Business vs. Personal Expenses

IRS “WARNING”>>>>>>>”Business means Business”!

The IRS has issued again another “New Warnings” and which we need to remind our clients. When you operate a business (Sole Proprietorship, Partnership, LLC or Corporation) the only payments that can be paid via the business checking account or business credit card is “Business” Expenses” (NO PERSONAL EXPENSES), you are required to keep and “Personal & Business” finances separated (all clients need to have a personal checking account to pay all personal bills), since if discovered, that personal expenses are paid via the business, the IRS will claim that the business is “Not Acting, nor Performing as a Legal Business Entity” and then the IRS will then require you to refile your business return as a:

Sole Proprietorship (paying the additional 15.3 Self Employment Tax).

This means you “cannot” write checks or pay personal expenses out of the business account like:

1. Redbox Rentals.

2. Movie Tickets/personal dinners.

3. ABC or Total Wine for Liquor/Alcohol (if not for business party “to develop new business”).

4. Home Mortgage Payments.

5. Home Utilities.

6. Personal car insurance & personal credit cards, and alike.

Important….Debit and Credit Cards (you must have) “All the Receipts”:

Just because you have a credit card, or bank statement with a charge to Staples or Office Depot, this is not proof of the item/s purchased and will not hold up in an audit. You need each and every receipt to support all Debits and Credit Card purchases (all receipts need to be kept for 7 years from the date of filing the business return). This requirement includes all Electronic Invoices (like our monthly invoice for services), you need proof of “What” was paid and to “Whom”.

Is paying “Cash for Expenses”…..Legal?

Yes….It is legal to paid for expenses with cash monies (like Parking Meters, direct payments or other similar expenses), but only if you noted on your Petty Cash Envelope (date, dollar amount and type of expense and accounting code). Personal Note: I will often visit Garage or Estate Sales, when I find something that I need for the office (furniture, equipment or supplies), and deduct the cost on my petty cash envelope (usually this is only acceptable for items below $100.00). Please call me for additional details & tax requirements.

Can you make payments to Independent Contractors in cash?

Payments made to Independent Contractors can be paid in cash, only if signed for by the worker (with amount paid, date and description of service/s). For most businesses, it would be a “better idea” to write the worker a check………Either Payment by check or Cash, you need to have all of our I/C forms noted below:

1. Federal Form W-9. We need a copy of each signed form.

2. Independent Contractor Agreement. We need a copy of each signed form.

3. Invoice for the payment given to the worker (if paid in cash the invoice needs to be signed by the person receiving the payment). Even though we do not need to have copies (you must keep all invoices for a period of 7 years from the date of filing that year business return), which is require by Fed & State.

You Must not pay personal expenses out of your Business Account

Should you need the “I/C” forms noted above, please email us and we will provide all forms (needed for Federal/IRS and State of Florida).