7 steps to keep your personal and business finances separate

March 26, 2020

If you are a budding entrepreneur, use these tips to help maintain a strong division between your work and personal finances.

As a business owner you’ve probably heard that you should keep your business and personal finances separate — it can make filing your taxes smoother, and help position your business for success.

“Separating your finances is the first step to putting your business on the map as a real business entity. It gives your business legitimacy,” says Kaylyn M. Houston, Business Banking client manager at U.S. Bank.

But what does separating your finances look like, and how can you do it?

 

Step 1: Discuss your needs with a financial expert

The first step in separating your finances is identifying your business banking needs. Are you a sole proprietor of a small business? Will your employees need access to your business finances? Do you need access to a line of credit?

Tip: “Business owners will benefit from separating their finances and talking with an expert,” Houston says. “We are here to make your life easier.”

 

Step 2: Open a business bank account

Once you’ve identified what you need for your business finances, ask a banking professional about the products and services offered. After reviewing what your bank offers and how it can meet the needs of your business, you’ll be able to open a bank account that’s right for you.

Tip: If you’re a sole proprietor operating a business under an assumed name (for instance, Joe’s Cookies), you generally need to register the name with local officials to open a bank account in the name of your business. If your business is registered, the bank uses your Employer Identification Number (EIN) to open the account.

 

Step 3: Use your business credit card to build business credit

You opened your business bank account, and now you’re ready to pay your business expenses using a business credit card. Houston recommends using your business credit card to establish and build business credit. This will allow you to later apply, and pending approval, access lines of credit as your business grows. Just as importantly, building business credit allows you to keep your personal credit history separate.

Tip: You can usually apply for a business credit card using either your social security number or EIN. If you’re just starting out, whether you qualify will be based largely on the information you provide and your personal credit score.

 

Step 4: Track your expenses and receipts

This is where the benefits of separating your finances become clear. “If your personal and business finances aren’t separated, it can take hours to go through your checking account statements and see what was personal and what was business,” Houston says. “That can cause a lot of headaches.”

Tip: When it comes to tracking your expenses, let separate bank statements for separate accounts work for you. Use your monthly and end-of-year statements to verify your financial records and get a bird’s-eye view of your payments and receipts. “You can use your statements to track where your money was spent that year, how much you spent and which months you spent the most,” Houston says.

 

Step 5: Pay yourself a “salary”

Although your goal is to keep your personal and business finances separate, that doesn’t mean they’re completely disconnected. “I always advise my clients to take a salary for themselves and make it official,” Houston says. This can be particularly helpful during tax time.

Tip: Having a separate bank account to track revenue and expenses can make it easier to determine your business’s profit, and therefore your salary. Keeping your personal income separate from your company’s revenue maintains a key division between your business and personal finances, Houston says.

 

Step 6: File your taxes

When it comes time to file your taxes, you’ll be glad you separated your finances. Keeping your business finances separate can help you maximize tax deductions.

Tip: Your business account and credit card statements have a lot more detail than you would have for a personal account, which can save you time when filing taxes, Houston says.

 

Step 7: Talk with your banking professional as your business grows

The benefits of separating your finances don’t stop there. Your banking professional is there to provide you with financial guidance and support to grow your business. “When you're choosing a bank, I truly believe that you’re looking for a relationship that can help you really grow and mature as a business,” Houston says.

 

Learn more about how U.S. Bank can help your business succeed.

Related content

Money Moments: How to finance a home addition

Increase working capital with Commercial Card Optimization

The surprising truth about corporate cards

The ongoing evolution of custody: Tips for renewing your custody contract

6 pandemic money habits to keep for the long term

Finance or operating lease? Deciphering the legalese of equipment finance

Multiple accounts can make it easier to follow a monthly budget

Protecting cash balances with sweep vehicles

How I did it: Bought a home without a 20 percent down payment

Checklist: 10 questions to ask your home inspector

Closing on a house checklist for buyers

How to accept credit cards online

Retirement savings by age

How to track expenses

How to build wealth at any age

Investment strategies by age

Reviewing your beneficiaries: A 5-step guide

Can ABL options fuel your business — and keep it running?

