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Mixing Personal Funds w/ Business Funds

April 11, 2008 By Sherra 2 Comments

Your accountant has said it, your bookkeeper has said it – don’t mix your business accounts with your personal accounts. Then why is it that so many small business owners DO mix their accounts (and some that own not so small businesses)? There are probably as many answers to that question as there are people who do it. As a bookkeeper for several small businesses I can tell you it can become a nightmare. I can honestly say I do NOT envy the accountants who are doing the taxes for the business owners that co-mingle funds.

Co-mingling funds is a very bad habit to get into and a very important habit to break. This is my personal opinion, but it’s really not that difficult. I see it as a 4 step process:

  1. Have separate accounts (checking accounts & credit card accounts).
  2. Pay yourself a salary (or take a draw) on a regular basis – weekly, monthly, whatever works for you.
  3. Pay personal expenses from your personal account.
  4. Pay business expenses from your business account.

But what about personal things I use for business you say? First, if it’s REALLY used for business and primarily for business, then use your business account. If it’s personal that you just “sometimes” use for business, then it’s personal.

Example: You have a home-based business and have a cell phone and a land-line. You have your land-line listed in the phone book under your business name and make and receive business related calls on that line while encourage your friends and family to call you on your cell phone instead of your land line. You only use your cell phone to contact a client on an “emergency” basis (running late for a meeting, while out of town, etc.) but primarily use it for all your personal calls. I’m not an IRS agent and this is not legal advice, but the cell phone should be paid from personal funds and the land line could most likely be justified as a business expense and paid from the business account.

Another example: Your vehicle. You run around town all day dropping off and picking up things for clients, going to meetings, etc in car #1. You pick up your kids on the way home in the evening and park the car for the day. On the weekends and evenings you use car #2 for errands, visiting family, etc. (Again, I’m not an IRS agent.) Car #1 and all related upkeep expenses would be a business expense and car #2 would be personal. You use your vehicles equally for personal and business? Then keep a mileage log. Keep detailed track of where you go, what it’s for and how far you drove. At the end of the year you can take a deduction for the number of miles driven for business, or if you keep all maintenance receipts, gas receipts, etc. you can deduct a percentage of those expenses based on the percentage of miles driven for business vs. personal.

Filed Under: Blog Posts Tagged With: bookkeeping

Comments

  1. Jenn Kubilis says

    July 27, 2008 at 7:39 pm

    Great article Sherra. Now if we could only get our clients to actually do this, wouldn’t that be something?

    Jenn

    Reply
  2. Sherra Scott says

    August 5, 2008 at 9:20 am

    Absolutely Jenn. That would be my Utopia.

    Reply

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