How to separate personal from business expenses?

Question

I am planning on getting a multi family/duplex and live in one of the units. Does anyone have advice on how to keep my business and personal finances separate. By that I mean what should I count as personal expenses and what should I count this as business expenses? Should I count the renovations I do to the unit I live in as business expenses? What about utility expenses? Should I could all utility's for the entire building as a business expense or leave out the ones for the unit I reside in?

Greg Kasmer · Answer

@Sabrina Sargent - I would agree with the items that Will mentioned. To the extent possible, I would always suggest separating business and personal expense up front upon purchase... So, I would suggest a business checking account, business credit card, and/or setting up separate accounts for utilities, etc... I would also suggest asking your CPA for other suggestions, but to the extent you can have a process to separate expenses that is "common sense" or "defensible" that should be sufficient for your CPA. Good Luck!

Will Fraser · Answer

Hi @Sabrina Sargent, congratulations on the house-hack with renovations!

There are different thoughts on how the personal unit interplays with the rest of the building.  At least two of those ar:

- Silo off the unit you are living in and only exclude the items affecting it from your business expense calculations OR

- Calculate the percentage of total square footage that your personal unit is of the project and then exclude that percentage of your total renovation bill from the business exclusion

Either way it would be a worthy thing to chat with a savvy local CPA who can give you some granular guidance here!