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9 Tips for Separating Business and Personal Finances

Writer's picture: Shari JamesShari James

Separating business and personal finances is a vital part of any business. Whether you are a startup, sole proprietorship, or a growing, midsize business, the success of your business will be linked to how well you can monitor your business finances. Good business practices will keep your business and personal life working well and in harmony.

Separating your personal and business finances will help keep your business expenses organized. Incorporating your business, opening business bank accounts, and applying for business credit cards can help protect your personal assets and make your accountant or bookkeeper’s life much easier and your tax bill lower.


1. Get an Employer Identification Number

Separating personal and business finances is a crucial step in managing your business finances. This process often starts with protecting your personal assets by getting an employer identification number (EIN). Use this nine-digit number to apply for business-related accounts instead of your Social Security number (SSN).

While using your Social Security number for personal accounts is common, using an EIN ensures your business accounts are associated with your business information. You can apply for and receive an EIN online through the IRS’s website.


2. Incorporate Your Business

Incorporating your business is one of the best ways to separate business and personal finances. Registering your business as a limited liability corporation (LLC), C corporation (C-corp), or S corporation (S-corp) can protect your personal assets. As a business owner of an incorporated business, you typically won’t be held personally liable for business debts and legal judgments.


However, as a sole proprietor, you are held personally responsible for any business debts or monies owed because the business is linked to your Social Security number. You can set up an LLC by registering with your secretary of state office. Processing times may vary from state to state, but it usually takes seven to 10 business days to process.


3. Open a Business Checking Account

Business owners who make the mistake of using personal accounts to manage business funds may have a harder time with taxes and bookkeeping. Business checking accounts are tailored to business owners and come with valuable business features. Opening a business checking account that fits your business needs will help you separate personal and business finances efficiently.


4. Set Up a Business Savings Account

Business owners shouldn’t mix personal savings deposits with business savings, so it’s a good idea to open a business savings account along with your business checking account. A business savings account offers a safe way to save for future business expenses and tuck money away for emergencies. Plus, you can access high-yield interest rates that earn up to 10 times the national average.

5. Apply for a Business Credit Card

Opening a business credit card is a good way to build business credit and separate business and personal finances. Business credit cards allow company owners to track business purchases made by their employees. They also come with additional business-friendly perks and generally offer higher credit limits than personal credit cards.

6. Track Your Expenses

Keeping good financial records is important when your goal is to separate business and personal finances. Use your business credit card to pay for a business meal and use your personal credit card for personal items. It’s a good practice to keep your business receipts separate from your personal receipts. Businesses should save business receipts in case of an IRS audit.


An easy way to keep up with your receipts is to create a computer file for your business credit card. You can then scan and upload your business credit card receipts to the predesignated file and keep a digital copy. This gives you an easy way to organize your receipts with the statement date and keep a digital copy as a backup in case you lose your paper receipt.


7. Monitor Business Use of Personal Items

If your business involves items you normally use for personal reasons, including your home office or car, you’ll need to track usage carefully. Document how often you use your home office and whenever your personal car serves as a business vehicle. Business use of personal items like a home office, internet services, and even car travel expenses can be tax-deductible.


8. Put Yourself on Payroll

While you’re issuing employee checks, don’t forget to pay yourself as well. Paying yourself can help you avoid dipping into your business account to pay for personal expenses. You can write a check or set an automatic transfer from your business account to your personal account easily. By including your personal account in payroll, you can better separate your personal funds from your business funds.


9. Educate Business Employees and Partners

One of the best ways to separate your business and personal finances is to educate your employees and business partners. Create a business policy that clearly defines how to process and report business expenses properly to help reduce mistakes. This policy can also address how to process business payments properly and correct accidental purchases. Proper company education keeps you and everyone else at your business on the same page.

When you separate business and personal finances, it’s a lot easier to track expenses and keep your business more organized. However, it’s important to have your business activities separate, not just for bookkeeping purposes, but also for peace of mind. As your business grows, so should the need for clear records and organization. Setting up business bank accounts and business credit cards to keep your finances in order will help maintain healthy personal and business boundaries.

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