It is very important to segregate your business expenses from your personal expenses on a regular basis. This task becomes even more important if you are a work at home mom or individual. When you use the same credit card for personal and business transactions, it is very easy to treat all your expenses as personal expenses.
While this may not seem important as far as management of cash flow is concerned, it will have a huge implication on your tax liability. All business expenses are deductible from your business income when computing your tax liability. If you treat all your expenses as personal, you will have to pay tax on your entire income.
On the other hand, if you separate your business and personal expenses, you can easily reduce your tax liability. If you avoid this, you will be letting go of valuable cash that would otherwise stay in your hand. So, how should you proceed with this task?
For starters, try to get two credit cards and use one for your business expenses and the other for personal expenses. If your business does not require too many expenses upfront, you can always opt for a credit card with a low credit limit for this purpose. If possible, register your business and get a credit card in the name of your business. This will help you develop not just your credit score but that of your business as well.
If this is not feasible, try to segregate all your expenses into business and personal once a week. Do not avoid this task for more than two weeks at a stretch. This will help you avoid complications later. Try to maintain receipts and prepare a spreadsheet that will contain your personal and business expenses. One advantage of this approach is that your personal and business budget will be reconciled on a weekly or fortnightly basis.