If you own multiple businesses, you may occasionally move money between them, contribute personal funds, or withdraw money for yourself.
These transfers can be appropriate. However, every transfer needs a clear purpose, supporting documentation, and the correct bookkeeping treatment. Writing “transfer” in the bank memo does not explain whether the payment is a loan, distribution, contribution, or business expense.
What Is Commingling?
Commingling means mixing business and personal funds—or mixing funds from separate businesses—without properly distinguishing and recording the transactions.
Common examples include:
- Paying personal groceries or your home mortgage directly from a business account.
- Depositing Business A’s customer payments into Business B’s account.
- Moving money between companies without documenting why.
- Paying one company’s expenses through another company and never recording reimbursement.
These practices make financial statements unreliable and tax deductions harder to support. The IRS recommends keeping business and personal checking accounts separate.
1. Business to Business: Identify Why the Money Is Moving
Common ownership does not automatically make a transfer a business expense. Choose the treatment that reflects the actual transaction:
| Purpose | Appropriate steps |
|---|---|
| A loan between companies | Prepare a loan agreement identifying the lender, borrower, amount, appropriate interest rate, and repayment terms. Record a loan receivable in the lending company and a loan payable in the borrowing company. Follow the repayment schedule. |
| Payment for actual goods or services | Use an invoice or agreement describing what was provided and support reasonable pricing. Record revenue in the seller’s books and the appropriate expense or asset in the buyer’s books. |
| Reimbursement of an expense paid for another company | Keep the original receipt and identify which company benefited. Record the amount owed between the companies and clear that balance when reimbursement occurs. Avoid deducting the same expense twice. |
| An investment in another company | Confirm which entity will own the investment and document the ownership arrangement. Have your accountant determine the correct investment and equity entries. |
Important: If you personally own both companies, a payment from one to the other is not automatically a capital contribution. Depending on the facts, it could be treated as a distribution to you followed by your contribution to the second business.
Loans also require genuine repayment intent. Below-market interest arrangements can have additional tax consequences.
Example: A documented business loan
Assume two separately taxed companies have the same owner. Business A lends Business B $15,000 for equipment. They sign a loan agreement, establish appropriate interest and repayment terms, and transfer the funds directly between their business accounts.
Business A records a $15,000 loan receivable; Business B records a $15,000 loan payable. The loan principal is not a deductible expense for A or sales income for B. Interest is recorded separately.
2. Business to Owner: Use the Correct Payment Method
How you pay yourself depends on your business’s tax classification, not simply whether “LLC” appears in its name. An LLC can be taxed as a disregarded entity, partnership, or corporation.
| Business tax classification | How owner payments generally work |
|---|---|
| Sole proprietorship or individually owned LLC without a corporate tax election | Take an owner’s draw, recorded in equity. The draw is not deductible; taxes generally depend on business profit rather than the amount withdrawn. |
| Partnership or LLC taxed as a partnership | Payments may be partner distributions or guaranteed payments, depending on their purpose and the partnership agreement. Partners generally are not W-2 employees of their partnership. |
| S corporation | An owner who works in the business must receive reasonable compensation through payroll before taking nonwage distributions. Distributions are recorded separately and require a tax-basis review. |
| C corporation | Payments may include wages through payroll or properly authorized shareholder distributions. Distributions may be taxable dividends and generally are not deductible by the corporation. |
Corporate owner payments and partner payments follow different IRS rules.
Best practice: Transfer a properly classified owner payment into your personal account, then pay personal bills from that account.
A business can also reimburse an owner for legitimate business expenses paid personally. Keep receipts and the business purpose. For an owner who is an employee, a properly administered accountable plan generally allows qualifying reimbursements without treating them as wages. It requires a business connection, timely substantiation, and return of excess advances.
3. Owner to Business: Contribution or Loan?
When you put personal money into your business, decide whether it is:
- A capital contribution: Record it in the appropriate owner equity account. It generally is not customer revenue.
