Commingling
Commingling in small business accounting often occurs when the lines between business and personal funds become blurred. This mixing of transactions prevents precise accounting and raises significant problems for the business owner.
Significant commingling of business and personal funds and inaccurate bookkeeping of transactions reflects weak internal accounting controls, according to the IRS.
Examples
Using one account for business and personal expenses
Using a business credit card to pay for personal expenses
Depositing business income into a personal account
Problems
Commingling can lead to you paying more in taxes. The business needs accurate bookkeeping to take full advantage of tax deductions and benefits.
Blending personal and business accounting can cause an entity to “pierce the veil,” which provides limits to the liability an individual can incur to their personal assets by their business dealings. Once that veil is removed, the owner/owners become much more susceptible to problems.
Lack of delineation between personal and business expenses can increase the risk of audit and penalties.
Poor bookkeeping and inaccurate accounting create a lack of clarity about the effectiveness of your business. Murkiness in the books can jeopardize access to business resources like business loans, etc.
A bookkeeping professional can help you clean up your books and develop controls and workflows to keep your records accurate and up-to-date. Don't let commingling hinder your business from achieving its full potential!
Clarion Bookkeeping can help you untangle the mess and set up bookkeeping best practices so that your record keeping is more efficient, your books have clarity, and the commingling of business and personal funds is avoided.
The information in this article is not intended to constitute legal or tax advice; all information, content, and materials available are for general informational purposes only.
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