Do not make the mistake of mixing your business and personal expenses. You might ask why? This is because it could lead to serious problems and a major risk for an Internal Revenue Service audit and you don’t want that to happen. What you should want is a legal liability, easy recording, and good financial hygiene for you and your business. Having a financial firewall on your business and personal expenditures is for your protection every tax time. This can only be achieved if you can separate your business and personal expenses. Always remember to separate your business dealings and personal cash no matter the situation. This is advice given to every entrepreneur especially to new business owners who are just starting up and want to take things a little more serious. If you are still unconvinced on why you should never mix business and personal expenses then you should read the dangers that this mistake can bring to you and your business.
1. Unprofessionalism. Investors who are willing to buy shares of your company will emerge as your business picks up pace. They can help in advertising your products and promoting your corporation but before that, venture capitalists will ask you to share information about your existing cash flow. If you are commingling your business and personal account it will show in the bank account statements and can cause many great opportunities for growth to disappear. This unprofessionalism will put you at risk of losing out on potential investment opportunities.
2. Unorganized Data. Keeping track of transactions is difficult if you frequently transfer money between accounts. This also results in an unpleasant and unorganized data. You won’t be able to know your business expenditures at a moment’s notice and it’ll become frustrating to calculate the money spent for the corporation. If you keep business and personal expenses, getting an overview of the personal budget as well as the profits and losses will become easier and help keep your business afloat.
3. Miscalculation in Taxes. If you weren’t able to separate business and personal expenses at the beginning, you’ll need to do so every time you calculate the income and costs for the year. This will take up a great amount of time and can lead to miscalculations in taxes. But if you keep the two separate, preparing a tax file or a detailed collection of the company only expenditures will save you from getting legal hot water.
4. Accounting Problems. The tax season will become hell for the account once the business and personal expenses were mixed. Even the slightest error can greatly impact your business and an excessive fee is required for last-minute corrections. This is why it is always better to keep business and personal expenses separate as you are not only giving your business and account a favor but you are also facilitating the growth of your enterprise.
5. Potential Legal Issues. Think about this, if someone were to sue your company and you are mixing business and personal expenses your lawyer will have a hard time presenting your case with money trail and documents. The court will also rule that you are not entitled to limited liability in operating your enterprise due to the comingling of the expenses. You will be also asked to put your personal property on the line even if it is a separate entity from your business.
source: https://www.thetaxdefenders.com/what-are-the-dangers-of-mixing-business-and-personal-expenses/
Comments
Download this infographic.