Although most business owners know to keep their business assets separate from their personal assets for many small business owners the urge to blend or commingle personal and business funds is a bad idea both legally, as well as financially.
Particularly, if you are an LLC or Corporation and have set up a business entity, it’s important to avoid administrative problem and issues with bank accounts and assets. The “corporate veil” refers to the limited liability of your company. When business and personal funds commingle, creditors can “pierce the corporate veil,” and access your personal assets for liability through your business.
Some of the most common ways to commingle are:
How To Avoid Commingling.
Create a separate bank account and business credit card. Be sure to document all expenses, withdrawals, and deposits. Documenting allows you to become a better bookkeeper for your business, and/or keep better records for taxes. By utilizing a business account and business credit card allows you to enter appropriate receipts and expenses in the proper QuickBooks category.
These transactions can help you see how your business is performing, and seeing where you need improvement, what business lines may be performing well and those areas that might need reevaluated.
The IRS does not allow you to deduct business expenses that you cannot document. By having a separate account, it provides clear documentation to help minimize taxes and maximize deductions. When you have one business account for personal and business expenses, it is hard to explain to the IRS what you need to deduct and for what purpose.
Many small business owners pay more in taxes than they are required to because they do not have an organized system of keeping records and recording expenses. By simply creating a separate business account, and avoid commingling funds by using business money for personal expenses, you can create a more organized and efficient way to reduce liability and taxes.
If you have questions about setting up separate accounts, or establishing a Quickbooks accounting system in your office, Paxton Bookkeeping and Tax Services can help.