This question came into our office and although I cannot answer on the tax question, it gives me the opportunity to bring up a little pet peave of mine. Commingling of Funds.
Q: I know someone running a corporation that takes checks from the business and then uses the money for personal things (landscaping his house, paying for hair treatments, etc.). He says its his money to use. I say that money becomes personal income that taxes must be paid on.
Who is right?
If someone has the tax answer, please feel free to comment. But as for the using business money for personal things, that is a very real mistake. Besides not doing your annual corporate minutes for shareholders and directors, the other thing that courts ust to pierce the “corporate veil” is the commingling of funds. This is a way they show that the corporation is just a sham and the an individual is attempting to protect himself from personal liability through incorporation, but doesn’t observe the separation of corporate and personal income, accounts and property.
As an incorporation you need to keep your private funds separate from your business funds. If you must put money into your business accounts from your personal, you need to document this as a business loan or investment. Just as if you pay yourself, you document it as payroll or dividends, etc.