Maintaining your books isn’t something you should do solely as a tax-savings strategy. If done right, it can also prevent you from losing your sanity, as well as getting dragged into a potential lawsuit because you commingled your business and personal funds.
Here are five significant reasons for maintaining a separate checkbook and set of books for each of your businesses.
1. Corporate Veil
Maintaining a separate checkbook substantiates the corporate veil, which is one of the primary reasons for forming a new corporation. Having a separate checkbook shows that you recognize the company as its own distinct entity. Furthermore, separate checkbooks should encourage you not to commingle personal and business funds.
2. Tax Savings
Separate banking will improve bookkeeping procedures, prevent payments from being missed and provide better records to improve your tax return. We all know that “bad books” will cost us on our tax return, so why not stop that cost from being incurred in the first place?
3. Audit Protection
In the event of an IRS audit, having a separate checkbook will improve your chances of passing it without consequence. The IRS will often disallow a number of expenses when personal and business expenses are commingled in a single checkbook.
4. Less Stress and More Sanity
When your books are disorganized, you’ll feel constant stress to take care of it, and this ultimately can cause you to come undone. While having separate checking and bookkeeping for a new company will save you time and money in the long run, consider the price and value of having a clear head. Those that rely on your decision-making process will thank you.
5. Improved Decision-Making
As alluded to above, having a separate checkbook starts the process of better bookkeeping, expense tracking and budgeting, which leads to quality decision making. How can you expect to be a successful business owner without accurate records? Furthermore, how can you project future success without being able to see facets of your business clearly today?