How do I separate my business and personal taxes?
Opinions expressed by Entrepreneur contributors are their own.Congratulations on starting your own business. It is an exciting and incredibly rewarding experience. But it can be trying--so before I say anything else, I will caution you to consult not just a tax professional, but a professional bookkeeper or accountant.
S corporations--all small businesses in fact--must keep meticulous records of all income, expenses and investments, and that means getting some professional help.
Now that being said, I can give you a little guidance. First, you need to understand that S corporations are "pass through" entities. That means that all profits or losses are passed through to the shareholders. So, any profits or losses will be reported on your personal income tax returns using Schedule E, and any taxes due would be paid by you at your tax rate.
You mentioned that you are a partial owner of the S corporation. This means that any profits or losses and expenses are divided according to the ownership shares. If you own half of the S corporation, then half the profits, losses and expenses go to you. If you own a fifth of the shares, then one-fifth of the profits or losses go to you.
As for general accounting, you should keep your S corporation expenses and personal expenses separate. That means separate credit cards and separate bank accounts. When you need to purchase things for the business, use the business accounts. This is far cleaner than playing the expense reimbursement game.
However, since you've already incurred expenses, there are two things you can do: you can have the S corporation reimburse you, then the expense would be passed through and reported on Schedule E like any other corporate expense; or if you are also an employee of the S corporation you can deduct the expense on Schedule A as an un-reimbursed employee expenses, though you will only be able to deduct any amounts that exceed 2 percent of your adjusted gross income.
As you can see, the issues can get very complicated very quickly, and the IRS is notorious for auditing small businesses. So, not to sound too redundant, but the best word of advice I can give you is to seek out a qualified professional.