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"Business" vs personal checking account - how do you split finances?

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  • #16
    Originally posted by Tim View Post
    How do you tally up your tax deductible business expenses? The question is how difficult is it to peal out business from personal. Since you get reimbursed for many, those you skip and rely on the reimbursement submitted. The difficulty is if you mix business and personal with a volume of transactions. Memory fades a couple months later. What did I buy?
    Like I said, I have very few expenses, and I just make a point to log them within 24 hours (usually within a couple of hours). Does that mean I always remember every little thing? Nope. But I doubt I've forgotten anything sizable. The health insurance is by far the largest line item, and it is the same every month. And Quickbooks isn't going to help me remember when I drove 3 miles to do a business errand.

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    • #17
      Originally posted by Cubicle View Post

      Depends on your business structure.

      Schedule C: deduction taken on your personal 1040. So should be paid not from the business account.

      S-Corp: as per the interwebs, most likely is a business deduction, so should be paid from the business account. The smart people on here should be able to confirm. Or more interweb searching.
      If you’re an > 2% owner of the S-corp, the business obtain the policy and pay the SEHI bill or the corp can reimburse you for premiums you personally, as long as the premiums are appropriately reported on your W2.
      Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #18
        Originally posted by SerrateAndDominate View Post
        Great thread and super timely as my wife will be doing some IC work starting July; she's been w2 since graduating dental school. I also advocated getting business only checking account and credit card.

        Not to hijack this thread:
        She isn't too big on doing paperwork and tracking expenses so I thought the business only accounts would be a good start. Does anyone have any other suggestions for easy/automated tracking? I suggested Quickbooks Sole Proprietor.
        For doctors who are 1099 but have only themselves as employees and fairly routine expenses, a spreadsheet will do if you tenaciously track business expenses. In that case, there may be no need for the separate business account. However, it is easier to keep business and personal separate with the 2 accts. For example purposes, we provide a basic online form for “simple” business clients to list business expenses; it includes common expenses for doctors and blanks for expenses that don’t fit anywhere else. If you have kept track throughout the year, it should be fairly simple to tally up and enter your totals at the eoy. Clients who don’t track and prefer that we do that work will pay more, it’s that simple. But it’s worth it for some ppl and that’s ok.

        Keep in mind that the end game is tax reporting (if you are a practice owner, the end game s/b providing reports that will help analyze business results, then accurate tax reporting, but I don’t think we’re talking about that here).

        Keep it simple or you’re (probably) not going to keep good records.
        Last edited by jfoxcpacfp; 06-19-2020, 07:28 AM. Reason: corrected poor punctuation
        Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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        • #19
          I think having a separate business checking account and CC helps with the mental accounting. Eventually it becomes second nature as to what is a business expense.

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          • #20
            Originally posted by southerndoc View Post
            I'm a member of a PEO for health insurance. It comes out of my business account and the leftover after premiums is deposited to my personal account as a salary.

            If you're an IC/self-employed, then you the employer are paying your health insurance premiums. My disability insurance also comes out of my business account.
            I was under the impression that disability insurance cannot be deducted as a business expense since the money you would collect in case of a disability would not be taxed. How are you using this as a business expense?

            I'm getting ready to pay my malpractice insurance, but I don't have a separate account for business expenses yet, would it be okay to pay from a personal checking account and still use it as a deduction at the end of the year?

            For health, which is the easier route to go, just get your health insurance policy under the business name or get it under your name and have the business reimburse you?

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            • #21
              My CPA told me this week that disability insurance premium can be paid for through business account (s-Corp). It’s an employee benefit. I started listening to WCI podcast this week and thought I wouldn’t listen to it al the way through, but I did. Disability insurance is so exciting

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              • #22
                Originally posted by Fullhouse11 View Post
                My CPA told me this week that disability insurance premium can be paid for through business account (s-Corp). It’s an employee benefit. I started listening to WCI podcast this week and thought I wouldn’t listen to it al the way through, but I did. Disability insurance is so exciting
                warning

                if disability insurance premium is paid pretax and you were to become disabled then the benefits you receive would be taxable income

                by contrast if you pay the premium post tax then benefits would not be taxable

                that is my understanding. I have chosen to pay my premiums post tax

                to add to the complexity, the premium can be paid by the Corp and still be post tax. Basically included in taxable Comp but withheld from pay post tax.

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                • #23
                  Originally posted by Fullhouse11 View Post
                  My CPA told me this week that disability insurance premium can be paid for through business account (s-Corp). It’s an employee benefit. I started listening to WCI podcast this week and thought I wouldn’t listen to it al the way through, but I did. Disability insurance is so exciting
                  This is not an option for >2% business owners unless it is offered as a benefit as a C-corp. Then add on what jacoavlu posted.
                  Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                  • #24
                    This thread has a lot of great info in it, but I'm still having some trouble with the logistics in setting up my accounts for my 1099 income.

                    Does anyone see any issues with opening an Ally high yield money market account or savings account (with direct deposit) for 1099 income plus a Ally credit card for business use?
                    If I was to pay business expenses with a check or pay off my business credit card with this Ally account, would it count toward the 6 withdrawals/transfers per statement limit?

                    Its either that or I just open another checking account and credit card at Chase for business use.

                    What would you guys recommend?

