Shownotes
Even though we know we *should*, we don’t always remember to (or aren’t able to) put every business expense on our business card.
You might be out running an errand and pick up some office supplies and realize you only have your personal card with you. Or maybe you get more points for buying your business travel flights on your personal travel card rather than your business card.
When we get new clients that have been doing their own books, we see they are forgetting or they don't know they can add transactions that they paid on personal cards and missing out on deductions.
In this episode, we get into how you’re missing out on deductions and a couple of sneaky places deductions might be hiding that you need to check.
02:54 — Why you need to maintain as much separation between personal and business as you can to protect yourself
07:24 — How you can reimburse yourself for business expenses when you put them on a personal card
10:29 — 3 additional places business expenses might be hiding that you forgot to track
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Transcripts
one of the biggest things that we see when we get new clients that
Speaker:have been doing their own books is that they are forgetting or they
Speaker:don't know they can add transactions that they booked on personal cards.
Speaker:Or they are not gathering all of the transactions on personal cards.
Speaker:Welcome to the Know Your Worth Show, where we teach you how to think about
Speaker:your money differently so that you can achieve your sexy money goals.
Speaker:I'm Sydnee your money Maven and owner of Know Your Worth.
Speaker:And I'm Kristen Sid's Dimepiece bestie team member and busy mama
Speaker:twins here to make sure that those of us without a financial degree can
Speaker:still level up with each episode.
Speaker:Let's get started on reaching your next goal.
Speaker:Welcome to the Know Your Worth podcast.
Speaker:I'm one of your hosts, Sydney Conway, your money maven.
Speaker:And
Speaker:I'm Syd's dimepiece bestie and assistant, Kristen, here to listen and ask the
Speaker:questions that you're not here to ask.
Speaker:Yeah, welcome to episode 21.
Speaker:We're back.
Speaker:We're back with a red flag episode.
Speaker:Dun, dun, dun.
Speaker:Mistakes that Syd has seen.
Speaker:We are talking red flags of doing your own books.
Speaker:So DYI bookkeeping mistakes.
Speaker:Dumpster fires.
Speaker:Yes.
Speaker:And things that we've seen clients do things that we can fix things
Speaker:that we can very easily fix.
Speaker:If we're still in the tax time period, you haven't filed taxes or
Speaker:you amend for a prior period, but sometimes that's a lot of effort.
Speaker:So one of the biggest things that we see when we get new clients that
Speaker:have been doing their own books is that they are forgetting or they
Speaker:don't know they can add transactions that they booked on personal cards.
Speaker:Or they are not gathering all of the transactions on personal cards.
Speaker:Can you give me a, an example?
Speaker:Mm hmm.
Speaker:So say you're starting out your business, and you open your business bank account,
Speaker:but you don't have a lot of sales yet.
Speaker:So you have your business banking card, and you have some sales coming
Speaker:in, but you have to buy something big.
Speaker:You have to buy a new laptop, you have to buy a desk, you have to buy
Speaker:something else related to your business.
Speaker:So you have to use your personal card, because that's where you have the funds.
Speaker:You haven't transferred that money into the business and
Speaker:then used the business account.
Speaker:You just go and swipe your credit card, your personal card.
Speaker:The business owners are forgetting to add those transactions.
Speaker:Okay.
Speaker:Because if you're doing your own bookkeeping in QuickBooks, for
Speaker:example, you typically would hook up your bank or your credit card
Speaker:to QuickBooks so it gathers all the transactions automatically.
Speaker:You're not going to hook up your personal cards because you don't want your personal
Speaker:transactions to be a business expense.
Speaker:So people forget that they had transactions on other cards to
Speaker:manually enter them and you can manually enter them and that's what
Speaker:a lot of people do not realize.
Speaker:They kind of set it and forget it and then just start swiping for 12 months.
Speaker:Exactly.
Speaker:And then it's like a big.
Speaker:Yep.
Speaker:Big problem.
Speaker:Exactly.
Speaker:Okay.
Speaker:Yes, absolutely.
Speaker:So separating your business and personal expenses is really
Speaker:big, so it's good to do that.
Speaker:And so a lot of the times we see new business owners using one card for their
Speaker:business expense and their personal expense, and we do want that separation.
Speaker:We have talked about that in a couple different episodes.
Speaker:You really want to have a separate business bank account than your personal.
Speaker:It's very crucial to maintain that clear separation.
Speaker:So if you are someone right now that's using the same card, you're
Speaker:very likely to blur the lines.
Speaker:It's very easy to forget business expenses and think they're personal.
Speaker:It's also very easy to think, Oh, all of these Amazon
Speaker:transactions are for the business.
