Business PeopleAmong the most important aspects of operating your business is managing accurate records of the expenditures and income since this is the best way to monitor how your business is performing. Because of this, you must make sure that your business and personal finances remain separate, otherwise, complications could occur.

Practical Reasons to Separate your Business and Personal Finances

There are a couple of reasons why you should be proactive about keeping your personal and business finances separate, and a critical one is the potential tax complications. The Internal Revenue Service or IRS enables businesses to claim tax breaks of deductions for expenses that could be counted as business expenses like supplies and travel expenses. However, you submit proper documentation to prove that they’re indeed business expenses.

Note that if your business is audited, the auditors will closely examine every expense to validate if they’re associated with your business’ regular operations. In the event that you don’t have proper documentation to support your claim, you will have an extremely difficult time verifying your deductions.

Another vital reason for separating your finances is for debts and liability. If you have a limited liability company or business corporation, maintaining separate finances will benefit you especially in case a creditor comes to demand unpaid debts. Otherwise, if your personal and business finances are combined, creditors will have an easier time claiming your assets, regardless if they’re business or personal, as payment for your debts.

Lastly, consider your business credit. While you could probably obtain a credit card for your business using your personal credit score, you’ll require a clearly separate credit profile for you business if you want to apply for bigger loans, vendor lines of credit, or a business bank account in Bloomington, says a financial adviser.

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Combining your personal and business finances could create headaches along the way, especially when tax season comes around. However, if for some reason you really need to combine your finances, make sure that you keep accurate documentation that clearly delineates expenses into a personal or business