5 financial goals for the new year

How to get started creating your business plan

Collateral options for ABL: What’s eligible, what’s not?

ABL mythbusters: The truth about asset-based lending

10 ways to increase your home’s curb appeal

What documents do you need after a loved one dies?

How to plan and save for adoption and in vitro fertility treatment costs

11 essential things to do before baby comes

Authenticating cardholder data reduce e-commerce fraud

3 ways to secure purchasing power

5 ways a business credit card program can grow your business

Why credit cards should be the first choice for business payments

Are you ready to restart your federal student loan payments?

How to manage money tips

For today's homebuyers, time and money are everything

Uncover the cost: International trip

Uncover the cost: Wedding

How to pay off credit card debt

5 tips to use your credit card wisely and steer clear of debt

How to build and maintain a solid credit history and score

How to improve your credit score

6 essential credit report terms to know

4 reasons why estate planning is important

LGBTQ+ retirement planning: What you need to know

What is Medicare? Understanding your coverage options

Using 529 plans for K-12 tuition

Retirement plan options for the self-employed

Is a Health Savings Account missing from your retirement plan?

How to open and invest in a 529 plan

How to manage your finances when you're self-employed

How grandparents can contribute to college funds instead of buying gifts

Gifting money to adult children: Give now or later?

Webinar: Approaching international payment strategies in today’s unpredictable markets.

Managing the rising costs of payment acceptance with service fees

Safeguarding the payment experience through contactless

COVID-19 safety recommendations: Are you ready to reopen?

Maximizing your infrastructure finance project with a full suite trustee and agent

How to maximise your infrastructure finance project

Luxembourg's thriving private debt market

Insource or outsource? 10 considerations

Buying or leasing? Questions to ask before signing a contract

5 tips to help you land a small business loan

The costs of hiring a new employee

5 steps to take before transitioning your business

Make your business legit

How to establish your business credit score

Talent acquisition 101: Building a small business dream team

10 tips on how to run a successful family business

How to sell your business without emotions getting in the way

How to save money while helping the environment

How to expand your business: Does a new location make sense?

7 steps to prepare for the high cost of child care

5 myths about emergency funds

Business credit card 101

Do I need a credit card for my small business?

What kind of credit card does my small business need?

How to save for a wedding

How I did it: Turned my side hustle into a full-time job

How to talk to your lender about debt

How to test new business ideas

How can I help my student manage money?

7 steps to keep your personal and business finances separate

3 types of insurance you shouldn’t ignore

8 steps to choosing a health insurance plan

7 things to know about long-term care insurance

Preparing for retirement: 8 steps to take

5 unexpected retirement expenses

Year-end financial checklist

6 tips for trust fund distribution to beneficiaries

4 steps to finding a charity to support

Evaluating interest rate risk creating risk management strategy

How to choose the right rewards credit card for you

5 steps to selecting your first credit card

How to winterize your vehicle

Don’t underestimate the importance of balancing your checking account

Alternative assets: Advice for advisors

The secret to successful service provider integration

What you need to know as the executor of an estate

How to build a content team

Webinar: ESG for Corporations: Building an all-weather, long-lasting strategy

Do your investments match your financial goals?

Can fantasy football make you a better investor?

Year end tax planning tips

What applying for store credit card on impulse could mean

Credit: Do you understand it?

Test your loan savvy

A beginner's guide to investing

5 things to avoid that can devalue your home

10 questions to ask when hiring a contractor

Beyond the mortgage: Other costs for homeowners

4 ways to free up your budget (and your life) with a smaller home

Home buying myths: Realities of owning a home

House Hacks: How buying an investment property worked as my first home

How to use credit cards wisely for a vacation budget

Which debt management technique is right for you?

Should you buy a house that’s still under construction?

Dear Money Mentor: How do I begin paying off credit card debt?

