Small Business And Personal Expenses

Michael Lodge

by Michael Lodge

When you start a small business there is always personal money getting mixed up with business money, what can be deducted and those that can’t be.  Many time we see in Small Business where money is being used to pay for groceries, security for the house, and the list goes on.  Remember, business expenses are those items associated with the business only.  The IRS has specific rules on this question.

Question: I am a sole proprietor and pay personal expenses out of my business bank account. Should I include the money used for personal expenses as part of my business income? Can I write these expenses off?

Answer:

  • You would include the money used to pay personal expenses in your business income when your business earned it.
  • You would not write off these expenses as business expenses because they are not ordinary and necessary costs of carrying on your trade or business.
  • Personal, living, or family expenses are generally not deductible.
  • It is a good idea to keep separate business and personal accounts as this makes it easier to keep records.

The most important aspect of having a small business is to document your income and expenses correctly.  Documentation is the key to running a small business, you may not like it but it has to be done.  Try not to co-mingle personal and business transactions together.  Keep a bank account only for your business.  Write checks out of the business account for your business, never for personal items.

If you have questions on small business issues, send us an email at tax@icontaxgroup.com or call 877.778.1770