# How to separate business and personal finances

How to keep business money apart from personal money: one account and one card for the business, and a planned transfer when you pay yourself.

Published October 27, 2026.

To separate business and personal finances means that your business money goes through its own bank account and its own card. Your personal money stays in your personal accounts.

When the two are mixed, every line on your statement is a question. Was this rent? Was this a client? Separate accounts answer that question before you start.

## The short version

- Open a checking account and a card that you use only for the business.
- Send all business income into that account, and pay all business costs from it.
- [Pay yourself](https://rightobooks.com/blog/how-to-pay-yourself-sole-proprietor/) with a planned transfer. Do not pay personal bills from the business account.
- Record money you take out as an owner draw, and money you put in as an owner contribution.
- The IRS says a separate account makes records easier to keep ([IRS FAQ](https://www.irs.gov/faqs/small-business-self-employed-other-business/income-expenses/income-expenses-1)).

## Words to know

- **Commingling:** mixing business and personal money in one account.
- **Owner draw:** money you take out of the business for yourself. It is not a [business expense](https://rightobooks.com/blog/what-counts-as-a-business-expense/).
- **Owner contribution:** your own money that you put into the business. It is not income.

## Why it helps

IRS Publication 583 says to keep your business account separate from your personal checking account. It calls the business checkbook your basic source of information for business expenses. It also says to deposit all business receipts in that account ([Publication 583](https://www.irs.gov/publications/p583)).

The IRS also says that personal, living and family expenses are generally not deductible ([IRS FAQ](https://www.irs.gov/faqs/small-business-self-employed-other-business/income-expenses/income-expenses-1)). A personal bill paid from a business account is still personal. A separate account makes the difference easy to see and easy to show.

With one account per side, your business statement is a list of business lines, so it is much easier to [track business expenses for taxes](https://rightobooks.com/blog/how-to-track-business-expenses-for-taxes/). You [categorize the transactions](https://rightobooks.com/blog/how-to-categorize-bank-transactions/) that are there. You do not first have to find them among your groceries.

## Sole proprietor or LLC

A sole proprietor and the business are the same person, so you are personally liable for business debts whatever accounts you use ([SBA](https://www.sba.gov/business-guide/launch-your-business/choose-business-structure)). For you, a separate account is about clean records.

An LLC is a separate legal entity. Mixing its money with yours can weaken that separation. The rules come from state law, so ask a lawyer in your state if this matters to you.

## How to switch

1. Open a business checking account. The SBA says to open one as soon as you start to accept or spend money as a business ([SBA](https://www.sba.gov/business-guide/launch-your-business/open-business-bank-account)). Ask your bank what documents it needs.
2. Get a card that you use only for business costs.
3. Give clients and payment platforms the new account details.
4. Move your recurring business bills, such as software and phone, to the new card.
5. Open a savings account for tax money. Nobody takes tax out of your business income, so you save it yourself.
6. Set an automatic transfer to your personal account, for example twice a month. That is your pay, and it is an owner draw.

## When the wrong card comes out

It will happen. Record each mistake as what it is:

| What happened | How to record it |
|---|---|
| Personal purchase on the business card | Owner draw, not an expense |
| Business purchase on a personal card | Business expense paid by an owner contribution; keep the receipt |
| A cost that is part business, part personal | Split it; only the business part is an expense |

For more on these entries, see [how to record owner draws and contributions](https://rightobooks.com/blog/how-to-record-owner-draws-and-contributions/).

## An example

Ana is a freelance translator. (She is an example, not a real person.) Her February personal statement had 46 lines. Only 15 were for the business.

In March she opened a business account and card. She moved her clients and her software bills to them, and set a $2,000 transfer to herself on the 1st and the 15th. Her April business statement had 20 lines, and all of them were business lines. Two were owner draws. Her books for the month took twenty minutes.

## A Righto tip

In [Righto](https://rightobooks.com/), you give the first transfer to yourself the Owner Draw category. Next time, Righto offers a rule, so later draws sort themselves. Transfers between your business accounts count once, and never as income or expense. See [transfers and owner money](https://rightobooks.com/help/transfers-and-owner-money/).

## Common questions

**Does the law require a sole proprietor to have a separate account?**
No federal tax rule requires it. The IRS and the SBA both recommend it. Your bank's terms may limit business use of a personal account, so check them.

**Can I use a second personal account instead?**
Yes, for bookkeeping, if you use it only for the business. Some banks need a business account to accept checks in your business name.

**What if my past records are mixed?**
Separate them from now on. Then go back through old statements and mark each business line. When you [reconcile each statement](https://rightobooks.com/blog/how-to-reconcile-a-bank-statement/), you catch what you missed.

## What to do now

1. Ask your bank what it needs to open a business checking account.
2. List every recurring business charge on your personal statements.
3. List every client and platform that pays you.
4. Move each item on both lists to the new account or card.
5. Set a regular transfer to yourself.

[Righto](https://rightobooks.com/download/) is free, easy to use and needs no account.

## Sources

- [Publication 583, Starting a Business and Keeping Records](https://www.irs.gov/publications/p583), IRS
- [Income and expenses (FAQ)](https://www.irs.gov/faqs/small-business-self-employed-other-business/income-expenses/income-expenses-1), IRS
- [Open a business bank account](https://www.sba.gov/business-guide/launch-your-business/open-business-bank-account), U.S. Small Business Administration
- [Choose a business structure](https://www.sba.gov/business-guide/launch-your-business/choose-business-structure), U.S. Small Business Administration