You Gotta Keep Em Separated - Maintaining the Corporate Veil

One of the main challenges for small business owners is keeping their business income and expenses separate from personal transactions. Here are a few tips to avoid piercing the corporate veil:

Have separate bank and credit card accounts for business and personal use. Be sure that you only pay for business expenses out of business accounts and personal expenses out of personal. Sounds simple right? I can be. However, depending on your industry, it may be hard to differentiate between business and personal expenses. If your unsure whether something should be categorized as a business or personal expense, ask your accountant.
Maintain separate books for your business and personal operations. Create two separate QuickBooks (Xero, or other software) files; one for business & one for personal. Make sure that any transfers of money between business and personal accounts are well documented in each accounting file. In the event that you pay for a business expense with your personal bank account or credit card, make sure to document and account for it in all related files.
If you have multiple businesses, you will need to create an accounting file for each business entity and keep track of ALL money movement between them. Do not use one file for multiple entities thinking it will be less work, it will create more confusion for your accountant. If you pay for the expenses of one company from another company's bank account, document it. Let your bookkeeper know so that they can create and maintain the proper inter-company loan accounts on the balance sheet.

If you follow these simple tips, you’ll keep a clean record of your books and feel confident when tax time rolls around.

Heather RichardAugust 26, 2018