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 a trusted bookkeeper such as ATBS 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.

Comments (5)

holly stevenson

Ms. Stevenson joined ATBS in August 2007. She joined ATBS with over 20 years experience in finance, quality and process control. As Client Accounting Manager, Ms. Stevenson ensures that client information is accurate and timely. She oversees a large staff of sorters, data entry, reconcilers and quality control personnel working closely with the tax and consulting departments to provide information for monthly statements and tax estimates and returns. Ms. Stevenson is a graduate of Western State College with a degree in Business and is a Six Sigma Greenbelt.

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Anyone know of a 'good' deduction detail list that could be used for a small S Corp? We don't want to have categories so specialized that we have 50 different lines, but we don't want to fall the other direction and have a few big 'catch all' either.

October 26, 2013 6:25:18 AM

As a sole proprietor, I have separate checking accounts. However, I use one credit card to pay everything (truck & personal). At the end of the month I separate my business and personal expenses and pay off the credit card from the appropriate accounts. I also use YNAB, which I absolutely love, for budgeting both accounts.

July 08, 2013 9:33:06 AM

My business has its own checking account and credit card. On the road everything I buy for the truck or the business goes on THAT card. It makes life easier.

July 06, 2013 5:16:21 AM

Very nice article Holly. I hope many people read this article and learn from your knowledge and experience. Thank you.

July 05, 2013 9:01:29 AM

Nice article! Two separate checking accounts and two separate accounting systems. My filing system is also separated and it is easy to find a receipt in past years. At the end of the year I use a clear box and a index card taped to the end with the year of taxes the box holds.

July 03, 2013 14:57:14 PM