Running an Etsy shop or any creative business—whether online or brick-and-mortar—comes with unique challenges. One of the biggest? Tax season. When personal and business finances mix, tracking expenses, claiming deductions, and filing taxes become overwhelming.
The best way to stay organized? Set clear financial boundaries between personal and business expenses. This not only simplifies bookkeeping but also makes tax time easier and helps establish your business as professional and financially sound.
Follow these eight steps to separate your personal and business finances and make tax time less stressful.
📌 Note: This article discusses tax forms related to US taxes only. If you’re outside the US, consult a local tax professional for guidance. eRank does not provide legal or tax advice—always check with a tax professional for personalized recommendations.
1. Open a Separate Business Bank Account
One of the simplest ways to separate personal and business finances is by opening a dedicated business bank account. This keeps all business-related transactions—like Etsy deposits, supply purchases, and shipping costs—in one place, making financial tracking much easier.
Why it matters:
- Streamlines bookkeeping and tax preparation
- Tracks income and expenses accurately
- Looks more professional to customers and financial institutions
If your business is still small, opening a separate checking account under your name (rather than a formal business account) works, too. However, as your business grows, consider a business bank account and credit card for better financial management.
2. Use a Business Credit or Debit Card
A dedicated business credit or debit card ensures all business-related purchases stay separate from personal expenses. Instead of sorting through transactions at tax time, all purchases are already categorized.
Additional benefits:
- Builds business credit, which can help if you ever need a loan
- Provides fraud protection for business transactions
- Simplifies tracking for deductions
TIP: If you must use a personal credit card for business, designate one card strictly for business use. Avoid mixing personal purchases to prevent confusion.
3. Track Business Expenses with an Accounting System
Even with a separate account, tracking expenses consistently is crucial. Instead of scrambling at tax time, use accounting software or a simple spreadsheet to log expenses as they happen.
What to track:
- Business income (Etsy sales, in-person events, wholesale orders)
- Expenses (supplies, shipping, marketing, website fees)
- Tax-deductible purchases
Whichever system you choose, the key is to update it regularly rather than waiting until the end of the year.
4. Pay Yourself a Salary (Even if It’s Small)
If you run your Etsy shop as a business (not just a hobby), pay yourself a set “salary.” This creates predictable income and prevents personal withdrawals from mixing with business spending.
How to do it:
- Transfer a fixed percentage of your profits to your personal bank account every month.
- Keep the rest in your business account for expenses, taxes, and reinvestment.
Even if your income fluctuates, setting a baseline withdrawal helps with budgeting and financial planning as well as reducing stress.
5. Save for Taxes Separately
Nothing is worse than realizing you owe a large tax bill but don’t have enough set aside. Avoid tax-time panic by setting aside a portion of your business earnings in a separate savings account just for taxes.
How much should you save?
- Many small business owners set aside 20-30% of their income for taxes, depending on their location and tax bracket.
- If you’re unsure, consult a tax professional to estimate your liability.
By automatically transferring a percentage of your earnings to a “tax savings” account, you’ll always be prepared when quarterly or yearly tax payments are due.
6. Keep Digital Copies of Receipts
Keeping receipts is essential for tracking deductible expenses and proving business purchases to the IRS. Instead of hoarding stacks of paper receipts, switch to digital storage. The IRS allows digital copies of receipts, so no need to keep paper copies as long as your digital files are clear and legible.
For tips on which receipts to keep and best storage methods, check out our blog Are You Keeping All Your Receipts?
7. Set Clear Rules for Business vs. Personal Expenses
If you ever need to use personal funds for a business expense or vice versa, make sure to document it properly.
Example:
If you buy a printer that you’ll use for both personal and business purposes, decide what percentage is for business (e.g., 70%). Then, record only that portion as a business expense in your bookkeeping system.
Clear record-keeping prevents confusion when filing taxes and ensures you’re accurately deducting expenses.
8. Work with a Tax Professional If Needed
Even if you’re handling your own bookkeeping, having a tax professional review your finances once a year can be a smart move. They can:
- Ensure you claim all eligible deductions
- Help you plan for estimated tax payments
- Keep you compliant with tax laws
As your business grows, consider hiring an accountant to ensure your financial strategy is on track.
Simplify Tax Time & Strengthen Your Business
By separating your business and personal expenses, you’re not just making tax time easier—you’re also creating a more professional, organized, and scalable business. Start with small steps like opening a separate bank account, tracking expenses, and saving for taxes. These habits will save you hours of stress and help your business thrive!
For more small business tips, SEO strategies, and trending keyword insights, check out the eRank Blog today.
