Separating personal and business money: why and how

Why it matters

Mixed accounts make every transaction a question: business or personal? Mistakes cost you deductions or create audit risk. For an LLC or corporation, mixing funds can also be used against the separation between you and the company if the business is sued.

Open the right accounts

A business checking account in the company's name and a business credit card. Use them for every business expense and deposit. Pay yourself with owner draws or distributions or through payroll, depending on your entity.

If you already mixed them

Go back and mark each transaction as business or personal. Record personal spending paid from the business as owner draws, and business spending paid personally as owner contributions or reimbursements. Then stop doing it.

Handling the gray areas

Home office, vehicle use and phone bills have special rules. Keep records of business use and ask your tax preparer how to treat them.

Monthly habit

Review the business account each month for anything personal. Move it out and record it correctly.

Worked example with numbers

You paid a $240 business supply order from a personal card. Record the expense and credit owner contributions, or reimburse yourself from the business account with a documented transfer. If a business card paid a $90 personal dinner, record it as owner draw. Keep one rule: every personal cost on a business account gets tagged the same week.

Mistakes that cost money

Paying bills from whichever account is handy. No notes. Letting the business account pay personal subscriptions.

Check your work

Review the draw and contribution accounts monthly.

Common questions

This guide is general information, not tax, legal or accounting advice. Rules, fees and due dates change; check with the IRS, the NJ Division of Taxation or a licensed professional for your situation.