Speaker:Do you see my eyes glazing because I'm just thinking about how many
Speaker:times I think I swiped my business card, like, at Giant Eagle this week.
Speaker:Yeah, yeah.
Speaker:Shh.
Speaker:I mean, it's, it's one of those things.
Speaker:You're going to kill me when you go through my stuff!
Speaker:I will not kill you.
Speaker:Don't worry.
Speaker:Don't worry.
Speaker:But it is something that then it just becomes like a bigger bear at the
Speaker:end of the year because you really want to go back through and like.
Speaker:Fine tuned, pick them all out.
Speaker:Like you should just have like two right there and whatever.
Speaker:Just pull, why didn't I, why didn't I?
Speaker:It's okay.
Speaker:Because people just, we're just trying to survive.
Speaker:Everybody's busy.
Speaker:Yeah, everybody's busy.
Speaker:And you want to make sure that you feel comfortable and confident and
Speaker:the numbers that you're submitting for your taxes are truly business expenses.
Speaker:Right.
Speaker:Because again, if you can't validate that expense as a regular and
Speaker:ordinary cost of your business, it can be considered a personal expense.
Speaker:And then you'd either have to reimburse the business, pay the taxes on it,
Speaker:pay the penalties and fees on it, depending on the amount that it is.
Speaker:So you want to make sure that you maintain that clear separation of
Speaker:business and personal, personal, really as much as possible just to make sure
Speaker:that everything's categorized correctly and you're protecting yourself.
Speaker:I wanted to tell you, so you worked with Annie a little bit to get
Speaker:her straightened out and I was having dinner with dinner with her.
Speaker:This is one of my friends that was a client of Sydney's and she was like, I
Speaker:feel so much better about my business right now because I did what Sydney said
Speaker:and I got a business card and account.
Speaker:She's like, and I'm actually tracking like what I'm making and I don't
Speaker:feel as anxious anymore because I am trying so hard to keep it separate.
Speaker:Yeah.
Speaker:Yeah.
Speaker:So once you make the move and like train yourself.
Speaker:Mm hmm.
Speaker:And when people have a tendency to get stressed about their business because they
Speaker:don't feel like they're making enough, if they are combining the business and
Speaker:personal, how do you know what your business is making on a month to month?
Speaker:You just feel like there's no money in it.
Speaker:Meanwhile, your business could be doing great.
Speaker:You're just spending too much on a personal level, so you're
Speaker:taking all the funds out.
Speaker:Right.
Speaker:And That's fine.
Speaker:If you need the funds, you need the funds, but you just want to make sure
Speaker:that you're transferring it out into your personal account and then using it
Speaker:from there because then you know what your business is making, you know that
Speaker:you're keeping your expenses clean, and then it makes it a little bit
Speaker:easier to see what you actually need to budget for on a personal level, right?
Speaker:Because that's where you're spending from on the personal side.
Speaker:So you can say, Oh, it's not the business that's losing money.
Speaker:Okay.
Speaker:It's me, you know, like I went to Target too many times this month.
Speaker:I've spent too much money on Amazon this month.
Speaker:I brought an electric hair laser removal system.
Speaker:We've been really going back and forth about this.
Speaker:Should we buy it?
Speaker:We don't know.
Speaker:Should we buy the spray tan machine?
Speaker:We're not actually sure.
Speaker:I just, I really feel like I did the right girl math on that this week.
Speaker:And I really feel like it's worth it.
Speaker:It's gonna pay off.
Speaker:Like five times.
Speaker:It pays for itself.
Speaker:We can charge people like locally to come to our booth.
Speaker:Pay for itself in a month.
Speaker:It would.
Speaker:It would.
Speaker:Another business.
Speaker:Here we go.
Speaker:Mav Spa.
Speaker:Maverick Spa.
Speaker:We already have a nail kit here.
Speaker:Uh, if we get the hair removal system, we get the hair
Speaker:removal system, massage chair.
Speaker:Ooh.
Speaker:Write it all off.
Speaker:We have chirp wheels here.
Speaker:Yeah.
Speaker:So.
Speaker:You guys need a spa day?
Speaker:The Maverick has a spa.
Speaker:So you're telling me, I have my business and I have my personal, if I
Speaker:want to do a personal thing, I need to transfer money from my business to my
Speaker:personal, then swipe my personal card.
Speaker:Yes.
Speaker:That is the
Speaker:So it 2, 500 owner draws for 100.
Speaker:Yes.
Speaker:Doesn't matter.
Speaker:Okay.
Speaker:Yeah.
Speaker:It doesn't matter.
