Wednesday, June 20th, 2018

Banking and Finance, Part 1: What Is Co-Mingling and How to Avoid It


When starting your business, you will certainly find that you need to use your personal funds to pay certain expenses, such as permit costs and fuel costs.  Paying these things out of pocket is practical and necessary, but as a rule you need to work to create separate finances for your business as soon as possible.

The term “commingling” refers to allowing your personal and business assets to remain together, and it can be bad news for your business. Commingling is certainly a red flag to the IRS when you fill out your taxes.

One of the first things that you need to do whenever you start a business is to create a separate banking system for business expenses and income.  This will ensure that you never use business funds for personal reasons and will help you itemize your accounts at tax time.

Another thing that you need to understand is that when you are paying business expenses from a personal account, courts can consider those accounts accessible in the event of a lawsuit.

When you are looking to avoid commingling, there are a few easy steps that you can take.  For starters, always utilize a separate checking account for your business.

Deposit all business related checks into this account and ensure that you use it only to pay business expenses.  Keeping business software that documents expenses and income can be another way to keep from commingling funds.

When all of your money is kept separate, it can be easier to manage at tax time.  You can’t deduct any expenses that you don’t have documentation of as business costs, and keeping all of your paperwork separate is an important way to see the most benefit at tax time.

When you are able to avoid commingling, your business will run more smoothly and will certainly appear more professional for both tax and legal purposes.