S7E7: Stop Making These Money Mistakes: Personal vs. Business Accounts Explained

⚠️ Disclaimer: This podcast is for informational purposes only. It is not financial, legal, or tax advice. Always consult with a qualified professional before making financial decisions.

Too many entrepreneurs are still running their business out of a personal checking account or swiping their personal credit card for everything. Sure, it feels easier in the moment—but when tax season rolls around? Total nightmare.

In this episode of Cash Flow with Pam Prior, Pam answers three of the most common questions business owners ask about money, including the big one:
“Do I really need to separate my business and personal finances?”

She’ll break it down in plain English (no boring accounting talk, promise) and share exactly why keeping things clean isn’t just about taxes—it’s about protecting your business, saving yourself stress, and making smarter decisions with your money.

You’ll walk away knowing:

• Why that “one little swipe” of your personal card can cost you big later
• The simplest way to make tax season painless
• How to finally feel confident about your business finances

If you’ve ever felt overwhelmed by money management—or just sick of the stress—this episode will help you get your financial house in order without overcomplicating it.

Transcript

0:00

Foreign and welcome back to the Cash Flow podcast. We are in our Keep it Simple series where I am calling myself the self proclaimed Keep it Simple squad leader. And we're going to jump into some entrepreneurs questions about their finances and give you quick, simple answers. So this week we have three more questions, really good ones, following on a little bit nicely from the last episode. The first question we're going to jump in with here is can I use my personal checking account, my personal credit card for business? The answer, the very easy answer is yes, you can. Do I recommend it? No. And here are the few reasons why. First of all, it has to do with taxes. Every expense that you have that's related to your business literally gets you money back on your taxes. Okay? If you use your personal credit card and your personal checking account, the chances that when you get to the end of the year and need to go back and hand pick which of those expenses you have could be considered business expenses gets complicated for a number of reasons. Number one, a lot of times the descriptions on the bank account feed or the credit card feed don't make any sense and you can't remember what they were. The second is that you don't remember if it was for business or not, often a year later. Okay? So those are kind of the big, one of the big reasons. You don't want to let stuff kind of sit on your personal checking account. But you can, okay, all you would have to do is at the end of the year, go through, look at every single line item in every single bank statement and every single credit card statement and make sure that you've hand picked them to give to your tax account or to put in your turbotax. Now the other thing, hopefully you got the second thing that's the biggest problem with doing this. From the first thing, it takes a lot of time and it takes your time because you are the only one, you can go back through that personal credit card or checking account and go, yep, that was business. That was business. That was business. I can't tell you how many clients I've worked with who come to me after the first year of doing that and go, we got to make this never happen again because it's made me nuts. So you know how we all have those things that if I knew them when, I would have done them differently. This is one of those things. The problem with those is usually as we're coming along, we're like, ah, fine, I hear you. But I promise you that this one is one that you will ultimately say to Whoever it is that's told you this, don't use your personal checking account. That person is going to say, hmm, told you so. But you, you need to find out for yourself. So I buy that. So the simple answer is, yeah, absolutely, you can use your personal account for business. Look back a couple episodes, and we talk about some reasons why you might want to set up a separate business account, but more importantly, how easy it is to do and that you don't even have to have a business set up to do it. Circling back, pop back to a couple episodes before this one, and you'll get some information on that one. And finally, if your business expenses are mixed up with your personal expenses, there's a little bit of a, of a liability risk there. If somebody decides that they're not happy with what you've done for them, say you're a videographer and you screw up a video shoot and they sue you because you're ruin their wedding, they'll never get to see it again the rest of their lives. And that's going to cause them all sorts of distress. And in the U.S. of course, you can sue for that. Maybe not so much in Canada, but in the US Then if it's all mixed together, there is no reason for the judge to think that all that money isn't available to pay for the damage that you've caused. Okay? So just, yes, you can, you can keep all your business expenses on your personal account, but I don't recommend it. Okay, now the next question is, do I need to track every business expense? The simple answer to this is yes. The complicated answer to this is yes. And I think the reasons after what I just talked about are pretty obvious. The main one is you want to know how many of your expenses you can actually use to reduce your tax bill. Your business starts making money. Here's the thing to understand. If your business starts making money, your biggest bill in your business, your biggest expense in your business is going to be your taxes. And for the most part, you're not even going to look at that till the end of the year or April when you have to file that tax return. And when you do, if you've made money, you're going to go, oh, shit, that's a lot of money. I got to pay. So tracking your expenses all the way along will make sure that you're taking absolute advantage of everything you can legally deduct to make that tax bill a little bit lower. Okay? That reason stands alone, in my opinion. That doesn't have to be another reason for tracking every expense, that reason stands alone. But there is another one, of course, and the other one is, if you're tracking the expenses, you know what you're spending. So whether