by Lisa Robinson
Why keeping your Business and Personal funds in the same account is NOT a good idea. There are many of you reading this right now that are thinking – it can’t be that important?!?! Keep reading!! You will see that it actually is very important. So why would you want to keep your business and personal funds in a different account?
It makes your bookkeeping more difficult. The reason why is because it takes time to figure out which deposits and which expenses are for the business and which are personal. And even if is easy for you to determine this – if you are doing your bookkeeping through a software – ALL of the transactions have to be entered in order for the account to be reconciled which if the “Tax Man” comes a knocking – can cause some problems.
You won’t have good financial reports. – If your business and personal expenses are all entered in the software to reconcile, then there are additional items included on the income statement and/or the balance sheet which is not related to the business. Therefore, if you are posting personal transactions to expense accounts (telephone, utilities, etc.) then the expenses are overstated.
It makes the tax return preparation more difficult. – Because your tax return is on business income and expenses, your accountant will have to figure out what is the true profit of the business by reviewing all the income and expenses and then removing the personal transactions from the equation. This is whether or not you are filing a personal or corporate return – correct figures need to be reported to properly calculate the tax or refund due.
It is an audit waiting to happen – Do you want to be audited? Do you want the “Tax Man” to find a reason to come knocking on your door? If not, then keep your business and personal transactions separate. I cannot stress this enough! If the :”Tax Man” looks at your bank statements or does an audit on your business and sees from there that you have been co-mingling your personal and business money – it Immediately opens you up to a personal audit as well and from there the IRS could also disallow expenses and include deposits as income because your business and personal items were mixed together.
You may think it is not a big deal to mix funds, or think it is a hassle to have multiple bank accounts. But here is the thing… it is not nearly as much of a hassle as having to figure out your true business figures, get the correct information on a tax return and prevent the “Tax Man” from knocking on your door and adjusting your tax return where you now owe money.
Lisa Robinson is CEO/Founder of Li$a Marie Accounting and has over 15 years of Accounting experience. She helps entrepreneurs get rid of the accounting “headache” and helps them change their mindset towards accounting by making sure their accounting books are in order and in an accounting system that works for them so that they can work on growing their business.