I ran into an acquaintance the other day that I hadn't seen in quite a while, and we decided to have a quick cup of coffee and do some catching up. I knew that she had started a business a couple of years ago and I was anxious to hear about it.
After a while she said she needed to run to the bank. In the same sentence she said that “she really needed to set up a separate bank account for her business” when she had time. I really couldn't believe what I was hearing. I asked her if she was depositing her receipts from her business into her personal account and she confirmed that she was. I told her that she needed to have a separate account, and I asked her if that wasn't a problem when it came time to file her taxes. She finally admitted that it did indeed cause a problem at the end of the year when “she did her taxes”.
Boy, is that ever a recipe for disaster! For most of us, it would just seem to be “common sense” to have separate personal and business bank accounts. Apparently that isn't the case for everyone. Today's post goes over the reasons you should keep your business and personal bank accounts separate.
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I agree. A friend of mine operated a business and ran some of his personal from the same account.
IRS conducted an audit and determined the business was more of a hobby. He appealed and lost. He owes the IRS $465,000. in back taxes, interest and penalties. They froze his accounts and filed tax liens on all his property. No one will purchase his real estate with liens so they have all gone into foreclosure. He will end up filing bankruptcy. He has been working on this for three years and it will take at least another two years to finish it.
Yes, separate your personal and your business bank accounts.
Do not co-mingle funds.
Wow. Like I said, it’s just a terrible idea. Business and personal finances should never be mixed.