Skip to main content
A
Anonymous
October 16, 2018
Solved

How to manage personal expenses - Is it better to exclude personal transactions or list them as a personal expense which can be filtered out?

  • October 16, 2018
  • 4 replies
  • 0 views

I use my personal card to pay for business expenses therefore my statement and what comes into quickbooks from this account is a mix of personal and business. 

What is the best way to remove the personal charges from Quickbooks?

I have created a 'personal expense' account that I am putting these transaction in and then can get the total and remove when needed.

Would it be better to select the personal expenses and use the exclude button?


Thanks

Best answer by Malcolm Ziman

If you are a sole proprietor, then from a legal point of view it does not matter if you mix personal and business in one bank account, as the legal ownership is the same. It also does not matter from a tax point of view, as there is no reporting of assets (bank account is an asset) in the tax return - just schedule C, which is the P&L.  From a personal tracking point of view it's a good idea to reconcile the bank accounts, so you should not exclude transactions, as if you do, you can't reconcile.  You can even categorize personal expenses, under "Other Expense" type accounts, and post business expenses as regular "Expense" type accounts, and then the Operating Income in the P&L (which does not include "Other Expense" accounts) is the taxable income, before adjustments, like mileage.

If this is a corporation then, you should not mix personal and business in one bank account, mainly because you may lose the personal liability protection that you get with a corporation.

4 replies

M
Malcolm ZimanAnswer
October 16, 2018

If you are a sole proprietor, then from a legal point of view it does not matter if you mix personal and business in one bank account, as the legal ownership is the same. It also does not matter from a tax point of view, as there is no reporting of assets (bank account is an asset) in the tax return - just schedule C, which is the P&L.  From a personal tracking point of view it's a good idea to reconcile the bank accounts, so you should not exclude transactions, as if you do, you can't reconcile.  You can even categorize personal expenses, under "Other Expense" type accounts, and post business expenses as regular "Expense" type accounts, and then the Operating Income in the P&L (which does not include "Other Expense" accounts) is the taxable income, before adjustments, like mileage.

If this is a corporation then, you should not mix personal and business in one bank account, mainly because you may lose the personal liability protection that you get with a corporation.

    A
    Anonymous
    October 16, 2018
    Thanks Malcolm. That is very helpful. I have only started but have been doing a mixture of both methods and want to do what is best going forward.
    To give more context - I am a sole proprietor LLC filing as a S-Corp. Does that change anything from your answer? Thanks for the help!
    A
    Anonymous
    October 16, 2018

    best practice is to not mix personal with business transactions.  get a 2nd CC, even if it is a personal card, and use it for business only.

      A
      Anonymous
      October 16, 2018
      Thanks but doesn't answer my question.
        T
        Teri11_2
        November 1, 2018

        If you are filing taxes as an S-Corp, definitely suggest separate biz from personal with separate bank accounts and credit cards or you are defeating the whole purpose of being S-Corp to begin with, which is to separate liability between biz and personal, meaning if biz gets sued they can only take your biz assets vs. personal as well (like your business truck vs. personal car too).  Until then, you should be recording personal charges as Distributions of profit which reduce equity as it should, since you are using business funds for personal purposes.  

          qbteachmt
          qbteachmt
          November 1, 2018

          Here is how to handle Personal Credit Card with the mix of personal and business; Not as a linked card account in the business file.

           

          Make a bank type of account and name it Owner Funds. For anything you paid personally, from cash or personal credit card or personal checking, you use this Bank account as the source of the spending. Then, at least at year end, make one deposit as Equity, to bring this account to 0.

           

          Now you stop trying to manage a Mixed Card in the business file, entirely.

            W
            Wardogs
            November 20, 2018

            This answer helps me as I recently opened my business and have the same problem because I waited a couple months to open my business accounts. 

             

            Can anyone else back this up as the best method to this problem? Seems like it makes sense, so thanks for your input qbteachmt!

            T
            Teri11_2
            March 10, 2019

            "Sole proprietor LLC filing as a S-Corp" --  These are different entity types with different rules and it seems the answer selected as best is not ultimately correct for the company who asked.

            You are either a:

            - Sole Proprietor

            - LLC (state only)

            - Partnership

            - S Corp

            - C Corp

             

            - If you "file taxes as an S Corp", you follow same tax rules as an S Corp.

            - A Corporation is a SEPARATE ENTITY from YOU that you set up to KEEP SEPARATE. 

            - You keep separate so if business gets sued they can only take biz money NOT personal

            - When you muddy the waters, by mixing biz with personal, you risk losing proof of separation.

             

              Terms & ConditionsAccessibility statement