Speaker:That's the clean way to do it.
Speaker:Mm hmm.
Speaker:It absolutely happens where business owners swipe their business card
Speaker:for personal things, or click the wrong thing on Amazon and,
Speaker:and use that card for personal.
Speaker:If that's the case, that's also just considered an owner
Speaker:draw or shareholder loan.
Speaker:So you would still hit those accounts.
Speaker:It would just be instead of it being a withdrawal, enter into the
Speaker:personal, it would be owner draw right away for the Amazon transaction.
Speaker:It wouldn't be an expense for the business.
Speaker:It would be an owner draw or a shareholder loan, depending on
Speaker:the structure of your business.
Speaker:So the other thing that you can be doing is reimbursing yourself too.
Speaker:So if you are spending the money on your personal card for your
Speaker:business, you don't necessarily have to never get that money back.
Speaker:You know, it can be that you add it as a business expense, but then you
Speaker:can pull the money back out of the business and reimburse yourself.
Speaker:And it's not income, you know, if you're not paying yourself, you're just
Speaker:reimbursing yourself so you can, you know, say I used my personal card for a laptop
Speaker:for my business, or let me use something smaller, a book for my business, it was a,
Speaker:a training manual or something like that.
Speaker:I used my personal card.
Speaker:But this is a business expense.
Speaker:I want to add in, you know, an office supply, office expense, things like that.
Speaker:Training, education, whatever categories you have, whatever accounts you have.
Speaker:If I'm taking that money out of my business account and I'm reimbursing
Speaker:my personal, it's just a reimbursement.
Speaker:It's not an owner draw.
Speaker:It would be just a reimbursement of that.
Speaker:And you would just label it as, like, reimbursement for a laptop.
Speaker:Yeah.
Speaker:Yeah.
Speaker:And as long as you have, like, the receipt and documentation.
Speaker:Mm hmm.
Speaker:And typically, I mean, you can net those out in the owner drawer, the
Speaker:shareholder loan account, but net net, they won't have any tax implication.
Speaker:So the journal entries for something like that would be, Oh, I bought this book.
Speaker:It's 25 increase in office supplies or educational materials or whatever it is.
Speaker:And then so it'd be an increase in that, and it would be an increase
Speaker:in the owner contributions.
Speaker:What's the difference between owner contribution and owner draw?
Speaker:Same thing, same thing.
Speaker:So owner draw typically means you're taking the money out.
Speaker:Owner contributions means it's going in.
Speaker:You're reimbursing it.
Speaker:We see some business owners have two accounts.
Speaker:One owner draw and one owner contribution.
Speaker:We a lot of the time see business owners just have one and it's called owner draw.
Speaker:Because once your business is well and established, the goal would
Speaker:be that you don't have to keep funding it with personal money.
Speaker:So, you can net them right there and have owner draw or contribution in one account.
Speaker:You don't have to have two separate ones.
Speaker:We do see that a lot where you'd have two separate ones.
Speaker:And we also see it where it's combined, you know, it's, it's
Speaker:however you want to track it.
Speaker:And if you wanted to look at the outflows, you would just download
Speaker:the detail for that account.
Speaker:Any of the positives are, you know, owner contributions and any
Speaker:of the negatives are owner draw.
Speaker:So owner contribution and owner draw is, is kind of the same account there.
Speaker:If you are an S corp, you might use a shareholder loan account
Speaker:instead of an owner draw.
Speaker:Okay.
Speaker:Account.
Speaker:It depends on the type of transaction, it depends on the nature of the
Speaker:business, there's a couple different reasons why you might want to consider
Speaker:it a loan instead of a distribution.
Speaker:Okay.
Speaker:Mm hmm.
Speaker:And that's something that your bookkeeper or your tax accountant can help with too.
Speaker:For that journal entry though, so it's an increase to the, like, educational
Speaker:materials, office supplies, increase to the owner, draw, contribution account.
Speaker:And then whenever you reimburse yourself, it'd be a decrease
Speaker:to the owner draw, contribution account, and a decrease to cash.
Speaker:So you'd take the cash out, and then that owner, draw, contribution
Speaker:account would be net zero, no change.
Speaker:And so then it would look like your cash went down and you spent
Speaker:the money on office supplies.
Speaker:So it's really just being again, disciplined and aware of how you're
Speaker:using your money and from what account.
Speaker:Mm hmm, and be detailed in the transactions.
Speaker:And this is one of the reasons why I'm not a huge fan of PayPal or Venmo.
Speaker:I was just gonna ask.
Speaker:Mm hmm.
