Mixing Personal & Business Assets
ACCOUNTING - a definition: accounting is the act of accounting for every penny that you receive and for every penny you spend. It works by showing where money comes from and by showing where money goes. A GOOD set of books is one that ACCOUNTS for every penny - a POOR set of books sort of shows where most of it came from and went. Generally a GOOD set of books belongs to a profitable owner, a POOR set of books to a poor (literally) owner.
ONE TRUCK VERSION: It is fairly common for owner/operators and company drivers to fail to understand the importance of keeping their personal and business finances separated. It is a very good idea for you to set up a second checking account and to maintain a separate cash account for your business. Yes, even if you are a company driver or a leased owner/operator, trucking is still a business and you need to treat it as a business. This means that you need to keep track of your business income and expenses separately from your personal income & expenses. In one sense, if you operate a sole proprietorship, the money is all 'yours', but in another more important sense, for ease in accounting for business expenses keeping a separate set of books for personal and business will make your business reporting much simpler and a tax audit much cleaner & clearer, both things that are critically important in an audit.
Speaking of Audits - if you are a single truck owner/operator and operate your own business either under your own authority or leased on to a company you should use a tax accountant who specializes in trucking to do your taxes. You can use the program to track your income & expenses, but if you prefer to do your own taxes you should expect to be audited. Truckers are considered 'low hanging fruit' by the IRS and as such prone to being audited frequently. This is based on experience - they have found that they can almost always find errors in math or interpretation of the rules in a truckers Schedule C. On the other side of the coin a return prepared by so and so CPA is rarely found to contain errors. If your job is to find errors and collect unpaid taxes who are you going to audit? But this is a little off topic, but just a word of caution.
Separate your personal money and your business money and account for the money you put in (OWNER DEPOSIT) to the business and money your take out (OWNER DRAW) of the business. When you get paid deposit the money into your Business Checking account and then pay yourself by taking an OWNER DRAW for the amount of your pay. When you spent money out of your pocket for a business item, enter that expense in your business as an OWNER DEPOSIT to the CASH account and then enter the expense (what you spent it for) and pay for that out of the CASH account. Is this a little more work? YES - but come audit time, or come tax time when you give your books to your accountant, you will have a clear record of every expense, what it was for, where the money came from etc. This will pay off in the end - or you can do it the other way, keep sloppy records and pay for them with a payment to the IRS. The choice is yours.
FLEET VERSION: The above shortcomings often befall fleets as well as single truck owner/operators, especially when the fleet is organized as a sole proprietorship or another informal type of organization. But if you are operating a fleet a measure of your success can be found in your accounting. Sloppy accounting generally means sloppy management and slop, like most things rolls downhill and takes the sloppy organization with it. Generally the problem is not a sloppy owner but rather a lack of understanding the importance of and reasons for keeping a clear and concise set of books. Here are a few of the reasons for clearly and meaningfully separating business and personal record keeping -
Pulling out your personal check book to write a check for a business expense tends to make you look like an amateur, like you don't really have a 'business'.
To the IRS the mixing of personal and business income and expenses gives them the impression that your business is a 'hobby' rather than a real business and the IRS does not allow business expenses and deductions for a hobby!
If you want to be able to claim expenses as deductions, you must be able to clearly show that these deductions were for business purposes. That can become a very gray area, especially if you run your business out of your home, if you do not clearly separate business and personal accounting.
Having a separate set of books solely for business and keeping business and personal expenses clearly separated makes it easier for the IRS to see you as a legitimate business and to have a clear trail for auditing.
For a fleet it's extremely important to maintain a separate checking, savings, and credit accounts. This doesn't mean that you cannot use your personal money or credit card on occasion, you can, but when you do the expense must be clearly delineated and either be reimbursed by the business or be entered as an OWNER DEPOSIT. You want to always maintain a clear distinction between business expenses and personal expenses and the same with income.
Company structure also plays a role in this separation. If you are a Sole Proprietorship or a pass through LLC or S Corp, the structure is a little less formal and you can use OWNER DRAW and OWNER DEPOSIT to move money into and out of the business. If you are a tax paying corporate entity you fall into a completely different category and you MUST maintain complete separation between your funds. Money coming out of or flowing into the corporation must be clearly accounted for and treated as 'loans' to or from the corporation or salaries, etc. When your business becomes a tax paying entity it is in essence it's own person and the record keeping requirements are a lot stricter.
For more on this topic try searching the internet for 'mixing personal and business accounting', there are a lot of articles on this subject. This brief article is by no means an exhaustive discussion of it.