Know your debt-to-income ratio

Your guide to breaking the rental cycle

Travel for less: Smart (not cheap) ways to spend less on your next trip

Things to know about the Servicemembers Civil Relief Act

Tips for working in the gig economy

Which is better: Combining bank accounts before marriage — or after?

Tips to overcome three common savings hurdles

Money Moments: 8 dos and don’ts for saving money in your 30s

Money Moments: 3 smart financial strategies when caring for aging parents

Is it time to get a shared bank account with your partner?

Friction: How it can help achieve money goals

It's possible: 7 tips for breaking the spending cycle

What to consider before taking out a student loan

Here’s how to create a budget for yourself

3 awkward situations Zelle can help avoid

9 simple ways to save

Do you and your fiancé have compatible financial goals?

What military service taught me about money management

From LLC to S-corp: Choosing a small business entity

Is online banking safe?

How I did it: Paid off student loans

Unexpected cost savings may be hiding in your payment strategy

Key considerations for launching an ILP

Costs to consider when starting a business

Questions to ask before buying a car

Should you give your child a college credit card?

Webinar: Uncover the cost: Building a home

Adulting 101: How to make a budget plan

How I did it: Learned to budget as a single mom

Top 3 considerations when selecting an IPA partner

How liquid asset secured financing helps with cash flow

Multigenerational household financial planning strategies

Your 4-step guide to financial planning

Working after retirement: Factors to consider

Personal loans first-timer's guide: 7 questions to ask

Consolidating debts: Pros and cons to keep in mind

Myth vs. truth: What affects your credit score?

How to spot a credit repair scam

Should rising interest rates change your financial priorities?

Should I itemize my taxes?

Dear Money Mentor: How do I set and track financial goals?

Retirement income planning: 4 steps to take

Lost job finance tips: What to do when you lose your job

LGBTQ+ financial planning tips

Understanding guardianship and power of attorney in banking

What financial advice would you give your younger self?

How to stop living paycheck to paycheck post-pay increase

What you need to know about renting

What’s in your emergency fund?

Car shopping: Buying versus leasing your next vehicle

What you should know about buying a car

Take the stress out of buying your teen a car

Tips for navigating a medical hardship when you’re unable to work

Money management guide to financial independence

Money Moments: How to manage your finances after a divorce

Personal finance for teens can empower your child

5 unique ways to take your credit card benefits further

5 reasons why couples may have separate bank accounts

U.S. Bank asks: Transitioning out of college life? What’s next?

5 tips to use your credit card wisely and steer clear of debt

Understanding the true cost of borrowing: What is amortization, and why does it matter?

What’s your financial IQ? Game-night edition

Key milestone ages as you near and start retirement

How to use debt to build wealth

How to talk about money with your family

How having savings gives you peace of mind

How to build credit as a student

30-day adulting challenge: Financial wellness tasks to complete in a month

How to retire happy

How to protect your digital assets in your estate plan

Money Moments: Tips for selling your home

Everything you need to know about consolidating debts

Resources for managing financial matters after an unexpected death

Webinar: Uncover the cost: College diploma

Crypto + Homebuying: Impacts on the real estate market

Military homeownership: Your guide to resources, financing and more

U.S. Bank asks: Do you know your finances?

Webinar: Uncover the cost: Home renovation

Webinar: Bank Notes: College cost comparison

Programme debt Q&A: U.S. issuers entering the European market

Do I need a financial advisor?

Good debt vs. bad debt: Know the difference

Parent checklist: Preparing for college

U.S. Bank asks: What do you know about credit?

Financial steps to take after the death of a spouse

Estate planning documents: Living trusts vs. will vs. living will

Annual insurance review checklist

7 financial questions to consider when changing jobs

Unexpected cost savings may be hiding in your payment strategy

Evaluating interest rate risk creating risk management strategy

Authenticating cardholder data reduce e-commerce fraud

Disclosures

Start of disclosure content

Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rates and program terms are subject to change without notice. Mortgage, home equity and credit products are offered by U.S. Bank National Association. Deposit products are offered by U.S. Bank National Association. Member FDIC.