you're keeping them in your personal account or a business account, and I've talked ad nauseum about that in these past few episodes, you still want to track them because you want to know as you're going along, how much am I spending and how much am I making? Because you don't want to be spending more than you're making unless you're intending to. For some reason, you're in growth and you know you're going to borrow money. You really need to be aware of how much you're spending and making in your business. So that's really the second major reason. Now, one other thing, and I love this answer, is you can't fix what you don't see. And if you're not tracking your expenses, you're not going to see the one thing that happens in my business all the time. Because I am a software junkie. I'm a training junkie. I press go on every single thing I see. That looks interesting. And if we weren't keeping track of those expenses, Francis and Wen over there behind the camera wouldn't be able to come to me and say, you did it again. We're going to cancel this, this, this, this, this, this, this, this, this, and this. The only reason they can do that and the only reason I'm not spending myself into bankruptcy is because I keep track of my expenses. And I started doing that right when I started off out of the gate because I knew my habit. So if you have a habit of spending money and not necessarily keeping track of it in your head, another really good reason to keep traffic track of expenses, keep your spending down overall, okay, you can fix it. If you can see it, you can fix it. So there's the answer to the first question or the second question, Do I need to track every expense? So, yes, you can use your personal account for business. If you choose to do that, or even if you don't, you still want to track every expense as you go so that it doesn't jump up on you at the end of the year and so you don't end up spending way more than you need to. Here comes the one last question that's very related to those two. Do I need my receipts? Do I need to keep my receipts? I'm going to go kind of down two angles on this, and one is the very simple answer. Do I need to have receipts for my expenses. So for IRS purposes right now. And this is not tax advice because the tax code is very complicated. But this is just one of the more relevant things from the tax code for the most part. You don't have to have a receipt for tax purposes for anything under $75. Okay? Caution, there are exceptions. One of the exceptions I know about is hotel bills. Why? I don't know. Another exception can be meals and entertainment. But for other stuff, you don't have to have a receipt if the thing you're buying is under$75 for tax purposes. And that may go up or down. That's why this isn't tax advice, because we know the tax code changes all the time. But as a general rule, I start with $75 as my limit. So, yes, you need them if they're over $75. But here's the catch. You don't have to have a physical paper copy of it, okay? You can very easily pick up your iPhone, pick up your other kind of phone, whatever they are, the ones that make green messages on the iPhone people, and take a snapshot of every single one of those receipts. In fact, there are some softwares that are free or very, very cheap, like Genius Scan. No, I don't get any commission from them, but that's the one I use. And that actually take it in, kind of crop it for you and make sure that it's legible and all that kind of stuff. But if you don't want to go down that road, you can literally just use your camera, take a snapshot of that receipt and then just put it in a folder on your camera. That's your receipts folder. And make sure it's backed up. Because why do you need your receipts? Your tax accountant doesn't need them. You don't necessarily need them. The only time you're going to need them is if you're audited. Okay? And so you can choose not to keep the images of your tax receipts. But I will tell you that if you're audited ever, that's going to be your worst nightmare. Because what that's going to cause is a tax bill. And it's going to be a tax bill that's higher than your original tax bill ever would have been because it's going to have penalties and interest and they can wait and do that audit three years down the road, seven years down the road, I think even. Right. Again, not tax advice. And if they do that and you have seven years of penalties and interest to pay, that bill is going to take you out. So it's as easy as pulling out that camera now, taking a picture and dropping it in a folder to save yourself the potential of ever having that kind of a bill hit you. So I'm begging you, just take a picture of the receipt. If it's over $75, just take a picture, store it somewhere. I beg myself to do this as well because it's so important. You don't have to keep the physical copy anymore. At least not in the U.S. in Canada, I don't think you do either. But I'm not going to speak for the cra. I'm not speaking for anybody. As a matter of fact. Again, this is not tax advice. But I will tell you, keep those receipts because you will thank yourself, your future, you will. Thank you so much if you are ever audited. Okay, it's going back. And finding receipts in the future is chaos. Number of the businesses you spent money with are going to be out of business. You're not going to get it from them. You're going to say, oh, I did it on my Amex bill. There's like an Amex sort of receipt thing right on the statement. Does that count? The answer is maybe, maybe not. It depends on your auditor. So you're going to scramble, you're going to spend a lot of time and it's going to cost you a lot of money. So I know I'm beating this like a dead horse. Oh, I hate that expression. I'm beating this really hard. But just take a picture of your receipts, please. Okay, there's that. So, yes, keep your receipt images. You don't have to keep your actual physical receipts. And with that, we are going to wrap it up because Francis is back there going like this because he knows when I get on this soapbox, I don't get off unless he tells me to. But that wraps up this episode of Cash Flow Podcast where we are keeping it simple and I am the self proclaimed Keep it Simple squad leader. Hit a like, hit a. Subscribe Share this with any of your entrepreneur friends who need to answer some of these basic questions. And be sure to check out our past episodes if you haven't seen them yet. Have a great week. Sam.