Friday, July 10, 2009

Q&A - Separate bank accounts for business and personal


I do not have a separate bank account for my business. Is this necessary and does the IRS require it?

Linda, Denver, Colorado


It is not necessary to have a separate bank account (and no, the IRS does not formally require it) but it is STRONGLY RECOMMENDED that you separate your personal and business financial lives.

First, having a separate bank account is one factor in your favor should the IRS ever audit your business and try to disallow any losses you may have claimed (as not being business related). The most important factor is the manner (how) in which you operate your business. If you do not have a separate bank account, how serious do you think the IRS will be in concluding that you had an intent to make a profit at your business?

By keeping accurate records, maintaining a separate bank account and telephone number for your business, getting a tax ID number for the business, and always trying to make a profit, you will satisfy the IRS’ rules and regulations concerning your profit motive and will be able to claim any results on your tax return.

In addition, having a separate bank account is a very good idea from an asset protection perspective and keeping your business separate and distinct from your personal assets.:

Wednesday, July 1, 2009

July Greetings from the IRS

The IRS has issued additional guidance for victims of Ponzi schemes (not only those victims of the Madoff schemes but at least two dozen other schemes the IRS has recently identified). The IRS is trying to be sympathetic to those taxpayers who lost money in scams in which there was never any real economic or legitimate investment activities. For additional guidance on this, please see Revenue Procedure 2009-20, available at

The IRS has indicated that any rebates received from current tax legislation (including a potential bill to pay taxpayers to remove old cars and buy new ones– known as the “Cash for Clunkers” bill) will NOT be taxable to the recipient.

The annual contribution caps for Health Savings Account for 2009 will be increased to $6,150 (for family coverage) and $3,050 for self-only coverage. The minimum policy deductibles will also rise to $2,400 for families and $1,200 for singles.

IRS has ruled that the first-time homebuyer tax credit (up to $8,000) can be used for a down payment. The FHA will allow lenders to provide a bridge loan in the amount of the tax credit and buyers can repay the lender when the tax refund arrives. This is another avenue of potential relief to encourage home purchases and assist the depressed real estate market.

The IRS will begin doing employment tax audits in November 2009 and will be increasing the number of audits due to the many new leads it has received from workers unhappy with their independent contractor status. At least 6000 companies with potential employees will be audited. The IRS will be focusing on worker classification, treatment of fringe benefits (i.e. are they taxable?) and expense reimbursement plans and recordkeeping.

The IRS is moving forward with its plan to regulate tax return preparers who aren’t already licensed. Thus, any preparers who are not Attorneys, CPAs or Enrolled Agents would need to meet certain minimum education, training and continuing education requirements before they would be permitted to prepare tax returns for a fee. Congress would need to approve the final plan before it is implemented and the IRS is modeling its plan on the one used by the State of Oregon.

Finally, the IRS is considering easing its rules on cell phones used by businesses. As we have previously discussed, cell phones are considered to be “listed property” and thus time logs need to be kept to determine how much of the phone is used for business purposes (with personal use not tax deductible). Some ideas include a flat percentage (25% is being considered) to use for personal calls or some sampling methods. The IRS will decide how to proceed after September 4, 2009.