Don't use your business account to pay personal expenses!

Many small business owners make a common mistake: They use their business checking account or business credit card to pay personal expenses. They figure it's no big deal. They'll either pretend those were business expenses and deduct them on the business tax return (illegal!). Or they'll do the right thing and exclude them from the business tax return because they were, indeed, personal.

For small business owners, it's often a matter of convenience. One way or another, the money all belongs to the owner, right? So what's the difference if the business pays the owner and then the owner pays personal expenses... or if we cut out a step and the business just pays the expenses directly?

If you've formed an LLC, corporation, or partnership, there's a big difference. These entities are usually created to shield the owner from personal liability for things that could happen in the business. The legal entity separates the person and the business, so if a customer or vendor sues the company, the owner doesn't lose his or her house. (That's a bit oversimplified, but captures the essence of creating a separate legal entity for the business.)