- An owner loan: For a separate tax entity, document a genuine repayment obligation, appropriate interest, and repayment terms. Record it as a liability rather than sales income.
- Payment of a business expense personally: Keep the receipt and arrange reimbursement or the appropriate contribution entry.
Example: Funding your business
You deposit $10,000 of personal savings into your LLC’s bank account to cover operating costs. If this is a capital contribution, record it as owner capital, not sales.
If the LLC is a separate tax entity and you intend it to repay you, document and record a genuine owner loan instead.
For a sole proprietorship or disregarded LLC, transfers between the owner and business generally are not recognized as loans between separate taxpayers for federal income tax purposes, even though separate records remain useful.
Already Mixing Funds? Follow These Cleanup Steps
- Separate your accounts. Maintain a dedicated bank account and card for each business, plus separate personal accounts.
- Review past transactions. Identify personal charges, owner deposits, and transfers between businesses.
- Gather supporting records. Locate receipts, invoices, bank confirmations, and existing agreements.
- Correct the bookkeeping. Classify each transaction according to what actually happened. Do not create backdated documents or label every unexplained payment a “loan.”
- Resolve outstanding balances. Reimburse accidental payments or establish appropriate repayment arrangements after review.
- Reconcile monthly. Make sure amounts owed between companies agree in both sets of books. Ask whether corrections affect previously filed returns.
A bank memo helps, but it does not replace supporting documentation. Use descriptions such as “Owner capital contribution,” “Loan to Business B—agreement dated October 1,” or “Reimbursement—invoice 125.”
Let Kaya Tax help you keep transfers organized. Before moving funds, ask: Who owns this money, why is it moving, and how will both sides record it?
Frequently Asked Questions
What is commingling of business and personal funds?
Commingling means mixing business and personal funds—or mixing funds from separate businesses—without properly distinguishing and recording the transactions.
These practices make financial statements unreliable and tax deductions harder to support. The IRS recommends keeping business and personal checking accounts separate.
Can I transfer money from one business to another business I own?
These transfers can be appropriate. However, every transfer needs a clear purpose, supporting documentation, and the correct bookkeeping treatment. Writing “transfer” in the bank memo does not explain whether the payment is a loan, distribution, contribution, or business expense.
Common ownership does not automatically make a transfer a business expense.
If you personally own both companies, a payment from one to the other is not automatically a capital contribution. Depending on the facts, it could be treated as a distribution to you followed by your contribution to the second business.
Can I transfer money from my business account to my personal account?
How you pay yourself depends on your business’s tax classification, not simply whether “LLC” appears in its name. An LLC can be taxed as a disregarded entity, partnership, or corporation.
Transfer a properly classified owner payment into your personal account, then pay personal bills from that account.
How do I record personal money deposited into my business account?
When you put personal money into your business, decide whether it is:
- A capital contribution: Record it in the appropriate owner equity account. It generally is not customer revenue.
- An owner loan: For a separate tax entity, document a genuine repayment obligation, appropriate interest, and repayment terms. Record it as a liability rather than sales income.
- Payment of a business expense personally: Keep the receipt and arrange reimbursement or the appropriate contribution entry.
For a sole proprietorship or disregarded LLC, transfers between the owner and business generally are not recognized as loans between separate taxpayers for federal income tax purposes, even though separate records remain useful.
How do I fix commingled business and personal funds?
- Separate your accounts. Maintain a dedicated bank account and card for each business, plus separate personal accounts.
- Review past transactions. Identify personal charges, owner deposits, and transfers between businesses.
- Gather supporting records. Locate receipts, invoices, bank confirmations, and existing agreements.
- Correct the bookkeeping. Classify each transaction according to what actually happened. Do not create backdated documents or label every unexplained payment a “loan.”
- Resolve outstanding balances. Reimburse accidental payments or establish appropriate repayment arrangements after review.
- Reconcile monthly. Make sure amounts owed between companies agree in both sets of books. Ask whether corrections affect previously filed returns.
