It’s often said that you should keep your business and personal finances separate. This is because it can be difficult to track expenses and income, which could lead to some serious financial trouble down the road.
Running a business is hard work, and it can be difficult to keep track of your expenses and income if you don’t have separate accounts for business and personal use. Here are four reasons why it’s important to keep your finances separate.
Why you should have separate accounts for business and personal use:
Particularly if your business is new, you might think that having a separate account for your business is unnecessary but it’s important to keep your personal and professional finances separate. Since it’s nearly impossible to track your business and personal expenses, you could end up accidentally commingling the two. If this happens, it can be hard to tell which transactions are for personal use and which are for business. This can lead to serious financial trouble down the road.
The benefits of having a separate account:
Having a separate account for your business can provide several benefits, including:
1. Easier tracking of expenses and income:
By having a separate account for your business, you can easily track your expenses and income. This makes it easier to keep tabs on your finances and makes it less likely that you’ll commingle your personal and professional finances.
2. Protection from debt:
If you commingle your personal and professional finances, it can be difficult to tell which transactions are for business and which are for personal use. This can lead to serious financial trouble if you ever fall into debt. A separate account can help protect you from this danger.
3. Tax deductions:
If you use your business account to pay for expenses, you can take advantage of tax deductions. What’s more, you can prove that the expenses are legitimate by providing documentation to the IRS. Such documentation may be necessary if you ever face an audit or other questions about your taxes.
4. Easier accounting:
If your business ever becomes large enough that you have to hire an accountant, it will be much easier for them if they have access to one account instead of having to work with multiple accounts.
What to do with your old account after closing it:
If you decide to close your old account, what should you do with it? You might consider donating it to a charitable organization that will use the money for good. This is particularly advisable if there are no outstanding debts on the account and all of your transactions were handled properly. By donating the funds to the account, you’ll be making an ethical choice, and you’ll be able to claim the donation on your taxes.
When closing an account, there are a few things you should remember to avoid any problems. Here are four tips to keep in mind.
1. Make sure all transactions are final:
Before you close your account, make sure that all of your transactions have been finalized. This means that you should have no outstanding debts and that all of your funds have been transferred to the correct accounts. If there are any outstanding transactions, you’ll need to take care of them before closing the account.
2. Inform your creditors:
If you have any creditors who are connected to your old account, you’ll need to inform them that you’re closing the account. This will help ensure that they don’t continue to try to collect payments on the account once it’s been closed.
3. Do a transfer:
Depending on your bank, you may be able to do a transfer of funds from your old account into another one that you’re keeping open. If this is possible, it can help ensure that all of your funds are transferred and make it easy to start using the new account immediately.
4. Cancel your automatic payments:
If you’ve been using your old account for automatic bill payments such as your mortgage, utilities, or other recurring bills, be sure to cancel them before closing the account so that you don’t accidentally pay late fees or overdraw the account. There could be additional charges associated with these types of transactions, so avoid them as much as possible.
Closing thoughts about separating personal and professional finances:
If you think that having a separate account is an unnecessary hassle, consider how it could benefit your future. If your business becomes large enough to hire an accountant to handle the finances, it will be much easier for them if they have access to a single account instead of multiple accounts. Having a separate account can provide many benefits, which is why it’s important to keep your personal and professional finances separate.