While you try to keep your personal and business expenses separate, there may be some overlap in your accounts. This guide describes the ways that you can manage your personal expenses in Ambrook to ensure that you exclude these expenses from your taxes at the end of the year.
Know your options
There are two ways that you can tag personal expenses: (1) using category tags; or (2) using an “owner’s equity” account. Below we’ll describe when it’s best to use one method or the other.
Using a personal expense category
If you created a personal expense category when you set up your account, this category will already appear in your options when you tag transactions. This setup is helpful if you have some personal expenses mixed into your business bank account and want to help you and your accountant identify them at the end of the year during tax time. There are a few things to know about using this method:
These expenses will show up on your profit and loss statement under “other expenses”. They will still be on your P&L, but separated from your other business expenses.
They will be excluded from your schedule F or C. If you use the mappings to schedule F and C in Ambrook, your personal expenses won’t show up on the export for these forms.
You can create subcategories to break these out further. If you care about knowing what you spent on groceries versus personal insurance, you can break these out with subcategories.
Using this tag is preferable to excluding. If you exclude transactions, your bank balance won’t be accurate at the end of the day. This method is a good way to designate some expenses as personal while maintaining accurate bank balances.
Using an owners equity account
The other option you can use is to create an owners equity account on your balance sheet. This method is best if you tend to transfer money out of your business account (you “pay yourself”) or put money into the business (your contributions). The balance at any time on this account will be the net amount you’ve contributed over time. A few things to know about this method:
Tag transfers out of your business account and into your personal account as equity transfers. This applies if you don’t have your personal account connected to Ambrook. This will show that this expense was essentially a personal expense.
These transactions will be excluded entirely from your P&L. Because you’re using a balance sheet account to track them, these transactions won’t show up on your P&L. Instead, you’ll see the net amount you’ve taken out or put into the business on your balance sheet.
FAQ
Should I exclude these transactions?
We don’t typically recommend excluding these transactions as it will make your bank balance inaccurate.
Should I connect my personal bank accounts?
If you keep things generally pretty separate between your personal and business bank accounts, with just a few transactions in the wrong account, we don’t recommend connecting them. Instead, go to Balances and create a new account for your personal account, and add any transactions manually that apply to your business account.
Either method will help you and your accountant what expenses are for personal use and which ones belong to the business. Reach out to our support team with additional questions!