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Why Commingling is the Ultimate "F*** Around and Find Out" for Small Business Owners

Updated: Dec 11, 2023


Man in a suit reading a large book in a library


"F*** around and find out." We all know the saying. But, there are many times that small business owners don't exactly know they are, in fact, f***ing around. That's why getting a good accountant *cough, like H6, cough* is crucial to the success of your small business. Today I am here to tell you about the hidden in plain sight sin you have probably committed, commingling. Commingling is where you intermix personal and business expenses or using a single bank account for both. Its the ultimate "f*** around and find out" because its really not seen as that big of a deal. Its honestly the biggest transgression I see small businesses commit. However, its a big no no and here's why:

  • Legal Implications: Commingling funds can create legal complexities. When personal and business finances are mixed, it becomes challenging to accurately track and report business income and expenses. This commingling may raise red flags during audits or legal proceedings, potentially putting your business at risk. The IRS can use commingling against you and disallow deductions and leave you with an awful tax bill.


  • Tax Compliance Issues: By commingling funds, you risk inaccurately reporting income and expenses, which can lead to tax compliance issues. It becomes difficult to differentiate personal expenses from legitimate business expenses, potentially resulting in improper tax deductions or triggering audits from tax authorities. Keeping separate accounts ensures accurate record-keeping and simplifies tax preparation.


  • Piercing the Corporate Veil: Maintaining a clear separation between personal and business finances is crucial for protecting your personal liability as a business owner. Commingling funds can undermine the limited liability protection offered by certain business structures, such as corporations or limited liability companies (LLCs). If legal disputes arise, creditors or litigants may argue that your business is not a separate legal entity, potentially "piercing the corporate veil" and exposing your personal assets to liability.


  • Financial Clarity and Analysis: Separating personal and business finances provides a clear picture of your business's financial health. It allows for accurate tracking of revenue, expenses, and profitability. Having separate accounts and financial statements enables you to analyze business performance effectively, make informed decisions, and plan for growth.


  • Audit Preparedness: Maintaining separate financial records is crucial for audit preparedness. If your business undergoes an audit, whether from tax authorities or other regulatory bodies, having clear documentation of business transactions, income, and expenses will expedite the audit process and demonstrate your compliance. This is where the adage "F*** around and find out" will come into play. Mess around, and the IRS will absolutely assist you in "finding out."


  • Professionalism and Credibility: Separating personal and business finances projects professionalism and credibility to clients, partners, and investors. It reinforces the perception that your business is well-organized and operates with transparency. This can enhance your reputation and foster trust in your brand. Basically, if you need to show your books to someone else for whatever reason you're going to look like you don't know what you're doing. Don't give anyone a reason to take you less seriously! You worked hard to get where you are!


  • Personal Financial Security: Keeping personal and business finances separate is essential for protecting your personal financial security. By having distinct accounts, you can clearly distinguish business income from personal income, ensuring that personal financial obligations are met and personal savings remain untouched. Keep that nest egg safe, fam.


  • Easy Financial Monitoring: Separate accounts simplify financial monitoring, budgeting, and cash flow management. You can easily assess the financial health of your business, track revenue growth, and identify areas where expenses can be reduced or optimized. It also facilitates accurate financial reporting for internal and external stakeholders.

When it comes down to it, commingling personal and business finances is a practice that small business owners should avoid. Is the IRS going to show up at your door the second you use the wrong credit card at the Piggly Wiggly? No. But, keeping personal and business finances separate, you protect yourself legally, ensure tax compliance, maintain financial clarity, and enhance the overall professionalism of your business. Establishing clear boundaries between personal and business finances is not only a prudent financial practice but also a legal requirement that contributes to the long-term success and sustainability of your business.


Keep it classy fellow entrepreneurs! Until next time!


-Amanda Mitchell, AFC, EA amanda@h6sbs.com

1 comentário


Hot Dog!!!! I just tried to explain this to a client yesterday, but you have laid it out so much more clearly than I could ever hope for!

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