How to Keep Personal Expenses Separate from Business Expenses
As a small business owner, keeping your personal expenses separate from your business expenses is as important as keeping the two people you’re casually dating from chatting each other up at Starbucks. Some things are just not meant to be together, and if ever the two do meet, the situation can get a little, well, sticky.
While drinks with Jennifer on Wednesday and dinner with Stacy on Friday may be pretty easy to keep straight, keeping your office supply expenditures separated from your chocolates-and-flowers expenditures may not. So what’s a savvy-but-buy SBA to do?
First of all, brush up on some bedtime reading – that’s right, your favorite piece of literature, the IRS website. Depending on your type of small business, you could be missing out on a bunch of potential business write-offs, or worse, writing off personal expenses as business expenses. Do you know, for example, the rules concerning dining, entertainment and travel expenses? What’s the difference between going out to dinner with a client, and going out to dinner with an employee? What if you’re going out to dinner with Stacy, and she’s an employee? (Wait! Why are you dating your employee? Stop that right now!) The point is to first get super clear about what you can write-off, and when. A good to clue that something’s amiss is if you’re writing off everything, or nothing at all. Once you’re clear on what qualifies, you can begin keeping track of receipts.
You wouldn’t invite Stacy and Jennifer to the same movie, at the same time, on the same night, right? So why would you buy products or shop online for personal expenses and business expenses, pay for everything on one credit card, and get a single receipt?
“Because it’s faster and easier,” I hear you say.
In the extra five seconds it takes you to complete a separate transaction or ask for a separate receipt, you save eons on future headaches (and, let’s get real here, possible fines or even – eep! – jail time). So if you’re at a store, shopping for business stuff, and happen to grab something that would qualify as personal expenses, annoy the person in line behind you and insist on two receipts. The dude buying kitty litter and batteries may not thank you, but your accountant will.
Now that you have separate receipts for personal expenses and business expenses, what will you do with them? Toss them in the murky depths of your purse or wallet, where they’ll fester and mix together, the ink fading away into un-readable oblivion? No way. You are going to go and get yourself two – that’s right two – big ‘ol Shoeboxed envelopes, and let us scan your stuff separately. At the end of the day when you come home, or first thing in the morning before beginning the work day, put your personal expenses in the envelope next to Jennifer’s picture, and your business expenses in the envelope next to Stacy’s picture. By the time you’ve chosen between the two women, the money you spent courting them will be so scanned and organized, you’ll have saved enough for that engagement ring you’ve been eying! (In case you were wondering, that’s a personal expense).
What’s the weirdest thing you’ve ever written off as a personal expense?