Mixing funds refers to the practice of using a single checking account for both business and personal uses, and is one of the most common tax mistakes among small business owners. Obviously, sole proprietors are most prone to this temptation. They reason, “It’s all my money, and I can distinguish between business and personal items, so why incur the extra expense of separate business checking and credit card accounts?”
There’s a simple, three-letter answer to this question: IRS. If you don’t run your business in a standard, business-like manner, you run the risk of it being classified as a hobby. If the Internal Revenue Service disallows your small-business status, then none of your business expenses can be deducted. This may be quite a bit more expensive than the cost of maintaining separate accounts.
