What should I do at the tax level, if I transfer all or part of my company money to my personal account and use that account for personal and company payments?

There is a belief that because you are the owner of the company you do not need payroll and that is completely incorrect for a simple reason, whenever there is a company either LLC or S corporation, the IRS will always expect that you report payments, there is a line in the tax return that it’s used to report salaries from the owners or shareholders and if that bow is empty the IRS is going to audit, that’s why it is extremely important that you get payroll and pay yourself. This is the first line of defense to avoid any auditing from the IRS, especially with S corporation because they didn’t pay their own salary and now, they are being audited.

So, if you own an S corporation and are a single member make sure that you get payroll and pay yourself at least once a month otherwise the IRS is going to come after you if that box is empty. Now for the LLC with one single member, there is a principle that if you make money you have to pay taxes, that is why every person that works in a dependency relationship with a company will always have a payroll and that will mean deduction and withholding of income tax, social security and Medicare and with those 3 withholdings means that you are paying in advance our taxes since they are being deducted, as they are deducted the IRS is expecting that companies and self-employed people pay in advance but usually that never happens. So if you are self-employed and you don’t have payroll you are supposed to pay taxes quarterly, the problem is that becomes difficult because you have to calculate taxes that you have pay, second you have to send the check to the IRS or pay online so it’s not automatic and when things are not automatic because you have to think and execute and that is painful.

So instead of having that pain you can set up payroll and have life automated. Second line of defense is setting up automatic payroll especially if you are a self-employed individual or you own an LLC with a single member. Now if you use the money from the company to transfer to your personal account to pay for company expenses, that is also incorrect because you cannot mingle the company funds with the personal funds. You never have to transfer the company money to your personal account unless it’s distribution or reimbursement because if you do that you are exposing yourself to being audited by the IRS and they will claim all that money that you transferred to your personal account since that will be income and all that is going to be taxable, this is the third line of defense from the IRS, do not transfer company money to your personal bank account because all the money is going to be considered income if the IRS comes to audit you. If you want to transfer company money to yours, get a payroll, it’s the easy way.