Can a business commingle funds in Jamestown, ND? Unless you like headaches, confusion and potential legal trouble, the answer is an unequivocal “no.” Many business owners—especially sole proprietors—are busy and overwhelmed, so they use their personal accounts for business purposes, or vice versa. While it might be understandable, it’s generally a terrible idea. Read on to find out why.
What is commingling?
Commingling occurs when you mix your business and personal funds. Some owners do this when they’re just starting out because they don’t expect that they’ll be running a “real” business, or don’t expect to be successful. Some owners are lazy or strapped for time. Mostly, they don’t realize what they’re doing could harm them and their business.
Commingling funds might look like using your personal account for business expenses, failing to keep records of transfers between business and personal accounts, using personal credit cards for business expenses and more. Most people don’t do this because they’re purposely trying to pull one over on the IRS—it’s usually just a result of ignorance of what a problem it can be.
Why is it important to avoid commingling?
Now that you’re clear on what commingling is, why is it so important to avoid? There are a few different reasons. First, it makes it a lot harder for you to keep thorough business records, especially if you’re not diligent about keeping track of expenses and income. Not only is this not good business, but when it’s time to do the accounting, you’ll end up spending a lot more time separating expenses—and you might not even get accurate results.
Second, when you’re deducting expenses for tax purposes, you run the risk of being audited—and not being able to prove to the IRS that your deduction was, in fact, for a business expense. No one wants the IRS’ eyes focused upon them, and if you aren’t keeping good business records due to commingling, you’re in for an even worse headache.
Commingling funds makes it a lot harder for business owners to get loans and generally move up in the business world. Lenders do not look kindly upon business owners who commingle their funds. Right off the bat, it shows them that you aren’t a safe risk—if you can’t even keep your business and personal funds separate, where else might you be cutting corners? Is your business really turning a profit, or are you simply going by your bank account balance?
Finally, and worst of all, commingling funds as a corporation or LLC member in Jamestown, ND can cause you to lose the legal and financial protections these structures offer. Creditors generally can’t go after your personal assets when suing the company—but if you commingle funds, everything can be up for grabs. It’s simply not worth losing your personal assets for temporary convenience.
You might not particularly enjoy the extra work that comes with keeping separate business accounts and records, but if you’re audited, you’ll be grateful you did. Call Craig S. Hanson, CPA today for help.