Chart of Accounts

Separating Business and Personal Finances: A Checklist

Photo of Nick Zarzycki

By Nick Zarzycki

May 1, 2025

Mixing business and personal transactions can create financial blind spots, increase your tax bill, and make succession planning difficult. Here’s how to separate them quickly and efficiently.

It’s not uncommon for farmers to run their businesses and lives out of the same checking account, with mortgage payments, grocery bills and school supplies intermingling with fuel, fertilizer and vehicle maintenance bills.

But mixing your finances can quickly turn into a headache, making it difficult to budget and plan for the future, measure cash flow, know your working capital, and file your taxes. It can also create legal issues if you ever run into problems with your creditors and make succession planning difficult.

Thankfully, untangling your finances isn’t complicated: it just takes a bit of work, some of which you might have already done. Here’s what you need to do.

1. Open a separate business bank account

Open a separate checking account for the business, order business checks, and avoid using your new bank account for anything that isn’t farm-related.

Your bank might need articles of incorporation, a business license or your state business registration information before opening the account, so this might require some up-front work on your end. But using a dedicated business bank account is the single most important step you can take to separate your finances properly.

2. Get a dedicated payments card for business expenses

Apply for a separate credit card for your business, or get a dedicated business spending card like the Ambrook card, and only use it for farm-related purchases.

Be wary when making purchases that commonly overlap, like gas, utilities, renovations and maintenance, and consider using mileage logs to track business-related vehicle expenses.

3. Keep farming and non-farming income separate

If you earn income off the farm, deposit and track that income separately from your Schedule F income to avoid paying more tax than you need to.

If you process farm commodities in any way (e.g., wine and cheese-making, butchery, canning) or perform farm-related services like custom harvesting, agritourism and event rentals, remember that those are all considered non-farming Schedule C income and need to be recorded and tracked separately.

4. Formalize the business

Register your business with your state and get an employer identification number (EIN) from the IRS. Consider the benefits of forming a partnership, corporation or limited liability company (LLC), filing for S corporation status, or filing a fictitious business name (DBA) with the county recorder.

5. Pay yourself a salary or owner’s draw

Drawing income directly from your business bank account and paying yourself a salary might not seem that different, but how you pay yourself matters. Taking a salary can make planning easier and offer tax benefits, for example, while taking an owner’s draw is generally simpler and offers more flexibility.

Your business structure determines how you pay yourself. For example, if you structure the business as a corporation, you’re an employee of the business and must pay yourself a reasonable salary and withhold FICA taxes. However, if the business is a sole proprietorship, partnership, or LLC, you take draws instead of a salary.

Discuss the right payment method with your accountant and then stick to it.

6. Use farm accounting software

Accounting software can make it easier to tag and track personal transactions when they do end up overlapping with your business. Ambrook’s personal expense categories can be a huge help in these cases, giving users the ability to tag any personal expenses that do make it into the system and keep a close eye on any funds moving in and out of the business.

If you find yourself transferring money between the business and your personal accounts often, setting up an owner’s equity account can also help. This account will show up on your balance sheet, and the balance of the account at any point in time will show you the net amount you’ve contributed (or drawn) from the business.

Get financial clarity with Ambrook

Ambrook is purpose-built for farm accounting, making it easy to categorize and track personal and business expenses while giving you unparalleled insight into your operation’s performance.

With powerful bookkeeping and smart tagging functionalities, dedicated payment cards, automatic expense reporting, and a custom chart of accounts that grows with your business, Ambrook gives busy operators everything they need to get financial clarity now.

Interested in learning more? Start your 7 day free trial today.

Author


Photo of Nick Zarzycki

Nick Zarzycki

Nick Zarzycki is a writer and editor specializing in small business bookkeeping, accounting and finance based in Toronto, Ontario.

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