5 Reasons Not to Mix Personal and Business Banking

Many individuals choose to freely mix their personal and business banking together. While this can be done, it can lead to a host of problems in your financial life. Here are a few reasons to consider not mixing your personal and business banking together.

1. Hobby Business

Many individuals choose to get involved in hobby businesses. This means that they are not necessarily trying to get rich with this business and never, but it is something that they are interested in and enjoy working with. Whenever you are dealing with a hobby business, you may not bring in very much revenue. Because of this, the government might not believe that you are actually running a business unless you have separate financial information for them. Certain tax deductions can only be taken by businesses and if you try to claim them without business banking information, the IRS might disallow your deduction.

2. Tax Time Difficulty

Another problem that you will run into is that it is going to be difficult to file your taxes. If all of your business and personal transactions are on the same statements, it is going to be very difficult to separate them from one another. By having separate accounts for your business and personal finances, it will not take any time at all to prepare your financial documents for your tax professional.

3. Clear Audit Trail

Every time you file your taxes, there is a chance that you could be audited by the IRS. In order to make the audit process easier, you should consider separating your business and personal banking. If you are audited and all of your records are together, you are going to have some difficulty separating it out for the auditor.

4. Missed Deductions

As a business owner, you are entitled to many different tax deductions that individuals are not. Because of this, you have to be very careful when looking at your financial documents to determine what can be deducted for your business. If all of your transactions and documents are mingled together, it can be very difficult to pick out the individual deductions for your business. With this problem, it is not uncommon to miss several deductions that you were actually owed. This means that you are going to be paying more money to the IRS than you should. By keeping everything separate, you should have no trouble identifying all of the deductions that you qualify for with your business.

5. Misusing Funds

If all of the funds from your business and personal lives are together, you could potentially misuse the funds in one way or another. If your business is not doing well, you will be more likely to utilize personal resources out of your bank account to make up for it. On the other hand, you might also find yourself using business money to pay for personal expenses. This can negatively affect your business and your chances at success.

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