5 Tips to Separate Business Expenses from Personal Expenses

While independent business ventures like real estate can afford self-directed workers personal and economic freedom, that freedom can also cause individuals to mix their personal and business expenditures. While this practice does not in itself trigger an IRS audit, it can force you to employ guesstimation tactics when reporting business expenses to the IRS, and this can lead to tax woes and limit the potential for business tax deductions.

Use the following tips to separate business expenses from personal expenses and maximize your business tax deductions.

Be Contemporaneous, Not Extemporaneous

Just as it is wise to maintain mileage logs to document your mileage for the IRS, it is also wise to track expenses contemporaneously, or roughly as they occur, rather than impulsively filling in the blanks come tax time. Small expenses in particular are not likely to register in your memory unless you register them on paper through either bookkeeping software or a simple spreadsheet. Treat your expense logs as living documents that are updated at regular intervals.

Adopt a Business Mindset When Tracking Personal Expenses

Your financial mindset, as much as your behavior, can cause you to haphazardly track expenses. Oftentimes, diligent workers give business expenses the royal treatment in their budget, tracking business accounts payable with precision, but relegate personal expenses into a non-itemized, no-man's land of miscellaneous expenditures that can be identified as easily as a needle in a haystack. Track personal expenses with the same methodical, entrepreneurial instinct by which you track your business expenses.