Congratulations on forming your new business! You’ve selected a memorable name, catchy tagline, business cards, and website. You may be operating everything from your personal banking and credit accounts, but that may not be the best idea. Consider why you are often better off separating your business and personal accounts.
Tax Concerns and Legal Issues
Keeping personal and business finances separate can help you stay organized and avoid any tax-related problems down the road. If you commingle personal and business funds, it can be difficult to track expenses and income. Blending your funds can also lead to issues deducting all of your legitimate business expenses. Additionally, commingling funds can make it more challenging to withhold and pay employment taxes accurately if you have employees.
Putting everything in one account can create problems if the IRS audits your business. If they see that you’ve been using the same account for personal and business expenses, they may assume you’re trying to hide something. Therefore, it’s always best to play it safe and keep your finances separate from the start.
While commingling accounts may seem like an innocent way to save time and simplify record-keeping, you can face serious consequences if someone sues your company. If a court finds that commingling has occurred, your personal assets may be at risk. When you start a company, you should always create a legal entity as a business structure. The law treats this entity as if it were a distinct person, and that distinction keeps your private property separate from your business accounts.
Even with an entity, a plaintiff may desire to “pierce the corporate veil” and hold you as the owner liable for the business’s actions. A litigant may attempt to do so in many ways, including showing that you used the corporation to commit fraud or other illegal activities, demonstrating that you exerted too much control over the company, indicating that you failed to maintain adequate separation between yourself and the corporation, or proving that the corporation was nothing more than an extension of your personal finances.
Business Financial Planning
Any business owner will tell you that financial planning is one of the most important aspects of running a successful business. Without a clear understanding of your income and expenses, making sound decisions about where to allocate your resources is challenging. Forecasting is also essential in financial planning, as it allows you to anticipate future trends and prepare for them accordingly.
Separating personal and business accounts can also give you a more accurate picture of your business’s financial health. When you mix everything together, tracking where your money is going and how much profit you’re actually making can be difficult. However, by keeping separate records, you can better understand your business’s finances and make more informed decisions about its future. Separating your accounts helps you build your business credit score, which is necessary for getting excellent rates when you require a business loan or line of credit.
Help for All of Your Accounts
Separating your finances is typically the best move for a company. However, managing finances can absorb the time you need to devote to marketing and income-generating activities. A hasty mistake can be consequential. Protect your personal and business finances by calling on KDK Accountancy Corporation for assistance with accounting and financial consulting. Contact us at (407) 759-5363 today!