Separating personal and business money when you own an LLC
When you start a small business, it's tempting to run everything through one bank account. It's simpler, right? Until tax time, when you're squinting at a year of statements trying to remember which hardware store trip was for a job and which was for your garden.
If your business is an LLC, keeping money separate is even more important. Here's why, and how to do it without a lot of fuss. (This is general information, not legal or tax advice. Your attorney and CPA can tell you what applies to your situation.)
Why separation matters
It protects the “limited” in limited liability
One reason people form an LLC is to keep business debts and lawsuits separate from their personal assets. Courts generally expect an LLC to be treated as a genuinely separate entity. If business and personal money are routinely mixed (“commingled”), that separation can be questioned. Keeping clean, separate finances is one of the simplest ways to show your LLC is its own thing.
It makes your books accurate
When only business transactions flow through business accounts, your profit and loss actually reflects your business. You're not guessing which charges to exclude.
It makes taxes easier and less stressful
Separate accounts give you and your accountant a clean record of business income and deductible expenses. If you're ever asked to back up a deduction, it's right there.
How to set it up
1. Open a business checking account
Open it in the LLC's name, using the LLC's EIN (employer identification number) rather than your Social Security number. Most banks will ask for your formation documents and EIN letter.
2. Get a business credit or debit card
Use it only for business purchases. This alone eliminates most of the mixing that happens day to day.
3. Route all business income to the business account
Customer payments, card processor deposits, and app payouts should all land in the business account, not your personal one.
4. Pay business bills from the business account
Rent, software, suppliers, insurance: all from business accounts.
How to pay yourself
This is where many owners get confused. If business money is separate, how do you get paid?
For many single-member and multi-member LLCs taxed as sole proprietorships or partnerships (the default for most), you pay yourself by transferring money from the business account to your personal account. This is usually recorded as an owner's draw (or member distribution). It's not a business expense; it reduces your equity in the business.
If your LLC has elected to be taxed as an S corporation, the rules are different and typically involve paying yourself a salary through payroll. Talk to your CPA about what's right for you.
Either way, a regular rhythm helps. Many owners transfer a set amount on a schedule, like every two weeks, and leave a buffer in the business account for taxes and slow months.
What if you put personal money in?
If you fund the business from personal savings, transfer the money into the business account and record it as an owner's contribution (or, if agreed in writing, a loan to the business). Don't pay business bills straight from your personal card if you can avoid it.
Oops, I used the wrong card
It happens. If you accidentally pay for something personal with the business card, record it as an owner's draw (or pay the business back). If you pay for a business expense personally, you can reimburse yourself from the business account and keep the receipt. The goal is a clear trail, not perfection.
Multi-member LLCs: track each owner
If you have partners, keep track of each member's contributions and draws separately. At year end, your accountant uses this to work out each member's share and prepare tax forms such as Schedule K-1s.
A quick checklist
- Business checking account in the LLC's name and EIN.
- Business card used only for business.
- All income deposited to business accounts.
- Owner pay as scheduled transfers, recorded as draws.
- Personal money in, recorded as contributions.
- Books reconciled monthly.
How Apsis helps
Apsis connects to your business bank and card accounts and recognizes transfers between your own accounts, so owner draws and contributions don't get mistaken for expenses or income. For multi-member LLCs, Apsis tracks each member's capital and can prepare K-1 information for your accountant. If you run more than one business, each company gets its own separate set of books. Try Apsis free for 30 days.