Continuing on in our series of "Do you Make These Mistakes" we are going to talk about mixing your business and personal accounts. You can’t believe how many times I look through client business accounts and see receipts for groceries and other personal things. Money is passed back and forth from personal accounts to business accounts as if they were all the same type of accounts.
There are several reasons this is bad for you and the business. First of all, it complicates things. It makes it extremely difficult to monitor your business and determine how profitable the business is when you are mixing things up and can’t tell what is a business expenditure and what is a personal expense.
Next, it may prevent you from being afforded the corporate protection that you were seeking when you incorporated for organized your LLC. One of the main perks of doing business as a corporation or LLC is that the business is liable for business debts and you are not personally liable for them. When you begin commingling the funds, it appears to the public that you run your business as an extension of yourself and therefore Courts "pierce the corporate veil" and enforce liability against the owner.
Finally, as it relates to dealing with the IRS, when you have a difficult time determining business expenses and producing reports such as profit and loss statements, it becomes difficult to prove what your actual income was for the year. Therefore it is hard to determine what your actual income tax should be for the business and you personally. When you can not prove what you earned the IRS will disallow many of your expenses and you are left holding a large tax bill.
I know it can be a downer, but you really should take the extra time every day to make sure your business records are organized and in order so you can make sure you can back up every penny earned and spent in the business.
If you do get stuck with a gigantic tax bill, I can help you resolve your case with the IRS. There are several things we can do help you no matter what your situation or how hard the IRS is coming after you. E-mail me today to find out more or to set up your free consultation.