Speaker:Yep, I'm not a huge fan of PayPal or Venmo because Most of the time, business owners
Speaker:don't track things correctly in there.
Speaker:They kind of forget about the funds they use from PayPal or Venmo.
Speaker:They're treating them more like a bank account rather than just, uh,
Speaker:intermediary of transferring funds.
Speaker:So say someone paid you through Venmo
Speaker:And then used like a little emoji and you're like, yeah, what was this?
Speaker:Yeah.
Speaker:And so then it's like, if you don't take that money and transfer it
Speaker:right to your business account, are you recording the sale?
Speaker:Yeah.
Speaker:Maybe not.
Speaker:And then are you using that money for somewhere else?
Speaker:And then is it a personal transaction or is it a business transaction?
Speaker:But then say, so say somebody paid you a hundred bucks.
Speaker:And you used like 35 of it.
Speaker:Yes.
Speaker:Yeah.
Speaker:Oh my God.
Speaker:And you used 35 of it.
Speaker:And so then, then you deposit the rest of it into the business bank.
Speaker:Yeah.
Speaker:But say you're somebody that does invoicing and so now that
Speaker:amount doesn't tie to the invoice.
Speaker:Mm hmm.
Speaker:Then.
Speaker:You don't have an amount that ties to the invoice.
Speaker:So then you have to finagle what it looks like and say that the deposit
Speaker:is for 75 or, you know, 65 here.
Speaker:It was 65 and say 35 for whatever charge you did.
Speaker:But only 65 came into the bank account because you already
Speaker:spent 35 somewhere else.
Speaker:So that's where a lot of people miss and because their Venmo might be personal
Speaker:and they don't typically use Venmo, it's not connected to the business because
Speaker:it's not truly a business account, just like a personal debit card would be.
Speaker:So you're not connecting that to the business most of the time.
Speaker:So people miss that transaction.
Speaker:If you're using Venmo and you get paid through Venmo.
Speaker:And you deposit it right to the bank account.
Speaker:And then you pay something through Venmo, and it pulls right from the bank account.
Speaker:That's it's different.
Speaker:It'll record both.
Speaker:But if you get paid through Venmo, it sits in there like a Venmo
Speaker:balance, and then you use that balance to pay something else.
Speaker:Unless you have that Venmo account connected to your business.
Speaker:You're missing that transaction, you have to manually add that transaction in and
Speaker:we have a lot of business owners that we get initially that do not do that step or
Speaker:they'll say they receive the payment of the invoice and say, Oh, paid by Venmo.
Speaker:And then they have an undeposited funds amount, which we just talked about too.
Speaker:And so they have this undeposited funds amount that never goes down because they
Speaker:never received the cash into the account.
Speaker:That's why you're here till
Speaker:Yes, reconciling your undeposited funds account and figuring
Speaker:out where all the money went.
Speaker:And do you really have it or are you just double counting things?
Speaker:And yeah, yeah.
Speaker:So it could get super messy unless you, from the beginning or as
Speaker:soon as you hear this episode, start having some discipline.
Speaker:Yes.
Speaker:So really try to get all those transactions recorded.
Speaker:Try to keep everything really separate.
Speaker:And if you do use your personal account, like that's okay.
Speaker:No, we have a client that has a travel credit card.
Speaker:For the personal card and, they didn't have the funds in their bank account
Speaker:to cover this big trip that they were going on that was truly a business trip.
Speaker:The only reason they were going on this trip was because it
Speaker:was for a business conference.
Speaker:The whole time period was for the business conference.
Speaker:They weren't doing anything else.
Speaker:So this business is, this trip is 100 percent business purpose, but
Speaker:they didn't have one, the funds in their business card or business
Speaker:account to pay for everything upfront.
Speaker:They got the points on a travel card because they had travel rewards points.
Speaker:So, we just need all of the receipts for those and then we can manually
Speaker:enter them into the, the account.
Speaker:And that's fine.
Speaker:That's, it's, it's a business expense.
Speaker:It's legal.
Speaker:It's okay to do it that way.
Speaker:It's just not as easy.
Speaker:Exactly.
Speaker:And a lot of people think that if they don't use the business card
Speaker:they can't get it as an expense, but you can, you just need the receipts
Speaker:and you need to make sure that you have it added in there correctly.
Speaker:So you want to keep the detailed records and you want to make sure that you record
Speaker:those transactions in the books and gather all that documentation so you have it all.
Speaker:Alright.
Speaker:I think you are going to save some people with this episode.
Speaker:I hope so.
Speaker:I mean, I just, I, I want these episodes, these couple that we have here, just
Speaker:to be like, Oh, I didn't know that.
Speaker:Right.
