Commingling funds between personal and business accounts is a dangerous practice which can threaten members in an LLC or investors in a corporation. The practice of commingling brings trouble with creditors and even the IRS and California tax agencies.
What is commingling? Commingling is simply using personal funds for business purposes, and/or using business money for personal needs. For example, if you have established a corporation and use a company credit card to pay your personal car payment that is considered commingling. Yes, even if you only use the vehicle for business – if you purchased the vehicle personally as an individual (or married couple) you cannot pay associated costs such as the monthly payment for the vehicle or insurance out of your business account.
Other examples of commingling funds between personal and business accounts include dry cleaning, coffee or even lunch. You may feel it’s “during the business day” and the company should buy your lunch, but everyone must eat lunch and unless you have a business reason for eating that specific lunch (you are in the pursuit of business with the restaurant or are having lunch with a client or prospective new account) it is considered commingling.
Receipts are the best way to keep track of expenses that could be argued to be personal by the IRS or a California tax agency during an audit or by a creditor during litigation. For example, you are at a popular coffee establishment and purchase a cup of coffee for you and your client. The total bill may be less than $10 and the IRS or creditor will have no way to establish you were with your client at the time months or years from now. Simply keep the receipt and write details of the situation on the back of it:
“Lunch with client: William Tell”
“Coffee for Meeting with Prospective Client Acme Inc.”
Commingling funds between personal and business accounts pierces the corporate veil, allowing creditors to come after you personally for business or corporate debts and liabilities. It is the first strategy an adversary will take when attempting to collect upon a debt or liability of your business. The corporation exists as a separate “entity” from you personally, and it is this entity that protects your personal assets from the debts of the business. When you commingle funds between personal and business accounts you blur the line between the legal entities of “you” (the person) and “your corporation” (the business).
If you have questions about commingling funds or piercing the corporate veil we invite you to review the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.
