No, this isn’t a “NSFW” article, but it is a warning.
I run into this challenge with nearly every small business owner, and it’s one you MUST adhere to and guard against: Don’t comingle your business and personal monies.
Let’s start with a common-enough example…
It’s Friday, you’re running late getting away from the office, and you’ve got to pick up the kids for a game.
While you’re waiting on them to (finally) get ready, you realize you’ve forgotten to pay the rent on the coworking space, and you don’t have your business banking information on the phone, it’s only on the laptop. Rather than drag that out, you log in on your phone and simply pay it from your personal bank account. Monday, you decide you’ll just use the business account for a few personal bills this week to “make up for it.”
THAT’S comingling funds, and while it’s incredibly common, and easy to do, it’s also a huge red flag, and can cost you dearly.
See, if your business is using the basic tax rules and protections of an LLC, the law views your business as separate from you, and thus, you are protected from most legal action – say, a lawsuit against your company which can ONLY go after company-owned assets.
The IRS views the tax rules in roughly the same way. As an owner of an LLC, you are protected by the so-called “corporate veil.”
For years, that corporate veil test has been to say, “I am not the company and the company is not me.”
Comingling funds? You’ve just proven that, yes, you ARE the company and the company IS you. If the IRS proves that in Tax Court, or simply in an audit, all those tax benefits of your LLC can be removed, and you can be taxed as a sole proprietor.
…And that can be retroactive, too.
The point is, comingle funds at your peril.
I know it can be hard, especially when “life” gets in the way, but we’re simply talking about discipline, and just like we would have when we worked for larger companies, we have to have it in our business, too.
I hope this helps you, and as always, let us know how we can help you!
All the best,