Spending money as a sole proprietorship business

I'm in Washington state.

In addition to my personal checking account I have a business checking account for my sole proprietorship business. Can I freely spend or transfer the money in that business account as if it was my own personal checking account? For example, sometimes I randomly transfer money from business to checking when I feel like it and/or I use my business debit card to pay for non-business expenses. Is this legal? Am I suppose to go about a business account in different way?

Thanks in advance

Yes, you should go about it a different way. Co-mingling will make keeping your books more difficult. I don't think it's illegal but could cause you issues. Good luck

With a sole proprietorship, you ARE the business. So the business funds are your funds. You may choose to keep them in separate accounts in order to simplify your bookkeeping, but it's not a requirement.

anuvajoe said:

I'm in Washington state.

In addition to my personal checking account I have a business checking account for my sole proprietorship business. Can I freely spend or transfer the money in that business account as if it was my own personal checking account? For example, sometimes I randomly transfer money from business to checking when I feel like it and/or I use my business debit card to pay for non-business expenses. Is this legal? Am I suppose to go about a business account in different way?

Thanks in advance

Click to expand...

I would personally advise you to keep your finances separate but depending on the size of your business really all that matter is that you report everything accurately when you file your return.

The bank itself does not care ~ you own both accounts.

Rats! I was afraid that was the case. I've got some major cleaning up to do.

Well, what about my phone bill, car insurance & repairs, parking, parts, equipment, etc. that I use for business - must I use my business check card or bank account when paying or can I use my personal debit/credit cards too?

Can I write any business expenses off during tax time if, for example, my girlfriend paid for said expense?

Must I keep track of and document transfers from my business account to my personal account? Do I have to document transfers from my personal account to my business account too?

anuvajoe said:

Rats! I was afraid that was the case. I've got some major cleaning up to do.

Well, what about my phone bill, car insurance & repairs, parking, parts, equipment, etc. that I use for business - must I use my business check card or bank account when paying or can I use my personal debit/credit cards too?

Can I write any business expenses off during tax time if, for example, my girlfriend paid for said expense?

Must I keep track of and document transfers from my business account to my personal account? Do I have to document transfers from my personal account to my business account too?

Click to expand...

You need a lot more help than this forum can provide.

anuvajoe said:

Rats! I was afraid that was the case. I've got some major cleaning up to do.

Well, what about my phone bill, car insurance & repairs, parking, parts, equipment, etc. that I use for business - must I use my business check card or bank account when paying or can I use my personal debit/credit cards too?

Can I write any business expenses off during tax time if, for example, my girlfriend paid for said expense?

Must I keep track of and document transfers from my business account to my personal account? Do I have to document transfers from my personal account to my business account too?

Click to expand...

You're likely filing a schedule C. Expenses that you pay for business expenses regardless of the account it comes out of would be deductible- otherwise not.

Do yourself a favor, treat your sole proprietorship as a separate entity. Better yet, incorporate. Funds you transfer to the corp. could be looked at as a loan and you can elect to charge the corp. interest on those loans.

Your commingling of funds can be a nightmare if you're audited. My advice is today, do not commingle funds.

dmcc10880 said:

You're likely filing a schedule C. Expenses that you pay for business expenses regardless of the account it comes out of would be deductible- otherwise not.

Do yourself a favor, treat your sole proprietorship as a separate entity. Better yet, incorporate. Funds you transfer to the corp. could be looked at as a loan and you can elect to charge the corp. interest on those loans.

Your commingling of funds can be a nightmare if you're audited. My advice is today, do not commingle funds.

Click to expand...

Not a smart blanket statement to make. You have no clue as to what this OP's specific situation entails.

Once again....

With a sole proprietorship it does NOT matter how the money flows, it only matters that the income and expenses are properly recorded in the bookkeeping records, and backed up with reciepts etc.

There is no need or requirement for the OP to even maintain a separate bank account (or separate credit cards) for the business unless the OP has a business reason for doing so.

Comingling is completely irrelevant for a sole proprietorship. The OP can comingle all he wants without causing himself the slightest problem.

Whats important is his bookkeeping records of income earned and expenses paid. A balance sheet isn't even relevant because the business is HIM.

LdiJ said:

Once again....

With a sole proprietorship it does NOT matter how the money flows, it only matters that the income and expenses are properly recorded in the bookkeeping records, and backed up with reciepts etc.

There is no need or requirement for the OP to even maintain a separate bank account (or separate credit cards) for the business unless the OP has a business reason for doing so.

Comingling is completely irrelevant for a sole proprietorship. The OP can comingle all he wants without causing himself the slightest problem.

Whats important is his bookkeeping records of income earned and expenses paid. A balance sheet isn't even relevant because the business is HIM.

Click to expand...

Right, and I only mentioned it for his sake. It's a little easier to keep records when funds aren't flying back and forth. But it's doable and up to OP.

Antigone*of*Greece said:

Not a smart blanket statement to make. You have no clue as to what this OP's specific situation entails.

Click to expand...

Umm... incorporating has its advantages- clearly regarding liability. A corp. is a separate entity. Much easier for bookkeeping purposes. As an S-corp, income flows to the shareholders anyway. IMHO, sole proprietorships are really stupid on a number of levels. Creating a separate entity clearly makes bookkeeping a lot easier. Like I stated in my previous post, commingling funds makes for an accounting nightmare and even moreso if ever audited. Keep it simple, stupid (the kiss approach).

randolph76 said:

Right, and I only mentioned it for his sake. It's a little easier to keep records when funds aren't flying back and forth. But it's doable and up to OP.

Click to expand...

Bingo. Your logic is on track.

dmcc10880 said:

Umm... incorporating has its advantages- clearly regarding liability. A corp. is a separate entity. Much easier for bookkeeping purposes. As an S-corp, income flows to the shareholders anyway. IMHO, sole proprietorships are really stupid on a number of levels. Creating a separate entity clearly makes bookkeeping a lot easier. Like I stated in my previous post, commingling funds makes for an accounting nightmare and even moreso if ever audited. Keep it simple, stupid (the kiss approach).

Click to expand...

Not in all situations. You made a blanket statement. You have no clue what the OP does.

Antigone*of*Greece said:

Not in all situations. You made a blanket statement. You have no clue what the OP does.

Click to expand...

You're right. I don't know what the OP does. However, I stand behind my statements unless you can deliver better advice.

dmcc10880 said:

Umm... incorporating has its advantages- clearly regarding liability. A corp. is a separate entity. Much easier for bookkeeping purposes. As an S-corp, income flows to the shareholders anyway. IMHO, sole proprietorships are really stupid on a number of levels. Creating a separate entity clearly makes bookkeeping a lot easier. Like I stated in my previous post, commingling funds makes for an accounting nightmare and even moreso if ever audited. Keep it simple, stupid (the kiss approach).

Click to expand...

I completely disagree with this statement when it comes to sole proprietorships.

Its all his money. None of it belongs to a separate entity or needs to be tracked separately so comingling is totally irrelevant...TOTALLY.

Once again, all he needs to do is write down his income as he makes it on a ledger sheet (keeping any checkstubs or receipts in a file folder) and when he spends money for business purposes he again writes it down on a catagorized ledger sheet and puts the receipts in a file folder.

If his business is complicated enough that ledger sheets won't work, then he needs Quickbooks or other similar accounting software, but the premise is the same.

Its completely irrelevant whether he comingles the actual money or not.