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Certain things don’t mix well — like your personal finances and your business’s. Keeping these things separate not only helps you reduce problems, it also greatly simplifies things and makes it easier to manage your finances.
Don’t know where to start with separating out your personal and business finances? Let’s look at some easy ways to do it.
1. Put your business on the map
If you haven’t already, establish a separate legal entity for your business, such as an LLC, C Corp, or S Corp. The Small Business Administration has tips on what structure may work for you, but it’s always best to get advice from a legal expert. You also need to apply for an Employer Identification Number (EIN) via the IRS’s website. Don’t worry, it only takes a few minutes. Establishing a separate legal entity for your business has many advantages, including the ability to protect your personal assets from business debts, losses, and lawsuits.
2. Open a business checking account and get a business debit card
If you’re serious about keeping your personal and business finances separate, opening a checking account strictly for your business is a no-brainer. If you’re strict about using it (along with your business debit card) for business needs and business needs alone, then getting a clear and complete picture of these expenditures when tax time rolls around becomes a simple matter of reviewing your bank statements.
A business debit card allows you to stop using personal accounts for business transactions, and it’s an easy way to draw a clear line between personal and business expenses.
Square now offers a small business debit card. It provides real-time access to your Square Balance so you can access your funds as soon as you make a sale. Labels for business and personal expenses in your Square app also make it easy to track your business expenses and to keep them separate from your personal expenses. Learn more about Square Debit Card1.
Consider also opening a business savings account. It’s an easy way to set aside money for taxes, emergencies, or future goals — while keeping those funds separate from daily spending. With a free Square Savings account2, you can automatically set aside a percentage of each sale into folders for regular expenses or long term business goals, helping you stay financially prepared and on track.
3. Get a business credit card
A business credit card may also help you build stronger business credit scores, as long as you pay your bills on time. A strong business credit profile may boost your borrowing power and help you qualify for small business loans with lower interest rates. As a business owner you are likely building business credit rather than personal credit.
4. Pay yourself a salary
You’re your own boss; make it official and write yourself a check each month from your business checking account. Transfer this to your personal checking account, and then behave as you would if you were working for someone else. Regarding personal needs, treat your business checking account and your business credit card as you’d treat a former employer’s — hands off.
5. Separate your receipts and keep them
What better way to demonstrate your commitment to keeping your personal and business expenses separate than by physically separating your respective receipts? Think good old-fashioned folders, or separate folders in your email for digital receipts. This simple practice helps you sleep easier knowing that if the IRS ever comes knocking, you’re prepared.
6. Track shared expenses
One advantage of being a small business owner is that many business expenses are tax deductible. Taking a prospective partner to a nice lunch to talk things over? Stocking up on coffee for your employees? Write it off. At the same time, avoid the temptation to use the business card for personal needs.
You can ask a cashier to ring up purchases as separate transactions every time. Or you can use a business debit card, such as Square Debit Card, that allows you to label your personal and business expenses. Not only will separating expenses make things easier for your accountant come tax time, but you also protect yourself by keeping a spotless financial record and continuing the keep-the-receipts-separate discipline that can save you so much headache down the road as your company grows.
7. Keep track of when you use personal items for business purposes
We all wish we could drive a company car and fly a company jet. But for most small business owners, the car that gets you to the gym in the morning is also what gets you to that big marketing convention in another state. The same thing goes for your cellphone, and any item that you use regularly for both personal and business purposes. Any expenditure that you can legally write off should be written off to save you money come tax time. Your tax advisor can help you figure out what’s deductible, what’s not, and how to keep the right records.
8. Educate your employees and partners
You know the difference between a personal and business expense; now make sure that the other people involved in your business do, too. Get everybody on the same page, committed to the same goals. Staying disciplined is easier if others are doing it with you.
At first, it may not be easy to keep things neat and tidy. But even if you can work on a few of these tips this year, you’ll save both time and money during the next tax season, an audit, or even while looking for financing. Strong businesses grow by careful, incremental improvements, and learning to keep your personal and business finances separate is the perfect place to start.
1.) Block, Inc. is a financial services platform and not an FDIC-insured bank. FDIC deposit insurance coverage only protects against the failure of an FDIC-insured deposit institution. If you have a Square Checking account, up to $250,000 of your balance may be covered by FDIC insurance on a pass-through basis through Sutton Bank, Member FDIC, subject to aggregation of the account holder’s funds held at Sutton Bank and if certain conditions have been met. See Terms and Conditions.
Square Debit Card is issued by Sutton Bank, Member FDIC, pursuant to a license from Mastercard.
ACH transfer fund availability: Instant availability does not apply to funds added to the Square Checking account via ACH transfer. ACH credit transfers to your account may take 1–2 business days.
2.) 1 Savings accounts are provided by Square Financial Services, Inc. Member FDIC. Accrue annual percentage yield (APY) of 1.00% per folder on folder balances over $10. APY subject to change, current as of 2/18/2025. No minimum deposit is required to open an account. Accounts will not be charged monthly fees. Accounts are FDIC-insured up to $2,500,000. Pending balances are not subject to FDIC insurance.
2 The rate of our savings account is more than 2x the national average of 0.41% APY, based on the national average of savings accounts rates published in the FDIC Weekly National Rates and Rate Caps accurate as of 1/21/2025
3 Square Checking is provided by Sutton Bank, Member FDIC. Square Debit Card is issued by Sutton Bank, Member FDIC, pursuant to a license from Mastercard International Incorporated, and may be used wherever Mastercard is accepted. Funds generated through Square’s payment processing services are generally available in the Square checking account balance immediately after a payment is processed. Fund availability times may vary due to technical issues. Checking Accounts are FDIC-insured up to $250,000.
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