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Right now the account will only exist to hold my own funds (that I've earned elsewhere, and paid taxes on). I plan to take them out to use for non-business expenses on occasion, before I get off the ground.

Are there any problems with this, and is any accounting actually needed?

Edit: This is an LLC with just me involved / on the papers.

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    At most banks, it's easy to set up a second account and transfer money from one to the other via web or phone app or phone call. I'd recommend doing that to make a clear distinction between what money is the company's and which is yours.
    – keshlam
    Dec 15, 2022 at 23:19

2 Answers 2

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In the US, LLCs are separate legal entities from their owners. This is different from tax purposes, where LLCs may be treated as "disregarded" entities and be indistinguishable from your own person on your tax returns.

By using LLC accounts as your own, you're essentially removing this distinction, which in turn may lead to removal of the limited liability protection that the LLC provides (aka "piercing the corporate veil").

Basically, you're rendering your LLC useless since the only purpose it serves, limiting your liability, is diminished by this behavior.

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  • For the meantime I don't need the protections (because I'm not providing busines services). So is using the account (putting personal money into and out of it) going to cause problems otherwise, and do I need to keep track? Dec 15, 2022 at 23:27
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    @HorseHair it's going to be difficult to reverse this in the future when you actually end up needing the liability shield. You can't change what happened, once you take the action that the future litigator could use to pierce the veil - it's impossible to go back.
    – littleadv
    Dec 15, 2022 at 23:28
  • Is it safe to say that the situation can't be twisted to "demonstrate" that I was paid twice (moved my own funds into the business account, and later back to me), and thus I end up having to pay double taxes? Dec 15, 2022 at 23:55
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    For tax purposes, unless you elected to treat your LLC as corporation, it is disregarded. You just moved money from one pocket to another.
    – littleadv
    Dec 16, 2022 at 0:11
  • @HorseHair don’t argue. If you don’t want our free advice, then ignore it.
    – RonJohn
    Dec 16, 2022 at 21:14
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I have never had an LLC so I can't speak to the details of the legalities. That said:

There's little value in setting up a "business" bank account if you're going to also use it for personal expenses. The whole point of a business bank account is to separate your personal finances from the business finances. If you use the business account for personal spending, you've destroyed this idea.

The idea is supposed to be that you can show an auditor your bank statements and say, See, here is all the money coming into the business and going out. You should be able to reconcile your accounting system with your bank account. There should be a 1:1 correspondence between transactions. If you are audited by the tax man, you have a paper trail from the bank to back up your records. That doesn't prove you're not lying on your taxes, of course, but consistency is evidence of good faith.

But if you mix in personal spending, then all this goes out the window. Now some transactions on the bank statement correspond to business transactions and some don't. The balance on the statement has no relationship at all to how much cash the business has.

If you're going to do this, why even bother to set up a business account? Rather than create a "business" account and sometimes use it for personal expenses, why not just use your personal account for business expenses?

Assuming that you insist on doing this anyway for whatever reason, yes, you should absolutely document personal transactions. If you don't, then how do you know whether any given transaction is business or personal? If it's not recorded in your business accounts, does that mean it must be personal? Or could it mean that you simply forgot to enter it into the accounting system? You'd then be reduced to trying to remember what each transaction was. At which point, why bother having an accounting system at all? Why not just rely on your memory and guessing?

As I said, I've never operated an LLC, but I would GUESS, just thinking logically, that you would seriously endanger your limited liability status by doing this. How would a court or auditor know if the business could afford to pay a bill or a judgement, if the balance in its bank account is partly business funds and partly personal funds? For you to go to court and say, Well I have these other records that show that only $X of that is the business's money, and I'm pretty sure that this deposit was personal money, I don't have any proof of that or even any records to back it up, but I think I recall that when I made that deposit 5 years ago that that was personal money, probably.

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