate from your personal finances can help establish your company’s identity. It will allow you to use the business’s name and EIN for documents, loans, and other professional items. It can also build credibility with your customers and vendors when you send invoices and write checks from the business rather than your own personal account.
- Completing Your Taxes. Separating your personal and business finances helps you keep track of the information you’ll need for your tax returns, and can help you better determine which tax deductions and credits you may be eligible for. When you keep accurate, separate records - even if you are a sole proprietor - it is much easier to do your taxes. Furthermore, if you’re ever audited by the IRS, you’ll be able to clearly show your personal and business finances, and help prove your business expenses versus your personal expenses.
- Building Credit. You want to make sure that your business is building its own credit history, separate from your own. Should your business face a financial hardship, you don’t want it to reflect on your personal credit. Establishing a credit history for your business will be extremely helpful in the future when you’re looking to borrow funds to help grow your business.
Accounts You Should Keep Separate
The types of financial accounts that you should keep separate for your business include the following:
Putting your business finances into a business checking account often offers more legal protection than mingling those funds in your personal checking account. With a business account, you can also typically add employees as authorized users of the account and have them each issued a company debit card. This can help streamline operations if you have employees who are responsible for various purchases.
Paying Yourself as the Business Owner
Keeping your personal and business finances separate also helps to ensure that you’re paying yourself a salary. Paying yourself allows you to better manage your own personal finances outside of the business, and helps you understand what it truly takes for your business to be profitable.
When you keep your business and personal finances separate, you can stay more organized, better understand your company’s current financial picture, and potentially save time and money during tax time. If you are a MA or RI business owner looking to open a business checking account, inquire about business financing, or explore cash management solutions for your business, don’t hesitate to contact us today!