Source: freedigitalphotos.net

When your truck doubles as a living and a work space, the lines between business purchases and personal expenses can become blurry. Keeping business and personal accounts separate to avoid commingling of funds is important when you have a corporation. It is one of the ways to ensure your corporation can continue to act as a divide or veil between your business assets and your personal assets.

So what is “commingling”? Commingling is when business owners use business funds as their own. Some ways people commingle funds are:

  • Depositing checks made payable to your business into your personal bank account
  • Making withdrawals from your business checking account to pay obvious personal expenses without the proper documentation
  • Using the same bank account for your business and personal needs
  • Writing business checks for personal expenses
  • Moving money back and forth between your business and personal accounts without documentation

Why is it so important to keep business and personal funds in separate accounts?

Asset Protection. One of the primary reasons to form an LLC or S Corp is to achieve personal asset protection. In the instance of financial hardship or legal action against your corporation however, the courts may deem it appropriate to “pierce your company’s veil.” This means they would hold you personally liable for the company’s debts or lawsuits.

There are several factors the courts investigate when deciding whether to pierce a company’s veil. One of the key factors is the presence of commingled funds. Therefore, if you treat your business’s money the same as your own, you risk the exposure of your personal assets. To avoid the risk of personal liability, comply with the rules governing the maintenance of a corporation (such as keeping proper meeting minutes and holding annual meetings) and maintain a separate business account.

Accounting. Mixing business and personal funds can also make accounting for your company difficult, or worse, inaccurate. Accounting is more than just doing your taxes. Accounting shows how your business is performing. Mixing business and personal purchases in the same accounts make it difficult to ensure all legitimate deductions are captured on a monthly basis. When record keeping is sloppy, it’s hard to know which parts of your business are doing well and where to make improvements or reduce costs. That’s why it’s so important to implement business only accounts for cash and credit card purchases.

Taxes. In addition to proper accounting, keeping tax records and receipts separate and well documented can ensure you’re receiving every legitimate tax deduction. It can also protect you from an audit. As the old saying goes, “keeping your books in order keeps the tax man from your door.”

You might risk an investigation into your company’s LLC or S Corp status if:

  • Corporate money has been used to pay personal debts without the appropriate accounting
  • Shareholders’ personal assets have been depreciated along with corporate assets
  • Shareholders have endorsed company checks in their own name

A few helpful tips on taxes:

  • You can’t deduct what you can’t document. If it’s unclear whether an expense is business or personal, make a concerted effort to document it right away so you don’t miss out on the deduction come tax season.
  • Most owner-operators pay more than the law requires because they don’t have a separate system for keeping track of business expenses. Using helpful software or ATBS as your trusted bookkeeper can ensure you’re not paying the IRS more than you should.
  • Whether you do your taxes yourself or use a tax specialist, keeping records and receipts separate will save valuable time sorting and will ensure a deduction doesn’t get accidentally missed.

As an owner-operator, it’s important to maintain the professionalism of your business. Keep business finances separate from your personal finances to make sure your business is profitable, running smoothly, and has an image of professionalism. Taking your finances seriously will be apparent to carriers and can increase your business.

SHARE THIS:

Related information

Mid-Year Tax Tips for Owner-Operators

Now is a great time to check in on your tax status and take steps towards lowering your tax liability. Here are the top 5 things an owner-operator can do mid-year to ensure their tax bill is manageable in the future.

Read full story

Build Your Business: Managing Time

Follow these proven tips on planning your schedule to make more money.

Read full story

How Aggressive Should I be with my Retirement Planning?

If you ever hope to retire and live off your savings, you need to be sure that you will have enough money to do so, and that your funds are safe and earning enough as you age. Experts recommend being prepared to have sufficient resources to generate between 70-90 percent of your earning power to carry you through retirement.

Read full story

KEEP YOUR BUSINESS BETWEEN THE LINES WITH USEFUL INFORMATION SENT RIGHT TO YOUR INBOX.

Sign Me Up