USA Commingle Businesses

[LynnBooker2024]

Hello,

I have an S-corp that offers consulting services in the area of human resources and am considering opening a second business that sells product (I haven't determined the entity type yet). My bookkeeper suggested that I keep each business separate, with different bank accounts and different accounting records. She says that I can't run transactions for my second business through the bank account of the S-Corp, as I need to keep the transactions separate from the S-Corp. She says I shouldn't commingle any other business with my S-Corp to avoid the risk of losing the S-Corp status. If I file a tax return with a K-1 for the S-corp and whatever necessary form for the second business, why can't I use the same bank account? For the accounting records, couldn't my bookkeeper add a section on the P&L for the expenses of the second business?

Thank you!

 

[BIG E]

Would you like to set yourself up for an audit?

Your bookkeeper is correct.

 

[DrStrangeLove]

Hello,

I have an S-corp that offers consulting services in the area of human resources and am considering opening a second business that sells product (I haven't determined the entity type yet). My bookkeeper suggested that I keep each business separate, with different bank accounts and different accounting records. She says that I can't run transactions for my second business through the bank account of the S-Corp, as I need to keep the transactions separate from the S-Corp. She says I shouldn't commingle any other business with my S-Corp to avoid the risk of losing the S-Corp status. If I file a tax return with a K-1 for the S-corp and whatever necessary form for the second business, why can't I use the same bank account? For the accounting records, couldn't my bookkeeper add a section on the P&L for the expenses of the second business?

Thank you!

Nope nope nope nope nope--bad idea. Don't do that. Your bookkeeper is giving you really good advice here. Two separate companies: separate books, separate accounts, separate assets, and separate cash.

Think of it from an auditor's perspective for a second. Two companies commingle cash in the same account. Pulling a bank statement to confirm the cash balance is basic audit practice. No the auditor will never be able to confirm the Cash account balance for either company, because it will never match. And your argument--"That portion is Company A, the rest is Company B"--is going to sound like nonsense. It will look like you're slushing cash back and forth as necessary. At the very least, your other company will get audited, too. At worst, you'll look like you're cooking your Cash account balance.

Your bookkeeper has it right. Big E has it right. Keep the two companies separate.