Not Mixing Business and Personal Loans

There are many reasons to keep your personal finances separate from your business financesMixing your personal and business loans is a great way to attract attention from the IRS. Co mingling funds can also confuse your tax preparer when tax time comes. For these reasons, and many more, it is important to keep your accounts separate and not mix business and personal loans or accounts. 

Credit Cards

Major credit card companies offer cards specifically geared to owners of small businesses. When using a credit card to cover business expenses, it is a good idea to use a designated business credit card. Business cards have terms and rewards that are favorable to business owners. More importantly, using a card that is separate from your personal cards will help keep your financial records clear. This way, you (and the IRS) will be able to clearly see which expenses are business-related and which are personal. If will claim business expenses as deductions, you must be able to show that they really were for your business. If the charges for these expenses are on your business account, the charges are easier to keep track of. Another important factor to consider is that if you run into trouble with personal debt, your business credit will not be affected or vice-versa. 

Bank and Private Loans

Business loans are available from both banks and private lenders. Be sure to use the money for your business and not for personal expenses. The same rule applies to personal loans; make sure your lender knows the loan is for your personal use and not your business. Misrepresenting your need and the purpose of the loan can bring serious legal and financial trouble.

Do not deposit money from a personal loan into your business. Learning to avoid mixing funds, or co mingling funds, will keep clean records and assist you when filing your taxes.

Other Reasons to Keep Funds Separate

Aside from good bookkeeping records, having separate credit cards for business and personal uses gives the appearance of a professional. For example, if you are paying for a client's lunch, or making a large purchase from a vendor, your purchases can appear to be more professional. More importantly, however, is if the IRS sees you making business-related purchases on a personal card, they are likely to make the assertion that your business is really a personal hobby, and you cannot claim deductions for a hobby.