Accounting Mistakes Consultants Make: Mixing the Money

You bought lunch for a client with your personal credit card. Or you made a furniture purchase for your home with a business check.

Stop. Don’t do that. Actually, this is a big deal.

According to Denise Neamon, partner at Gaines, Kriner, Elliott, LLP, it’s called “co-mingling” your funds and the IRS does not like it. “The IRS really frowns upon seeing personal stuff run through business records and vice versa,” she says.

Besides annoying the IRS, co-mingling funds can cause a variety of other problems. If you’re a limited liability company (LLC), for instance, then the liability protection offered through this business structure is jeopardized. In addition, if you’re co-mingling funds, then you can’t accurately monitor all your business expenses, making it hard to track progress and project financials. You could also over- or under-state your deductible expenses on your taxes as a result.

If, for some unexpected reason, you need to pay a business expense with funds from a personal account, make sure you reimburse yourself from the business account and keep a record of it on file. But don’t make a habit of this kind of transaction, Neamon warns.

Instead, she advises if you need gas to go to a client meeting, for instance, don’t use your personal credit card. Get a business one, or cut a business check for the amount you need and then keep an accurate record of the expense. If you don’t, you’re exposing yourself to a world of problems.

 

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