Importance of Keeping Business & Personal Bank Accounts Separate
Whether you already have an established business or are just starting a new venture, it is important to keep your personal finances and those of the business separate. Mingling your personal accounts with your business finances makes it that much more difficult to sort out your expenses and determine the tax deductions to which your business is entitled.
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Record-Keeping
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No matter what type of business you run or how much money you make, it is important to keep scrupulous records. The IRS wants to know about any and all money your business brings in, and keeping a separate bank account for that business is the easiest way to document both your income and your expenses. When you set up a separate bank account for your business, you can deposit any payments you receive from your customers into that account, and pay any business-related expenses out of that account as well.
Business Expenses
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As a business owner, you face the potential of higher taxes than you would see as an individual taxpayer. When you are self-employed, you must pay both the employer and the employee share of the Social Security and Medicare tax, in addition to any income taxes you owe. Keeping a separate bank account for your business makes it easier to document any deductible expenses your business incurs during the year. Those expenses can lower your taxable income and greatly reduce your tax liability as well.
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Tax Deductions
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As a business owner, you naturally want to take all the tax deductions to which you are entitled, without overstating those deductions and risking an audit. Keeping a separate bank account for your business makes it easier to track the expenses associated with running your business. You can simply review your monthly business account statements when you do your taxes, using those figures to compute your deductions when you complete your tax return.
Audit Defense
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Keeping your personal and business bank accounts separate can make things a lot easier if your business is ever audited by the IRS. Small-business owners face a statistically higher chance of being audited than do individuals, so it is important to plan for that possibility. If you keep a separate bank account strictly for your business, it will be easier to justify the tax deductions and expenses you claimed on your tax return.
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References
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