You have to use your money to start your business. Is it wise to put your money in your business bank account when you first open it and then proceed to purchase things for your business out of that account to be able to track everything accurately for taxes and other breaks?
You do NOT want to put your startup business expenses on a personal credit card. That would technically be commingling of funds (though, in reality, it takes a lot to pierce the corporate veil, so don’t lose too much sleep over it).
The above does NOT apply to the expenses you incur in forming your LLC. Obviously you won’t have a business credit card or business account before your form your LLC. So, formation costs and state filing fees you can pay personally. Buying equipment for your business after it is formed…use a business check or credit card.
It’s bad business practice to mix your personal and business funds. Even if a judge wouldn’t pierce your veil for mere sloppy business practice (though you’re rolling the dice, because you never know what kind of judge you’ll get), why be sloppy?
You can pay for the initial LLC formation with personal funds, as the company does not yet exist. Those expenses can be considered a capital contribution to the LLC.
After formation, and you have an EIN, go directly to the bank and open up a business checking account. You’ll need the EIN because banks won’t open an account without one.
All of your business expenses must be written out of your business checking account.
If you need a credit card for your business, then apply for a business credit card. Trust me, you’ll start getting offers in the mail very quickly after forming your LLC–particularly if you use your home address as your registered agent.
Will your business need a Paypal account? Then get one in your business’ name, using your business EIN.
Finally, buy a copy of Quickbooks and use it to track your business expenses.
If you have employees, you absolutely need to use a payroll service. Do not attempt payroll on your own…trying to do your own payroll is like trying to do your own laser eye surgery.
As owner, you are personally liable for all payroll taxes that you fail to pay. These debts are difficult to discharge in bankruptcy and the IRS can follow you around for a long time, racking up penalties and interest.
A followup question on the same topic:
Funding Your New LLC
Question: Can you continuously put money into your business account from your personal account to fund your business like to purchase equipment and pay for utilities until you start receiving a profit from it? Would that be perceived as commingling?
Yes, you can fund your business with personal funds (in fact, every business has to even if just to pay for incorporation, legal, accounting and state filing fees).
The key here is to understand that “you” and the LLC are legally separate individuals.
Which means that if you are giving money to your LLC, you need to be getting something in return — either you are making a capital contribution to the LLC or you are loaning it money.
You wouldn’t give money to some random corporation unless you got either stock or a bond in return–the same principle applies here.
The key is to create the proper paper trail, in particular, through the use of promissory notes if you are treating the deposit as a loan.
There are many forms of promissory notes you can download for free on the internet, and some you can pay for.
More followup questions
Using personal account to buy equipment for business
Question: Ex boss is selling equipment from his business at great price.He is giving us first pick before he auctions it off. Problem is LLC paperwork will not be processed in time to be able to open a business account to pay for it. Can we use personal account to purchase equipment as start up or would that be commingling of funds. He won’t hold the equipment.
You can buy the equipment with personal funds and then sell them to the LLC. Just make sure to writeup a receipt and have the LLC pay you for the equipment.