Speaker:Or, Oh, I should be a little bit more detailed.
Speaker:And I recommend at the end of the year, you go through your personal account.
Speaker:So I'm somebody I have separate accounts for everything, but I have
Speaker:apps on my phone that run through my personal Apple charges on my Apple ID.
Speaker:So my, the plan app on my phone that does our social media
Speaker:planning runs through my Apple ID.
Speaker:My Apple ID is my personal debit card because that's just what's
Speaker:hooked up to my personal phone.
Speaker:So I need to make sure at the end of the year, I go through my Apple ID
Speaker:subscriptions and I see which of these apps are solely business apps, and I
Speaker:need to make sure that I add those.
Speaker:And so I always do that check at the end of the year.
Speaker:If you have a personal budgeting app, as we go through our personal budgets,
Speaker:if I see something that comes through that's a business expense, I'll tag
Speaker:it with business, and then I know at the end of the year, I just have to
Speaker:look at that transaction code in the Rocket Money app, and I'll have all
Speaker:of the stuff that's flowed through my personal without realizing it.
Speaker:You don't have to really think about it.
Speaker:Exactly.
Speaker:That's a great tip.
Speaker:Yeah, exactly.
Speaker:So, and because they all flow through my phone, typically like my Apple
Speaker:expenses and stuff like that, it's very easy to get all the receipts for that.
Speaker:If we need them for anything yeah, yeah.
Speaker:So I would recommend that go through the personal accounts at least once a
Speaker:year, scan through and just look at the categories and codes and stuff and make
Speaker:sure you're not paying for anything on your business that should be reimbursed.
Speaker:My Adobe expense was on my phone for a long time and I didn't know that.
Speaker:So I need to make sure that all gets into our business account.
Speaker:So those are some big ones.
Speaker:Always consult with an accountant or a bookkeeper if you are mixing, if you
Speaker:are keeping things separate, but you want to be adding things back and forth.
Speaker:Consult with a tax accountant or a bookkeeper, a professional
Speaker:just on what you could be putting back into your business.
Speaker:If there's, you know, really specific transactions or processes that you want
Speaker:some guidance on, they can absolutely help you with some of that too.
Speaker:And then if you have multiple business owners and there's multiple people
Speaker:that have access to the business funds, try to establish a policy, you know,
Speaker:going forward for things if, you know, when you do use your personal card
Speaker:and you need reimbursed, how is that, how do you get reimbursed for it?
Speaker:When you're an employee at another company, it does get a little bit
Speaker:easier because there's typically a lot of like expense reimbursement systems.
Speaker:Like I know gusto has an expense reimbursement system.
Speaker:ADP does where you can go on and apply for reimbursement from your
Speaker:boss, you know, something like that.
Speaker:Like where you can go and submit it and then it gets
Speaker:reimbursed through your paycheck.
Speaker:But say you don't have something like that and you as the business owner
Speaker:are looking to reimburse your co owners, how are you documenting that?
Speaker:Are you getting receipts from them so that you're keeping the books correctly?
Speaker:Try to establish a policy of, is somebody manipulating this?
Speaker:Where like, they're saying like, Oh, I used my personal
Speaker:card for this or this or this.
Speaker:You know, what documentation are you getting to make sure that's accurate?
Speaker:And are you trying to prevent that going forward so that things stay clean too?
Speaker:Okay.
Speaker:Yeah.
Speaker:Those are great tips.
Speaker:Yeah.
Speaker:Again, saving lives.
Speaker:I don't know about that.
Speaker:Saving lives, saving bank accounts.
Speaker:That was always like the one thing that we used to say actually when I was at,
Speaker:uh, uh, when I was an auditor for a larger firm was when people would get
Speaker:really stressed out we were like, we're not saving lives, like, we're not, we're
Speaker:not saving lives here, we're not, this is okay, everybody take a deep breath,
Speaker:like, we are not saving lives here.
Speaker:But, yeah.
Speaker:Alright, cool.
Speaker:Good stuff.
Speaker:Well, thanks.
Speaker:Absolutely.
Speaker:Tune in next week for episode 22.
Speaker:I don't know about you.
Speaker:Episode 22.
Speaker:I was hoping you were going to do that.
Speaker:I had to think.
Speaker:My meds are wearing off.
Speaker:Time for another Celsius.
Speaker:Roundabout.
Speaker:Let's go.
Speaker:Have a great day, everyone.
Speaker:Let us know if you have any questions on it.
Speaker:As always.
Speaker:Alright.
Speaker:Bye bye.
Speaker:Bye.
Speaker:I regret singing.
Speaker:Bye.
