Keeping your business and personal finances separate is a golden rule of running your own business. It allows you to protect yourself and your business. Plus, it will pay off big time when you go to do your business taxes.
Square explains that it is much easier to do this if you create a separate legal entity for your business. Step away from the sole proprietor setup, which makes it too easy to mix your finances. With a separate entity, you can secure an employer identification number that you can use for tax purposes.
Keep receipts and track them
You can deduct business expenses on your taxes, so receipts are helpful. Make sure you keep them separate from any personal receipts you may keep.
Establish business credit
You need to establish your business as separate from you when it comes to credit reporting. The best way to do this is to obtain credit in your business name. Get a loan or a credit card that will report to the business credit bureaus.
Pay yourself a salary
When you treat yourself like any other employee, it makes it less likely that you will dip into business funds for personal expenses. It makes it easier to keep things separate, and also provides you some protection in that you can clearly show your earnings.
Open a separate checking account
You should have a business checking account that is separate from your personal account. Never write checks on your personal account for business needs. You can also pay yourself from this account, and it keeps accurate records of expenses and income.