For the love of the deity of your choice, please keep your business and personal financial transactions in separate accounts. Why am I so adamant about keeping these separate?
Here are four reasons.
Taxes are easier.
It’s April 13th, and you need to know which expenses are related to your business so you can prepare your tax return. Remember, that’s important for reducing your taxes. But the record of those transactions is buried in hundreds of personal transactions that are irrelevant to your tax situation. Okay then, get busy sifting through your transactions. Crying won’t help you now. Neither will sleep. What will help you is setting up a business bank account.
This is not a hobby.
“Who do I make the check out to?” asks your wonderful paying client. Are you going to answer them with a business name or your name? Show your client and potential clients that you are serious enough about your work to file for a DBA certificate and open a bank account in your business name.
How is my business doing?
Your business is making money. Probably. Though you’re not sure. What are your expenses every month? Uhh. Start sifting through those personal and business transactions you’ve not bothered to separate. Do you know what can do this easier? Accounting software and a dedicated bank account. With half an hour to an hour’s worth of work each month, your accounting system can answer your cash flow and profitability questions quickly. You can generate a real P&L report to impress your friends and accountant.
I hope this will never happen to you.
If you get audited by the IRS, they will give you the side-eye if you’re commingling your money. The misgivings from the auditor, either expressed or unspoken, will make you cry. Crying won’t help you here either. “Are you even a real business? You’ve claimed business deductions like you’re a business. So I’m going to scrutinize every transaction in your commingled bank account.” I’m not saying all IRS auditors are sadists. But in case they are, don’t feed their fantasy.
The key takeaway? Open a bank account for your business transactions. Extra points if you set up a business name and open the account in that name. Double points if you set up an accounting system.
“Gosh, Sabina, another snotty article. This must be a pet peeve of yours.” Yes.