Income and Expenses

Michael Lodge

by Michael Lodge

When clients own a business they tend to mix personal expenses with business expenses.  Don’t do it, the IRS can go in and disallow these personal items, they only want to see expenses that are associated with the business.  You may have used personal funds for your business but that should be noted and recorded with full back-up.  Don’t mix the two because it becomes a very sticky wicket when you are audited.  Keep two sets of bank accounts, one for your personal and one for your business.

Question: I am a sole proprietor and pay personal expenses out of my business bank account. Should I include the money used for personal expenses as part of my business income? Can I write these expenses off?

Answer:

  • You would include the money used to pay personal expenses in your business income when your business earned it.
  • You would not write off these expenses as business expenses because they are not ordinary and necessary costs of carrying on your trade or business.
  • Personal, living, or family expenses are generally not deductible.
  • It is a good idea to keep separate business and personal accounts as this makes it easier to keep records.

If you have questions regarding this issue please send us an email at:  tax@icontaxgroup.com