Q: If I have a LLC, must I pay for all my business expenses with my business account?
A: That’s a good question. But lets talk about best practices first and see if that doesn’t clear it up.
No matter what type of business you have – LLC, corporation, or sole proprietorship – an accountant or financial business advisor will usually recommend that you have a separate business account.
There’s a few reasons for this. First, it simplifies things by keeping business and personal finances separate. Less mingling means less confusion and less paperwork come tax time.
Sure, we could track all the money back and forth and have receipts and documentation for how the money was spent and from which account, but you can eliminate the hassle and the headache if you just stick with funding business activities from the business account.
Second, when you mingle your accounts you’re weakening the legal liability protection an LLC provides. With an LLC, the courts basically consider you and your LLC two separate entities. This is a huge advantage if you’re taken to court. Someone can sue your business, but they won’t be able to sue you personally, unless you’ve personally guaranteed something.
If you mingle your business and personal accounts, the courts could potentially go after you as an individual, citing that the fact that it looks less like you’re running a separate entity and more like your personal finances and business account are one and the same.
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