How to Separate Personal and Business Expenses Properly

Keeping personal and business finances separate isn't just good practice—it's critical for protecting your LLC, simplifying tax filing, and staying audit-proof.

Here are the steps every small business owner should take:

1. Open a Separate Business Bank Account

• Use it for all income deposits and business-related purchases.

• Never deposit personal funds into this account unless it's a formal owner contribution.

2. Use a Business Credit Card

• Charge only business expenses to the business card.

• Avoid mixing personal spending, even small items, on this account.

3. Pay Yourself with Owner's Draws or Payroll

• Instead of swiping the business card for personal needs, transfer profits properly to your personal account.

• Document transfers clearly as "Owner Draw" in your books.

4. Keep Receipts and Match Them to Transactions

• Save digital or paper copies of every business expense.

• Ensure every receipt matches a transaction in your QuickBooks or bookkeeping system.

5. Clearly Label All Expenses

• Add notes explaining what each expense is for (e.g., "Office supplies for April event," "Client lunch meeting with XYZ Corp").

• Especially important if you use apps like QuickBooks or Xero.

6. Avoid Gray Areas

• Meals, travel, and home office expenses must meet IRS criteria to qualify as business deductions.

• Keep extra documentation for anything that might seem partially personal.

Remember:

The cleaner your separation, the stronger your LLC protection, and the easier your life will be at tax time.

If you’re unsure whether a purchase counts as a business expense, it’s always safer to ask an accountant first.