Please note that the information on this page is for reference only. Although accurate when originally released, it may now contain out-of-date information. It remains solely for historical purposes and is not considered current guidance. Always consult a professional regarding your individual situation.
You just opened your first personal business. Everything is running smoothly, clients are happy, and life is good.
Next, your expenses come. You need to get supplies, pay for utilities, and maybe even organize travel plans for out-of-town business. So what do you do? You reach for your card.
Where is it? You look in your wallet, but it's not there. You've forgotten your business card at home (or maybe you don't even have a business card yet). So, you put everything on your personal debit card.
In another scenario, you are out buying groceries. However, your debit card is sitting on the desk at home (and you DO have a business card on hand). You think to yourself, "Ugh… okay, JUST this once." You swipe your business card since it was the only one you had with you. You leave satisfied.
When tax season comes rearing its head, you have a mess on your hands. Time – which is precious and priceless, will be chewed away as you park in front of a screen to dig through months and months of expenses, trying to siphon out which purchases were indeed business.
In the event of an audit, this can be an issue with the IRS. Oops! The best way to avoid this is to keep things separate! If the IRS catches you, penalties are a guarantee. On top of this, though, you can be assessed interest, further raising the cost.
Something else to consider is the mindset. Programming your mind to separate business from personal life is an excellent habit to form. In turn, this makes managing and tracking money much simpler than if everything were blended.
If you need an accountant, this makes it easier for them and cheaper for you. The more work you give your accountant, the more you must pay.
Breaking it down, here are four things that occur from everything mentioned above:
- IRS risks
- Bad financial organization and management habits
- Lost time filing taxes
- Increased accountant costs
Long story short, be prepared and keep your business expenses and personal expenses separate. If you would like more information on this topic, please contact us below!