Can I Pay Personal Bills With a Business Account?
If you own your own business and need to use funds in your business account to cover personal expenses, it's tempting to simply issue checks from the business account to cover the personal expenses, but it's not a good idea to do so. Depending on the legal structure of your business, using a business checking account to cover personal expenses may negate the legal protection the legal structure of your business offers.
Other People Are Reading
-
Sole Proprietorship Issues
-
If your business is a sole proprietorship, then your personal assets aren't legally protected by the business legal structure, meaning that if the business is sued, your personal assets can be seized to settle any court-awarded settlement. You can use business funds to pay personal bills without any risk to your legal structure or status, but the practice, called "commingling," is frowned upon by the Internal Revenue Service --- IRS agents prefer to see separate accounting for personal and business expenses. In the case of an audit, the discovery of the use of a business account to pay personal bills may result in an IRS agent declaring your accounting records unreliable, and he may require a complete examination of every business expense claimed for tax purposes.
Partnership Issues
-
A partnership is similar to a sole proprietorship in that the legal structure doesn't offer protection for personal assets. It's still a bad idea to use company funds for personal expenses. In addition to the audit issues already explained, using partnership funds to pay personal expenses means you're utilizing your partner's share of the profit for your own expenses. Unless your partner agrees to take a proportionate share of profit equal to your bills paid, you have disproportionately shared company profits, which isn't illegal but may cause problems with your partner.
-
S Corporation and Limited Liability Company Issues
-
If your business is an S corporation or a limited liability company, the legal structure of the business affords your personal assets protection from business legal liability; however, if you use business funds to pay personal expenses, you run the risk of negating that protection by not treating your business as a separate legal entity. To maintain the legal protection of personal assets offered by those legal structures, you can't utilize business funds to pay personal expenses.
How to Safely Withdraw Money
-
No matter the legal structure of your business, the safest way for you to get funds to pay personal expenses is to withdraw the money from your business in the form of a paycheck or distribution. Simply prepare a check from the business account to yourself and deposit it into your personal bank account to pay your bills. Depending on your legal structure and tax election, you may need to record the funds as an owner distribution on the business accounting books.
-
