Maintain Separate Bank Accounts & Credit Cards

You should also do your best not to use your own credit cards for business expenses. 

Open a business credit card. This will help you keep track of your business expenses and give you access to money when cash flow is slow.

Another benefit of having a business credit card is that you can write off fees that you can’t with a personal card. These include annual fees, late fees, and interest charges.

Understand the Gray Areas

Sometimes, it can be hard to decipher whether an expense should be classified as personal or business. For instance, many small business owners use their personal vehicles for work. 

You may even take a vacation with your family that involves some work-related travel.

While you certainly want to write off what you can, you have to be careful not to go overboard when deducting business expenses that are linked to personal expenses. 

If you’re unsure of how to categorize an expense, consult the IRS website.

In general, the IRS lists the following three business expense categories:

Business costs: These include labor, materials, storage, and other expenses related to the pricing of goods to be sold.

Capital expenses: These include start-up costs, business assets, and improvements. For practical purposes, just think of these as business costs, too.

Personal expenses: Sometimes an expense is partly for yourself and partly for your business. For instance, if you use a home office, you can deduct a portion of the rent or mortgage, utilities, repair, depreciation, and more.

Keep Track of All Expenses

This may seem like it should go without saying, but so many business owners have forgotten (or simply ignored) this cardinal rule of business ownership and paid the penalty when the IRS came knocking.

Always track your expenses. Save receipts, and keep them in organized filing folders. 

Not only is this a best practice, it’s also a great way for you to take advantage of every deduction you can come tax time.

The good news is that you can automate expense tracking with software, which can save you time and money in the long run.

There’s no reason to let your business and personal expenses mix. By keeping them separate, you can avoid tax problems, protect your personal finances, maximize savings, and improve money management. 

Just make sure you choose the right business structure for your needs, use separate bank accounts, navigate gray areas properly, and take advantage of available software.