Don’t mix it up!
One of the IRS’s biggest pet peeves is when the business owner mixes his business funds with his personal funds. This inappropriate handling of business funds is otherwise known as commingling. You must keep a separate business account using it only for business purposes and a specific account for your personal transactions. Commingling of business and personal transactions gives the potential for a mountain of problems.
Some of the problems caused by commingling are:
1.) You are not operating your business like a true business.
2.) If there ever is a question of integrity surrounding your profit intent, a slipshod way of doing bookkeeping would definitely count against you. Proper money handling will give credibility to the business intent of your business should it be questioned by the IRS.
3.) While commingling is problematic for a sole proprietorship, it can mean real trouble for a corporation or LLC. There are ramifications for the mishandling of corporate funds, it could even be criminal!
4.) You never truly know how much you are making in your business.
5.) It is difficult to obtain the information from your records, skewing your ability to make the best business decisions.
6.) When you treat your business like a business you will better your chance of creating a successful business.
While many people realize they need to keep a separate bank account, commingling issues don’t stop there. No commingling refers to all funds used for your business. You need to allocate your credit card accounts for strictly business or personal use, not mixed usage. You can do this even if you do not have a card in the company name, which is of course preferred. If your card is in your personal name and it is designated exclusively for business use you are in much better shape than commingling your funds.
Commingling funds can be real trouble when faced with an audit. Among other things, it makes your profit intent vulnerable to scrutiny. Maintaining proper business accounts separate from personal will keep the IRS out of your personal concerns during an audit – ever hear of problems caused by offering too much information?
Untangle Your Money And Avoid A Big Business Blunder! Proper handling of your business funds can keep the IRS out of your personal business.
Business Untangled can help you design a proper procedure for handling your money without commingling. It’s not hard, you just have to adopt a new vision and implement the better way.