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                    • #25
                      Originally posted by southerndoc View Post
                      All business-related payments go directly to business account (I'm an IC as an ER doc as well as medical director for 3 fire departments). ALL business-related expenses are paid from that account. Student loan payment comes out of that account, disability insurance, FirstNet phone (for medical direction), CME, licensure, etc. I also have a business credit card for business-related travel. Solo 401(k) contributions, HSA contributions, etc. come out of the business account. I keep record of all business expenses.

                      My "salary" is moved from my business account to my personal account. Taxes are paid from personal account (personal savings store quarterly payments). Under no circumstances will I ever pay a personal credit card or personal expense from my business account. If you don't have enough to cover an expense in your personal account but have it in your business account, then transfer the money to your personal account and then pay it.

                      It may be overkill, but it's much easier to keep track of expenses especially if you're audited.

                      I use Bank of America because there is no delay in transfers between accounts. If you have a business account at one bank and personal account at another, a payment from business to personal account may take 2-3 days to clear.
                      Does this mean you take student loan payments and disability insurance payments as a tax write off?

                      I thought that was not allowed for loans. And for DI I thought you had to specify in the policy if you would be paying pre or post tax dollars.

                      If I'm mistaken, I need to shuffle some things around.

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                      • #26
                        Originally posted by CFEonline View Post

                        Does this mean you take student loan payments and disability insurance payments as a tax write off?

                        I thought that was not allowed for loans. And for DI I thought you had to specify in the policy if you would be paying pre or post tax dollars.

                        If I'm mistaken, I need to shuffle some things around.
                        Student loan payments are not deductible. DI is not deductible for a sole proprietor, partner, or >2% s-corp owner. DI can be a tax-free benefit provided to c-corporation employees.

                        Just because something is paid through your closely-held business does not make it deductible for tax purposes. For example, many s-corp owners pay their quarterly taxes through their s-corp; we treat is as a “distribution”, rather than a deductible expense. If you can keep the total curtain of separation between personal and business thatsoutherndoc does, it’s probably best, but I’ve not run across many small business/practice owners in my career who can do that perfectly, even those who have partners or other shareholders in the s-corp. It does make more work for the CPA, fwiw.
                        Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                        • #27
                          Originally posted by jfoxcpacfp View Post

                          Student loan payments are not deductible. DI is not deductible for a sole proprietor, partner, or >2% s-corp owner. DI can be a tax-free benefit provided to c-corporation employees.

                          Just because something is paid through your closely-held business does not make it deductible for tax purposes. For example, many s-corp owners pay their quarterly taxes through their s-corp; we treat is as a “distribution”, rather than a deductible expense. If you can keep the total curtain of separation between personal and business thatsoutherndoc does, it’s probably best, but I’ve not run across many small business/practice owners in my career who can do that perfectly, even those who have partners or other shareholders in the s-corp. It does make more work for the CPA, fwiw.
                          Agreed.
                          Not everything that I charge to my "business" credit cards is deductible. But I want my CPA to disregard the expenses that are not, rather than trying to find those that are from my personal cards. I do my own Quickbooks, and expenses that are questionable are listed under Officer Expenses category and classifieded as Other Expenses - easily identifiable, and don't mess up overhead calculations for my internal reporting.

                          If in doubt, I charge it to my business. Let the CPA sort out what's deductible and what's not.

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                          • #28
                            Originally posted by molar roller View Post

                            Agreed.
                            Not everything that I charge to my "business" credit cards is deductible. But I want my CPA to disregard the expenses that are not, rather than trying to find those that are from my personal cards. I do my own Quickbooks, and expenses that are questionable are listed under Officer Expenses category and classifieded as Other Expenses - easily identifiable, and don't mess up overhead calculations for my internal reporting.

                            If in doubt, I charge it to my business. Let the CPA sort out what's deductible and what's not.
                            I like to divide “Distributions” (or “Draws”) into 2 account categories: “Distributions - Nondeductible” and “Distributions - Deductible”. This gives the tax preparer an easy view of what are most likely deductible and others that most likely aren’t, making it fairly easy to identify what does and doesn’t belong.
                            Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                            • #29
                              fwiw i am 90+% w2 and 10-% IC.

                              the highest my IC ever got was about 20% and it likely won't get there again for many years.

                              i have always just used my regular accounts and tracked carefully, this was on advice from my accountant.

                              i would not do this if i actually opened a business and did things in a businesslike way (marketing, ads, newsletters etc), but my "business" is entities either paying me to work hourly shifts or give advice on an hourly basis. there is no overhead, no assets, no payroll, and no marketing.

                              not an accountant but i am 100% sure in a situation like mine it's better to have combined accounts and get the taxes right than to have separate accounts and get them wrong.

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                              • #30
                                Originally posted by MPMD View Post
                                fwiw i am 90+% w2 and 10-% IC.
                                not an accountant but i am 100% sure in a situation like mine it's better to have combined accounts and get the taxes right than to have separate accounts and get them wrong.
                                I 100% agree with taking the easiest way to get things right.
                                The technique used should be the easiest accurate path. You do not need a separate bank account. You do not need a set of books for each type of income or personal.

                                If I recall correctly, you keep track of IC income and match up with 1099’s. The was a question about missing 1099’s. A separate bank account adds zero value to your situation. A separate credit card might if you have miscellaneous expenses that would be deductible.

                                I recall another post that IC deposits were mixed with personal deposits and they had a field audit that required backup of the complete bank statements. They had difficulty because the volume of personal was mixed with the IC, thus the scope of the bank account greatly expanded the data request. A separate account could provide separation that is helpful in that way.
                                Trade offs. No need to create unnecessary work, which is how I took your post.

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