Oh, I’ve discussed this in videos before, and it’s time to revisit it. What is commingling and why do we accountants hate it?
Commingling is using personal funds for business expenses, or, more often, using business funds for personal expenses.
When you set up your business, hopefully as an LLC or corporation, you basically created a new person. That person is separate from you. The purpose of these entity types is to protect your personal assets in the event the business is sued, and likewise, to protect the business in the event you as a person gets sued. Under the law, your business and you are treated as separate “persons.”
As the business owner, you can (of course) get funds out of your business, but there should be a specific means to do so. When you use your business as an ATM and just pay personal expenses from a business account, you do what is called “piercing the corporate veil.” That means that you’re treating the business as an extension of yourself, not as a separate entity. And when you pierce the corporate veil, you remove the protections you have set up for yourself and your business.
On top of that, as you spend business funds on personal business, your bookkeeper needs to take the time to determine if your personal expenditures should actually be counted as business expenses. I’ll talk more about qualified business expenses in another video.
We would love to help you determine whether you are commingling funds, and set up a procedure to help you avoid that. To find out if your business qualifies for a free strategy session, please give us a call today at 801-692-0032. Our team is standing by!