One of the most stressful parts about being a business owner is figuring out how to financially separate your real life and your professional life. As a full-time writer and speaker, I initially struggled to figure out how to draw down a salary and reinvest in my business on a variable income.
More importantly, I needed to understand the difference between the tax deductions available for my personal life and my business expenses. Here’s what helped me start effectively managing both.
Keep your personal and business finances separate
The real key to managing your business expenses and your personal spending like a true boss is to keep your business finances and personal finances completely separate. Not only is separation helpful if the IRS ever comes knocking for an audit, but it also is great for your sanity.
Get started by opening bank accounts for personal and business use. Next, open a business credit card so that you can keep business transactions off your personal credit card. Avoid making purchases for personal affairs on the business credit card and vice versa. That way, you can scroll back through the business credit card statement and easily make note of business expenses.
Be careful not to confuse business and pleasure
Yes, you can often deduct the cost of entertaining clients or employees as business expenses. That includes both meals and fun activities. There is a fine line, however, between conducting business through wooing potential clients and just trying to invent a business expense on something you personally wanted to do.
Be sure to always keep your receipts if you plan to write something off as a business expense. You should also mark it on your work calendar and keep track of invitations, official guest lists, or RSVPs. That’ll help you further prove the legitimacy of expenses if the IRS asks for more confirmation.