When is it okay to combine your personal and business life expenses? Most business owners I work with know that keeping your business assets separate from their personal assets is important. I know many business owners who don’t practice this and it’s a bad idea to develop this behavioral pattern both from a legal standpoint and logistically. If you’re forming an LLC or Corporation you need to establish separate bank accounts and assets.
Keep in mind when forming a business or separate entity from yourself that you’re putting in place a corporate veil or shield. If you’re commingling your business and fast business funding legally creditors can “pierce” this corporate shield and attack your personal assets. This would be the main reason to not commingle your funds as well as tax reasons. Let’s talk about what commingling is and how you can understand when you are and aren’t:
1) When you’re commingling funds you’re treating your business as your personal bank account. I wouldn’t recommend this. If you transfer monies from your business bank account to your personal checking account without proper documentation your liable.
2) If you’re paying for your groceries at the store and using your business funds you’re commingling.
3) Paying personal expense with your business checking account without documentation.
These are just a few reasons of many that you shouldn’t mix and match your funds. It’s very important to keep your corporate veil in place. If you’re not planning on doing this why form the entity and separate yourself in the first place. Make sure when you’re getting paid that you put your check into your business account first, and then pay yourself. If you need supplies for the business buy them out of the business checking account. This will eliminate any worry of piercing your corporate veil.
Remember for tax purposes the IRS won’t allow you to deduct anything for your business you can’t prove with documentation. Many business owners pay more in taxes than they should because they lack any kind of organization in their accounting systems. If you’re going to set up a business you should do it right the first time. You should always have a personal checking account and a business checking account, both completely separate from one another. It might be a good idea to open the business checking account at a different bank to keep them “separate”.