By Jennifer Dunn
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Trying to decide between keeping your personal and business transactions together or opening a new business account? It can be a tough decision considering managing multiple accounts increases your financial management workload. However, the benefits of opening a business account for your business income and expenses outweigh the negatives by a long shot.
Not convinced? Here are 5 reasons why you should seriously consider opening your new account solely for your business.
Tired of your taxes taking forever? This is likely happening because you’ve combined your personal and business worlds. Even if you use an online program, figuring out which transactions were for business and which were personal expenses can take a long time. Worse, goofing up too badly could mean an audit is headed your way.
2. Hobby Business
You’re trying to establish your business as “legit.” Normally, the IRS doesn’t care whether or not you treat your business as a hobby or business (hint: they always want you to pay taxes on income). However, there is one situation where they do – the “3 of 5” rule. If you don’t make a profit during 3 out of 5 years with your business, your business will now be known as a “hobby business.”
When this happens, this affects things like deductions. You won’t be able to claim nearly as much if you have a hobby business versus a “legit” business.
3. Growing Your Business
Making sure you’re headed in the right direction with your company requires constant vigilance. Every transaction is important and every move you make is vital. But when your business transactions are combined with your personal transactions, growing in the way you want becomes that much harder.
Let’s say you want to run a report on your expenses. Taking the time to weed out your personal transactions means doing this becomes that much harder. Plus, if you make a mistake, you could have an inaccurate view of your business growth.
4. IRS Trail
At some point in your business career there may well be the threat of an audit. No matter how perfect you run everything the government will want to check up on how accurate you are. When this happens, you want to make sure they have a clear, easy to follow trail ahead of them. If not, you could be in for a long haul full of letter writing, office visits, and possibly even fines.
5. Mental Place
Want to really feel like a business? Then you have to act like a business. When your customers write you a check and make it out to your name, there’s a breach in the level of professionalism you’re trying to achieve. If instead they make it out to your company name, it automatically feels more like a business transaction.
This feeling of professionalism can spread throughout the rest of your life. Suddenly you’ll feel more confident going forward with everything else in your business life, including sales, PR campaigns, and customer interactions. Just from this one simple action!
Do you keep your business and personal finances separate?
What business bank do you recommend?