Question for the Money Doctors
Question submitted on Oct 28, 2011.
QuestionMy son owns a garage where he does auto repairs. Has only business checking. Is there any reason why he should not use
that account to pay rent or regular items, providing, the taxes are separate and logged only for business items???
A business should have a bank account that is used only for business purposes. That account can be used to pay any and all business expenses, including rental of business premises, office expenses, payroll and business taxes. But it should not be used to pay personal expenses. By the same token, your son should have a credit card that he uses only for business expenses, and personal expenses should not be charged to that card.
It's important for all businesses, including small ones, to maintain a set of books and records in a professional manner. If there is an audit by the IRS and they see business and personal expenses commingled in the same bank account, it may be harder to support that the business was being run for a profit motive. This becomes especially important in a new business if losses are incurred for several years.
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