I asked tax expert, John Drayton, CEO of Drayton Tax Pros, what were the top 3 tax mistakes business owners make.
With the upcoming tax season starting January 23, 2023, I was curious to find out about his experience.
Here is part of his answer (this is only part 1 of 3) that could cost you your LLC liability protection:
The #1 top tax mistake business owners make is:
Not separating their business and personal bank accounts.
John told me that too often he sees business owners who register business accounts in their personal name, don’t have money coming into the business so they use their personal bank account, and have mix use of business and personal charges in their account.
The last one he said causes business owners to lose out on $3,000-5,000 in expenses that could reduce their taxable income.
Life can be busy and sorting through a year’s worth of bank account statements to pull out all your business expenses can be daunting.
But not taking advantage of that $3,000-5,000 in expenses means you’re paying MORE taxes than less.
On a legal note (my 2 cents):
You should never mix personal and business money.
It exposes your personal assets (home, IRAs, savings, etc.) to liability for the business.
It erases your liability protection because now the business is no longer separate. So, goodbye to your personal liability protection... Your LLC no longer protects you.
It makes it harder to argue whether an expense was the business or personal if were ever audited by the IRS which could mean fines and penalties.
If ever in an audit and you don’t have the receipts, you could face civil penalties and fines (hopefully, no jail time for tax fraud or evasion).
On the third one, payment processor companies got an extension on filing 1099-K’s with the IRS for all accounts receiving payments of more than $600 until next year (2024). That means if you made the above tax mistake, fix it quickly because the likelihood of an audit goes way up!
Skip that headache. Get a business bank account and if you need to fund it you can loan the business money (put it in writing) with interest or you can transfer money from your personal to your business (it will be considered a contribution, meaning you can’t write that off your personal taxes). Don’t forget to have an accounting or bookkeeping system to track business expenses. A free and good one is Wave. A popular one is Quickbooks.
Looking for a tax guy for your business, taxes and bookkeeping? Schedule an appointment with Drayton Tax Professionals at www.draytontaxpros.com.
Want to read part 2? Follow me on social media to be notified when it goes live at @buildalegitbiz.
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Disclaimer: This post is for educational purposes only and is not legal advice. Please consult an attorney.
