Watson CPA Group - Knowledgebase

Knowledgebase

Comingling of Money

Article ID: 412
Last updated: 25 Nov, 2018
Revision: 1
print  Print
share  Share
comment  Add comment
Views: 0
Comments: 0

By Jason Watson ()
Posted November 23, 2018

We’ve mentioned this previously, and we’ll do it again here. Rule #1- Please get a separate checking account for your business, preferably with the same bank as your personal checking account so transfers (shareholder distributions) are easy. Rule #2- Do not pay for personal expenses or any mixed-use expense with business funds.

This is bad for several reasons- the IRS hates it. It erodes the corporate veil which is already dangerously thin since you are a closely held corporation. Lastly, if you need to re-construct your financials because of a QuickBooks disaster or some other disaster, having your business transactions compartmentalized within a bank account makes life better. All money coming in is income. All money going out is an expense or a distribution.

Do you get the feeling that we’ve said these words before? Like déjà vu? Ever have vuja de? It is the feeling that this has never happened before- opposite of deja-vu. Yes, we did mentioned this before in our chapter on operating your S Corp. Here it is again.

Read Rule #2 again. It is imperative to keep an arms-length perspective on you, the employee, and relationship with the S corporation. If you worked for Google or Ford, you wouldn’t be able to get the business to buy your groceries or pay your mortgage directly. Same thing with your business. Here is another quick table to help you out with the “Which debit card should I use?” question.

Cash Outflow

Checking Account To Use

Car Lease

Personal, unless lease is in business name.

Gas for Car

Personal, unless owned / registered by business

Estimated Tax Payments

Personal, since an S Corp is a pass-through entity

Cell Phone

Personal, reimbursed through Accountable Plan

Home Utilities

Personal, reimbursed through Accountable Plan

Home Office Renovations

Personal, possible partial reimbursement

DSW, Banana Republic

Personal, but it would be nice

Shareholder Distribution

Business

Self-Employed Health Insurance

Business

Out of Pocket Medical

Personal, unless you have an HRA

Accountable Plan Reimbursements

Business

401k Contribution

Business

SEP IRA Contribution

Business, but you should use a 401k instead

Read our chapter on operating your S Corp and specifically the section on Accountable Plans for more information on getting reimbursed as an employee of your S Corp for those expenses that are both personal and business such as cell phones, home offices, internet, etc.

Taxpayer's Comprehensive Guide to LLCs and S Corps : 2019 Edition
This KB article is an excerpt from our book which is available in paperback from Amazon, as an eBook for Kindle and as a PDF from ClickBank. We used to publish with iTunes and Nook, but keeping up with two different formats was brutal. You can cruise through these KB articles, click on the fancy buttons below or visit our webpage which provides more information at-

$24.95 $17.95 $12.95

www.watsoncpagroup.com/book

This article was:   Helpful | Not helpful Report an issue


Prev     Next
Summary of Small Business Tax Deductions       Chap 12 - Retirement Planning