Comingling of Money

By Jason Watson, CPA
Posted Saturday, November 4, 2023

We’ve mentioned this previously, and we’ll do it again here. Rule #1- Please get a separate checking account for your business, preferably with the same bank as your personal checking account so transfers (shareholder distributions) are easy. Rule #2- Do not pay for personal expenses or any mixed-use expense with business funds.

This is bad for several reasons- the IRS hates it. It erodes the corporate veil which is already dangerously thin since you are a closely held corporation. Lastly, if you need to re-construct your financials because of a QuickBooks disaster or some other disaster, having your business transactions compartmentalized within a bank account makes life better. All money coming in is income. All money going out is an expense or a distribution.

Do you get the feeling that we’ve said these words before? Like déjà vu? Ever have vuja de? It is the feeling that this has never happened before- opposite of deja-vu. Yes, we did mentioned this before in Chapter 10 on operating your S Corp. Here it is again.

Read Rule #2 again. It is imperative to keep an arms-length perspective on you, the employee, and relationship with the S corporation. If you worked for Google or Ford, you wouldn’t be able to get the business to buy your groceries or pay your mortgage directly. Same thing with your business. Here is another quick table to help you out with the “Which debit card should I use?” question.

Cash Outflow	Checking Account To Use
Car Lease	Personal, unless lease is in business name.
Gas for Car	Personal, unless owned / registered by business
Estimated Tax Payments	Personal, since an S Corp is a pass-through entity
Cell Phone	Personal, reimbursed through Accountable Plan
Home Utilities	Personal, reimbursed through Accountable Plan
Home Office Renovations	Personal, possible partial reimbursement
DSW, Banana Republic	Personal, but it would be nice
Shareholder Distribution	Business
Self-Employed Health Insurance	Business
Out of Pocket Medical	Personal, unless you have an HRA
Accountable Plan Reimbursements	Business
401k Contribution	Business
SEP IRA Contribution	Business, but you should use a 401k instead

Read Chapter 10 on operating your S Corp and specifically the section on Accountable Plans for more information on getting reimbursed as an employee of your S Corp for those expenses that are both personal and business such as cell phones, home offices, internet, etc.