business private spending limits

**fibertext** · 03-20-2009 02:49 PM

Hi,
I own a cooperation, the stock is not public, I'm the sole owner and employee, I have a few questions:

Can I use my business for non-business related spending (e.g. private meals, traveling, movie, video games, etc), if I don't report them as part of my business tax deductions? (e.g. after tax)

If no, why? if yes, would it complicate tax/things e.g. if I start hiring employees/contractors in same tax year?

**mthomas** · 03-20-2009 03:06 PM

I'm not sure the exact technical way to do this, but yes, you can. This personal spending can probably be done if it is considered or reported as salary (or profit distributions) paid to you. You should contact an accountant for specifics.

**fibertext** · 03-20-2009 07:09 PM

thanks, but it still leave out an area: business spending that aren't reported as salary or dividend, but aren't reported as tax deductibles - are there any limitation to what a business can spend its after tax money on, especially for single officer no employee companies?

an example of its application:

business spend its after 15% federal tax money to buy a hi-fi speaker system installed in its owner's living room. granted the business owns that hi-fi system, but compare that to using owner's aftertax money to buy the same hi-fi system it is cheaper. and since there are only one owner (self-employed) to the business and its stock isn't public, this practice doesn't impact external stock holders or external employees.

does IRS regulate this kind of practice?

**paul2145r** · 03-20-2009 08:25 PM

Well, odds are low that you'll have a problem, but liability issues may arise.

For example -

Traditionally, if your Corporation or LLC is sued for some reason, your personal assets are protected from liability (unless it is a bank trying to collect on a loan that you personally signed for). If, however, an investigation shows that your personal and business assets were mixed up together, then all of your personal assets become fair game.

In your situation, you can get away with what you're doing by keeping the business that you use to fund your personal pursuits completely independent from any venture that may have some liability attached (sales, professional services, etc). Many wealthy people use a similar system to protect their assets. They set up a company (or a trust) that owns all of their personal assets, and set themselves (or their family lawyer) as owner/manager of the company/trust. If their business or personal life ever falls into the hands of the court, that business/trust is still protected from any liability.

**fibertext** · 03-21-2009 12:40 PM

thanks! that helps me understand a lot more.

regarding the liability issue, if the company keeps clear record of such "owner's personal pursuits spending" along with with its other records of spending, such that every property is accounted for during audit - using the hi-fi purchase example above - records of how much the hi-fi sound system cost, where it is now, and some tracking number (and for meals, who ate it and where) - then, would such owner's personal properties be largely protected from lawsuits brought to the company from its normal business activities, e.g. services, sales?

**StealYourDreams** · 03-21-2009 12:51 PM

Originally Posted by fibertext

thanks, but it still leave out an area: business spending that aren't reported as salary or dividend, but aren't reported as tax deductibles - are there any limitation to what a business can spend its after tax money on, especially for single officer no employee companies?

an example of its application:

business spend its after 15% federal tax money to buy a hi-fi speaker system installed in its owner's living room. granted the business owns that hi-fi system, but compare that to using owner's aftertax money to buy the same hi-fi system it is cheaper. and since there are only one owner (self-employed) to the business and its stock isn't public, this practice doesn't impact external stock holders or external employees.

does IRS regulate this kind of practice?

ANYTHING you spend has to be accounted for. In your example, ASSUMING the stereo system is for legitimate business use, the cost of the system would be carried on the books as an asset and depreciated over its useful life if it is not written off year one (section 179).

As a rule dont mix your business and personal assets. If you do you're defeating the whole purpose of a corporation to begin with.

It doesnt matter if you're a single person entity, have 500 employees, or have shareholders.

**mthomas** · 03-21-2009 02:04 PM

Excellent point. By reporting these type of expenses as salary or profit distributions, you are reporting these expenses as personal, since they are considered pay and not business expenses. Like steal your dreams and paul said, mixing these two defeats the purpose of incorporating and will make it difficult to distinguish which assets are personal and which are business.