I recently formed an LLC from a sole proprietorship. Knowing that I’ll have to be more diligent about separating funds, is transferring money from a business account to a personal account the same as writing a check in order to get paid?
Also, I use an online billpay service with my bank to pay bills for both my business and personal debts. Since my business is a home based business, which account should I use to pay the bills associated with my home/place of business i.e. the mortgage, water, light, etc. since I use them all for both business and personal use?
– Stephen, Washington
When you withdraw your profits from your LLC, you simply write a check drawn off your business checking account payable to yourself.
For your business expenses, ideally you would pay for them directly from your business account (or a credit card in the name of your business, which is paid with money drawn from your business checking account).
So, stop paying business expenses from your personal account–whether you are using paper checks or online bill pay.
All business expenses should be paid from your business checking account. This makes tax time more simple, because all your expenses are right there on your business checking account statement–no need trying to figure out if a check was for a business or personal expense.
Where it gets tricky is with the home office deduction, where there is a partial use of the home for business and partial permanent.
What you’d want to do here is pay your mortgage through your personal account, but then take the home office deduction using IRS Form 8829.
These are the basics of how to handle business expenses for tax purposes.