Whether you run a small business on a part-time basis while maintaining your full-time job or own a larger enterprise, it is important to keep your business and personal income and expenses separate. Comingling your business and personal income and expenses can make tax filing difficult, open you up to an audit or other review and create confusion for you and your accountant.
One of the simplest ways to maintain the separation you need between your business and personal expenses and income is with separate bank and credit card accounts. If you have not done so already, you should open a separate business checking account for your company, and a separate business credit card as well.
Once you have that business credit card in hand, you can use it to pay for legitimate expenses related to the operation of your firm. When you get your monthly statements, you should take a close look at the charges, making sure that everything is in order and that there are no unauthorized purchases on the statement.
In addition to checking for fraudulent entries, you should also check your business credit card statement for other potential issues. Here are some of the things you need to watch out for when reviewing the credit card statement for your business.
Look for Possible Personal Spending
The whole purpose of keeping a separate credit card for your business is to make sure your personal and company spending are not accidentally comingled. The first thing you should do when reviewing your statement is look for charges that could be personal in nature.
If you spot any potential personal charges, you need to research the purchases and determine their validity. If the purchases are indeed business related, then all is good. If not, you will need to note those charges so they do not inadvertently end up on your business tax return.
Categorize Your Spending
When you choose a business credit card, you should look for one that provides a year-end summary of charges, along with a subtotal for each category of spending. Even if your credit card company provides such a statement, you should still categorize each charge on a month to month basis.
Breaking your business-related expenses into categories will make your business bookkeeping easier and simplify your tax filing. Instead of waiting until tax filing season and doing it all at once, you can categorize each charge as you go, and that will make your job a lot easier.
Match Up Your Receipts
As a business owner, you know how important it is to keep your receipts. The presence of a receipt for a legitimate business expense could mean the difference between a clean tax return and a frightening audit, so you need to keep your receipts in a safe place.
Now is the time to bring out those receipts and match them up against the charges on your business credit card. If there are any discrepancies, notify the merchant right away. If there are charges on your card that you did not authorize, notify the card issuer at once and file a dispute for the amount.
Scan Your Statement and Save it Electronically
Once the charges on your business credit card have been verified and categorized, it is time to make yourself an electronic copy. Scan each page of the credit card statement into your computer and save the document with the rest of your business files. That electronic copy will make reviewing your business expenses a lot easier, and this extra organization can make tax filing easier as well.
Be sure to note the date and amount of the payment on the credit card statement before you scan it. This recordkeeping will make tracking your expenses and calculating your profit much easier.
Having a separate credit card for your business can make your life a lot simpler, but only if you know what to do when the statements come in. Taking the steps listed above when your business credit card statement arrives will give you one less thing to worry about and help your business, and your life, run more efficiently.