When your personal and business financials get tangled, you have to act fast. There are several reasons to separate the two, and it all comes down to stability. If you’re in doubt about the conditions, then look at these three main reasons why it isn’t too late to start.
The type of tax optimizations and methods discussed on businesstrex shows that a mountain of paperwork is handed off to accountants. If you do your own taxes or outsource tax preparation, then the amount of paperwork becomes a concern.
Technically, you can file your personal and business taxes together. This is usually done by pass-through entity owners each year. However, it is not the norm for the majority of business owners if their company isn’t registered for it. The type of business matters, but more importantly, your industry and growth will matter more.
There is a large list of small business tax deductions that grows every year. Some of these are so significant that they can take a company out of the red. A few of the notable ones are personal deductions specifically meant for small business owners. Having the ability to count personal expenses is a big deal to offsetting surprise costs during the year, but may also count against you the next year.
But to make the most out of taxes, you have to organize both your personal and business financial matters. After counting the numbers, that may mean separating the two for the betterment of your company.
Having your personal and business finances separated is especially important if your company gets sued. Knowing that your estate will remain untouched brings peace of mind and calm in what is considered an intense situation. Companies are sued for many reasons, some warranted, and some frivolous. Having your personal effects wrapped up in each one of these lawsuits is mentally draining and potentially dangerous to your personal life.
The opposite is also true if you get sued for personal reasons. It is important to have your company out of reach from a personal lawsuit that has nothing to do with the business. Chaos would ensue if you got into a car wreck and the other driver could directly sue your company.
Temptation isn’t talked about enough when it comes to finances. Having both your personal and business money tied together makes it seem like you have a larger pot to dip from. That means if your business fails, then your personal life will take a dive along with it. You can also stunt the growth of your company by borrowing funds for personal interest. When tax time rolls around, all of the borrowing will look really bad on the paperwork. Avoid temptation altogether by separating your business and personal income from the start.
It’s All Business
There is nothing wrong with having separate personal and financial goals. Prioritize the important parts without cannibalizing the potential of the other. Once you get this pattern down, business and personal efficiency will be at an all-time high.