You’ve heard that business records and personal records should be kept separate, but do you know why it’s so important? Listen to this episode to help you stay out of hot water.

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Show Notes

I’m sure many of you have heard the piece of advice recommending that you should keep your business records separate from your personal records.  But do you know why it’s so important?

Today we are going to talk about an important subject that is part of the Practices element of the 5 P’s.  Practices are what Lisa describes as business activities that are the most effective course of action for running a healthy successful business.

This particular topic is true for small and large businesses. However, it is usually found to be a problem more often in smaller businesses.  This best business practice of keeping separate business and personal records is the topic of our show today.

Key Points

*There are 5 key reasons that it is important to keep business records separate from personal records – they are Legal, Liability, Tax, Professionalism and Sanity

*Legal designation – Sole Proprietor, LLC and Corporation – have a certain meaning and one of those defines the liability and obligation aspect of running a particular type of entity.

*The protections that are afforded a company under certain designations can be challenged if certain obligations are not met and expose entrepreneurs to personal liability.

*From a Tax standpoint, comingling business and personal transactions can be a red flag for taxing authorities especially in an audit.

*Evidence of comingling can also raise a red flag and create the risk that your personal returns could also be put under an audit. This can be costly.

*Lisa also talks about how maintaining clean business records and providing customers with the traditional business records (such as invoices and receipts) not only lends to the professional look and feel but also answers some tax requirements as well.

*Lisa explains how keeping your business and personal separate helps busy entrepreneurs create that demarcation point between the two. She explains how comingling the business and personal creates unnecessary work and takes additional valuable time.

*Some tips are offered about what things you need to do to make sure that the business and personal records are maintained separately. Lisa also discusses what she means by transaction point and how that can help you keep the various records clean.

*Lisa also talks about those types of assets that sometimes can be used for both personal and business and how you need to make sure that you are clearly documenting and tracking each.

*We also discuss the idea of adopting good habits and processes to manage your recordkeeping and keep records clean and organized.

*Lisa discusses who can help the entrepreneur fix issues in this area and who can help create processes and system to help manage and maintain your records over time.

Resources and Links

Entrepreneur’s Checklist: Keeping Business and Personal Records Separate – this link will take you first to a sign-up form, once you confirm your subscription, you’ll get a link to the checklist.


Note: Links in this post may be affiliate links.  Lisa Roberts is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to

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Lisa Roberts is a business operations consultant who advises growth company entrepreneurs in successfully managing growth and the challenges they face along the way. She has over 25 years of experience in operations, finance and administration and spent several years in executive roles at a high growth company. She recognizes that there is a fine line between success and failure in a growing business and that entrepreneurs need to focus on managing finances, creating a sound operation and employ good business practices to stay on track.   You can find out more about her here

So it’s almost tax day.

For those of you who managed to get through it relatively unscathed, congratulations!

For those of you who did not, my condolences!

Many people dread this time of year. In fact, a Pew Research study from 2015 showed the 56% of people surveyed had a negative view about doing their taxes.  People have may have many reasons for disliking the process. The amount of time and paperwork can create problems and if you are disorganized it only gets worse.

image courtesy of Pixabay

Years ago, I prepared tax returns for the firm where I worked. It was always interesting how clients approached the process. We had one client who would show up at our office modestly dressed with a brown paper bag in tow containing all his information and receipts.  As it turned out he was a very wealthy man who ran a highly profitable seed company.  He probably paid more for his tax prep because his information wasn’t organized and his return took longer to prepare as a result.

Tax time is a good time to step back to review what went well and what didn’t in the process of getting your tax information together.  While it’s fresh your mind, think about the pain and the struggle that you faced and have a strategy to make it easier on yourself next year.

Here are some tips to help you avoid the pain and frustration of tax time next year.

Lessons from this year

Think about what you struggled with when getting your tax information together this year. What things did your tax accountant come back to ask about or to get clarification?  Were there things that you had to dig up and research?  Did you find things were misplaced? Were there things that took too much of your time?

Maybe there is a better way to account for those things throughout the year, so that the information is easily available when you need it for next tax year. It could be keeping records more organized, setting up schedules of certain expenses to provide a better record for your accountant, or maybe even starting the process earlier so that you and your accountant are rushing to meet the deadline.

Lesson 1 – Learn from this past tax year to see what you can change now to make it better next year.

Review Your Tax Return

Take time to understand the basics of your return. It will help if you have a working understanding of your tax return and how the inputs show up on the return itself. Now, do not hear me say that you need to understand how to prepare your return; leave that to the financial experts. However, you should have an understanding of where the numbers that you give your accountant show up, so that you can better organize your records.

For example, if you are like me and file as a sole proprietor. Schedule C is the main form that includes all of your income and expenses for your business; use it to make sure that you keep track of the expense categories you need. In addition, certain expenses are treated differently for tax purposes.  A common example is meals and entertainment, which are currently only deductible at 50% of the expense.  Therefore, you want to make sure that when you account for those expenses, only those true business meals and entertainment expenses are included. If you include other expenses by mistake, you will shortchange yourself since the deduction is limited to 50%.

Lesson 2 – Understanding the expenses you can deduct and where they will go on your return can help you keep track of those items better throughout the year.

Organize and Organize Some More!

Depending on your business, you keep some sort of records for your income and expenses. Whether you have a complex financial management package, a simple QuickBooks program or a set of spreadsheets, keep them up to date and organized throughout the year to avoid the tax time onslaught.

Keep in mind what we said before; make sure you organize your income and expense information so that it’s traceable for your accountant to easily prepare your return. You’ll save time and money if your tax accountant doesn’t have to sift through receipt after receipt trying to figure out what kind of expense each one is.

Accounting packages can easily help you, but if you have a small micro-business, a well-organized set a spreadsheets can work too. In addition, having a good filing system will help you keep all your supporting documents and receipts straight.  You’ll need to retain those for several years in case you are audited, so it’s best to have good records and a good filing system to keep track of it all.

Keep your personal records organized as well. You can create a system to organize those records too.  I keep a file folder that has all my information for the tax year.  When I make a charitable contribution for example, a spreadsheet is updated and the receipt placed in my file folder.  Same with taxes paid and any other types of expenses that I track. By the end of the year, it’s basically done and ready for my accountant.

Lesson 3 – Maintaining good records throughout the year will help avoid a lot of the pain at tax time.

Major Change Log

Certain major changes in your business operations can have tax implications.  It’s a good idea to keep a log or list that you can run by your accountant at tax time.  Some of the major changes in your operation that you will want to be mindful of are:  a change in ownership of your business; the purchase of major assets; leasing equipment; acquiring another business; selling all or a part of your business; getting into a new product line that is different from your current business, etc.

Lesson 4 – Keep track of major changes in your business that could affect your return this year.

Consult with Your Accountant More Frequently

Your tax accountant should be someone that you consult with throughout the year rather than just at tax time. It is a good idea to consult with your accountant about major operational changes you’ve made but a better idea is to consult with them at the time you are ready to make that change.  Sometimes certain major events can be handled in a way that will minimize your tax impact so consult with your tax expert first. Their advice can help you structure a business transaction in a way that benefits you from a tax perspective and keeps more money in your pocket.

Lesson 5 – Consult your tax accountant about business transactions that could affect your taxes.

Take some of the stress out of tax time. Learn from the pain of the past, understand your return, stay organized, consider the tax impact of major changes in your business and know when to consult with your tax expert so that you are ready when next year rolls around.