When you start a new business, it is easy to mingle your personal and business finances. You might pay the occasional utility bill or buy something you need. However, this can get you into trouble with the IRS. This looks like you are hiding something from them, and if you are audited it can be a problem. They specifically look at people who write checks from personal accounts to pay business expenses, use business money for personal expenses, and transfer money without documentation. You should avoid sharing one account for personal and business, and don’t deposit business checks into your personal account.
It Can Cause Legal Issues
First of all, it can create legal problems. For example, if someone sues your business, you will need to provide financial documents. If you have been using your personal accounts, they will be included in the lawsuit. You may also lose limited liability by mingling your accounts.
Your Data Isn’t Organized
It can be hard to sift through your financial records if you have your personal and business expenses going through the same accounts. You may have a harder time knowing what your business expenses actually are, or you could be making more money than you realize. When you keep everything separate, it is much easier to control your budget and your spending.
You May Make a Mistake on Taxes
When it is time to file your taxes, you may make mistakes if you have your expenses mixed. This could be because you forgot that something was personal, or it could be because your accountant doesn’t know. It will be much easier and quicker to file your taxes if your finances are separate.
It Can Cause Accounting Problems
Mixing your finances can also cause accounting problems. You may have small errors that aren’t clear, and you may have to pay your accountant to make corrections. You will have more stability when you separate the two.
Mixing Finances Is Unprofessional
If you grow your business and want to get investors, they will want to look at your financial statements. If they see that you have mixed your personal interests with your business, they may be skeptical of getting involved. The problem is that you look unprofessional and they may worry that you will use their investment for your personal expenses.