One of the hardest things for clients is to keep personal items out of their business accounts.  Although it may seem like a headache to keep them separate your life will be greatly simplified once you separate your personal and your business finances.

Paperwork and taxes will be easier to manage and you'll have a better idea of how much money you spend on your business. Here are some tips to keep your personal and business expenses separate.
Understand the difference between personal and business expenses most times, the line between personal and business expenses is clear. Any expense that is directly linked to your business earning an income is a business expense. If you buy something to be used for your business, it's a deductible business expense. If you buy something to use privately, that's a personal expense.

If something is mixed between business and personal, such as a laptop that you use partially for business and partially for personal use, you can only claim a deduction for the amount that you use for business. So if you use the laptop for business 75 percent of the time and for personal use 25 percent of the time, you can only deduct 75 percent of the laptop. 

Whether you use something entirely or partially for business, you need to have a record of the purchase. Keep the receipt for proof – you can use a paper system or digitize it.  We use ReceiptBank for our clients where they just automatically take a photo of it and we manage it from there.

Open a business credit card and/or bank account

Having a business credit card and/or bank account provides you with an easy way to not only keep your private and business expenses apart, it also gives you an easy way to track your expenses. When you use the same accounts for business and personal use, everything is mixed on the same statement and it can be difficult to determine—or remember—which transactions were related to your business and which were for your private life.

With business accounts, you know that every transaction is related to your business and should therefore be deductible. You don't have to search through every statement at tax time to highlight the deductible expenses because every transaction is business-related. 

Where possible, buy separate business items

Depending on how small your business is, you may not be able to keep all items separate, but buying devices that are used for both business and personal use gets complicated. In an ideal world, you have a separate computer for home and work, a separate work and personal cell phones, and even separate vehicles. 

Having duplicate items for work and personal use makes it much easier to track expenses. Rather than determining how much of your cell phone bill you can deduct for business, you know that your business phone is 100 percent deductible. Same with your computer and your vehicle. It costs more—especially the separate vehicle—but it keeps your personal life separate from your business life. You know the old saying – KISS – Keep it Simple!

Final thoughts

It can be tempting to try to write everything off as a business expense but don't fall into that trap. Open separate accounts, buy duplicate items where you can and keep receipts of your business expenses.

Talk to an accountant regarding what activities count as a tax deduction and which do not if you are unsure. An advisor will answer your questions and can even help you come up with a system to track your expenses. 

If you are struggling with this, give us a call and we can help you with a system.