A

Anonymous

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

Forum|Forum|7 years ago
October 16, 2018
24 replies
129 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

QuickBooks Online

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.

M

Malcolm ZimanAnswer

Level 4

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.

S

Sweets_By_Design_CA

Hi Malcolm,

You've been so helpful with others on this thread that I'm wondering if you could possibly help me out, as my questions are along the same vein.

I am a sole proprietor who works full time for an employer and who also has a side bakery/hobby business. Because of this, I use my personal checking accounts for purchasing materials and supplies as well as receiving payments for cakes. I'd like to know the best way to use Quickbooks to not only manage my business expenses and income, but possibly better organize/categorize my personal expenses and income.

Other than using a dedicated credit card for business expenses (which I'm definitely going to adopt), do you have any recommendations for the best way to setup and use Quickbooks for managing both my business income and expenses as well as personal income and expenses?

Thanks in advance for any advice you can provide. I'm not sure if you're a user or work for QuickBooks, but either way, I can image your time is valuable and am grateful for any recommendations to make my bookeeping less hectic.

Thanks again,

Nicole

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Denise 3

I work for a company who is an LLC operating for tax purposes as an S Corp. The Single Owner Shareholder loves to mix his money, creditcards, etc through the company books. Actually I think all of his familys personal expenses hit the Quickbooks Desktop Pro application at some point each month. Therefore, I have created classes for expenses so I can separate them for reporting purposes and he will also be able to tell where is money is going for his personal expenses as well. Rather than lumping it all in a Due to/ From asset account, I can still catagorize the expenses so we can generate financials for solely the business and then combine them if desired. This seems to help, I also took over the accounting for a company that hadn't kept any books at all in the 3rd year of their business operating, so it has been challenging. This might be an option for you.

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Anonymous

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

Thanks but doesn't answer my question.

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Teri11_2

Level 2

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

Level 11

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.

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Wardogs

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

Level 2

"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.

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