How taxes are filed for your business differs based on whether or not you keep business and personal finances separate. More importantly, approaching business with a professional mindset increases your chances of succeeding long-term. You need to keep business and personal finances separate to protect your personal finances and credit score too.
Bank Accounts and Cards
Having separate accounts for personal and business finances makes it easier to file taxes and protects your personal finances. Some business owners make the mistake of using their personal finances to cover expenses for business when they fall short. You should make it a goal to not sign personal guarantees for your business either. Some people may have to do this, in the beginning, to get started, but you must build business credit to protect your personal finances.
The bad news is that you’ll have to expend a lot more energy to get business credit than you did for personal credit. But the good news is that with the proper knowledge and a good process it is still possible to build solid business credit in today’s market. You should get a business credit card to not only begin building credit but to keep business expenses out of your personal credit. Pay all bills early or at least on time. You can gain more credit points when you pay early.
Before you begin building business credit, make sure you incorporate your business. A sole proprietorship and general ownership are not considered separate entities from you. Incorporating your business makes it a separate entity and thus easier to protect your personal credit score. Another important tip for building business credit is to use business accounts for all business expenses.
Pay Yourself a Salary
You should also pay yourself a salary to keep personal and business finances separate. When you have an incorporated business, you are also expected by tax authorities to pay yourself a salary instead of a personal draw. Paying yourself a salary lets you stay consistent in how much money you’re withdrawing from the business for personal use as well.
You can operate your business more effectively when you set a precedent of keeping personal and business finances separate. It becomes easier for you or your accountant to file taxes. And building business credit goes faster when you have business accounts and a business credit card.
If you’re looking to expand your business, you need Christine Capone!