Keeping Personal And Business Finances Separate

[HopeMission]

I have sucesfully set up a personal checking with a personal credit card attached and a

business checking with a business credit card attached.

I am a sole proprieor of a home based business in my rented one bedroom apartment.

half of apartment is business and other half is personal.  50/50

My quesion is.. what account do I write my rent check from?  What about electric? 

What card do I use for gasoline costs for the vehicle that is used for both business and personal?

I dont make any money personally except for a 10 dollar check from my gma on my birthday.  

Is it ok to just trasfer funds from business to personal as needed?

Doing a regular salary from business to personal would never work because the amount I make and spend is always way differnt.

Any sudgetion as to whay account I should be writing each check from for these varies examples would be great!!!

Thank you!

[Anonymous]

+1 I'd like to hear a response as well I have a similar situation.

[Anonymous]

Bump

[Anonymous]

Hope this helps.

You're a sole proprietor so you "are" the business.

Does it really matter? No.

Might it matter one day if you grow, yes.

Not the only way to do this, but the way I used to do it when I was a sole proprietor and much less revenue.

Figure out how much each month you can "pay" yourself regularly, even if it is a small amount.

Pay any pure personal expense out of the personal account.

Pay any pure business expense out of the business account.

Pay the "mixed" expense out the of the personal account.

Reimburse yourself  by transfer or write yourself a check for better record keeping of the prorated business portion from your business account to your personal account.

This will make it easy to create a P&L statement for your business should you ever need to.

Some things I would do differently if I had it to do over again.

"Pay" yourself with an ACH transfer that shows up as a direct deposit if at all possible.

Take actual expense and depreciate instead of mileage on my vehicle. This helps when you randomly decide you want a mortgage application due to some stupid rules.

If an underwriter asks for copies of your rent checks for the last 12 months, you have them from your "personal" account, things can get weird if they think you don't pay rent.

[Anonymous]

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@Anonymous wrote:

Hope this helps.

You're a sole proprietor so you "are" the business.

Does it really matter? No.

Might it matter one day if you grow, yes.

Not the only way to do this, but the way I used to do it when I was a sole proprietor and much less revenue.

Figure out how much each month you can "pay" yourself regularly, even if it is a small amount.

Pay any pure personal expense out of the personal account.

Pay any pure business expense out of the business account.

Pay the "mixed" expense out the of the personal account.

Reimburse yourself  by transfer or write yourself a check for better record keeping of the prorated business portion from your business account to your personal account.

This will make it easy to create a P&L statement for your business should you ever need to.

Some things I would do differently if I had it to do over again.

"Pay" yourself with an ACH transfer that shows up as a direct deposit if at all possible.

Take actual expense and depreciate instead of mileage on my vehicle. This helps when you randomly decide you want a mortgage application due to some stupid rules.

If an underwriter asks for copies of your rent checks for the last 12 months, you have them from your "personal" account, things can get weird if they think you don't pay rent.

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This is all great advice. 

As a SP, and principle in a few businesses, Inverse is right.

The only thing I would add, if you are truly a sole proprieter, then the demarcation between your finances is moot. Except when you start to borrow money for a house..Inverse's adice here is good. 

However, if you are incorportated, that changes things a bit, or when you grow and decice to restructure, hire an acountant! 

One piece of advice I'll add is, TRACK EVERYTHING and keep your receipts...

All your expenses, charges, mileage, everything, and if it makes sense, pay for everything "business" with a CC where you can, (where there is no added costs).

I prefer my Amex Biz Card and I use the OPEN ReceiptMatch App religously, but thats a preference, and not everyone will agree.

This does two things, lets you see all your costs at the EOY, and they provide the best EOY statement of all the cards I've used.

( I can't state enough that this is my preference and have found it to be most helpful in running my businesses) 

It sounds as though you have gotten sound advice on setting things up, and how to compartmentalize your business from personal. That will bode well every for you every spring. 

[HopeMission]

Fantastic thoughts that really make sense, THANK YOU!!

It sounds like those “mixed” expenses like my example of rent, electricity and gasoline that the tax guy will split almost 50/50 in a home-based business should just be taken from my personal accounts.

In preparation to buy a home in a few years, it sound like despite how difficult and impractical as it sounds, Im going to try and set up some sort of fixed automatic transfer every month from business checking to personal checking despite how sportic my business income is and unpredictable my personal expense can be.

So in the likely chance that some months there is just not enough then just do one extra transfer to help make ends meet. I can see how this will look better than dozens of transfers from bus to personal checking accounts as soon as any income comes in.

It sounds like as a low income SP, comingling really doesn’t matter- but if your getting yourself set up to buy a home then its good to show separation this way LO can confidently write a loan and not worry about the house going under with any future judgment against the business.

This is probably why everybody is encouraging an LLC or inc. before trying to get a home loan.

[805orbust]

These guys gave good advice. Couple things I'd add from experience :

1. NEVER take a home office deduction. Huge IRS red flag. Either pay rent 50/50 and expense it as rent, or pay it on the personal side.

2. Get Quickbooks. Spend time learning it. You'll thank me. As long as you enter and tag everything right, it simplifies life beyond comprehension.

3. I paid all telephone, internet, etc thru the business, never an issue.

4. Gasoline the same. Expense it. I split utilities.

5. Check your accountants tax prep by entering your info into Tax Cut, or another. ($7500 swing for me one year)

One of my most trusted advisors told me "the Federal Government gives out huge advantages to business owners for a reason, use them". These are just basic in an out expenses. The IRS isn't looking to comb through the expenses of the little guy. Underreported income is what pisses  them off. You'll be fine. If you buy a book at Barnes and Noble,  expense it as professional development. Tons of advantages to being in business.

I bought all my houses as a Sole Proprietor. Most banks (including Chase who was one of my mortgage holders) can manually underwrite and see the clear picture. If credit, downpayment, and income is good, you're ok.