Starting a new business, especially a small one, can sometimes lead to opportunities to mix up your money. For example, you need to put gas in your company vehicle but forgot your company credit card, so pay for it with your personal one instead.
Or when you get home, your child reminds you they need $50 for the weekend trip you said they could go on. You didn’t have time to get to the bank, so just give them it out of the cash a customer paid you earlier in the day. You consider it’s all ‘your money” at the end of the day.
Failing to keep your finances separate could jeopardize your personal assets
Many people choose a more formal business entity rather than a sole proprietorship to protect their personal assets in the event of business problems. They make it legally clear that they and their assets are not the same as the business and its assets.
If they mix up their finances, a court may find the two are, in fact, one. It’s known as commingling. Basically, it means the two sets of assets are mixed to the point where it is hard to distinguish what money belongs in which category. That means the person’s personal assets may be in jeopardy if the business loses a legal dispute.
Commingling will also complicate your accounts
Accurate reporting of your accounts to the IRS is crucial, and mixing personal and business money will make that harder to get right. It could even lead to investigations, fines and even charges.
If you encounter problems due to mixing your personal and business funds, you may need to learn more about your legal options.