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I have a single-member LLC and I am about to start software consulting with it for the first time. I have a home office and I plan on deducting utilities, internet, and so forth on my taxes. I will only be able to deduct 5-10% of the cost of these utilities, because the office is one room in my personal house. I also plan to pay the utilities with my business bank account. Is there any risk of piercing the corporate veil when paying the entire cost of the utility from the business bank account, even though the business only uses a portion of it? What about vice versa?

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  • In which jurisdiction? If this is your personal residence which you are using for business activities there may be tax implications there for a future capital gain. So I advise you not to pay the utilities with a business account. It isn't a business expense, but a personal expense on which you can claim tax relief (UK). Jul 24 at 11:48
  • The IRS has very specific rules about home office deductions. I trust you've read them?
    – phoog
    Jul 24 at 15:22
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    I have read the regulations and I'm in the US. The tax stuff I wrote is almost irrelevant so I am wondering why people think I'm trying to evade taxes. I only mentioned it to give an idea of the size of the office relative to my house. But the question was can I pay the utilities expenses with my business account and still be legally safe? I can even reimburse the business 95% of the costs if that makes it better. I have a business credit card that gives a bonus when I spend a certain amount of money.
    – rraz
    Jul 24 at 17:15
  • As stated, if you are paying personal expenses with your business acount it can look bad and attract the wrong kind of attention. If it is your residence with one room used as an office, that's not a business expense but a personal expense, with "use of home as office" as an allowable claim. Don't make it look as though you are making personal expenses charged to your business. Forget about grasping extra card benefits: that's just greed. Jul 24 at 17:38

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The danger is not “piercing the corporate veil” (which basically removes your personal protection against problems that the company might have), but being accused of tax evasion, which the director of the company is fully responsible for.

I suggest you read your tax laws very, very, very carefully or better yet, ask an accountant. An additional risk is that once the inland revenue has their eye on you, they will handle you extra carefully. Not something you want.

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  • "inland revenue": the question is tagged [tag: united-states], so that should be "IRS"
    – phoog
    Jul 24 at 15:20
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    Inland revenue is generic. Every country has its inland revenue, they just call it differently. And that advice applies to all of them.
    – gnasher729
    Jul 24 at 16:08
  • Point taken, but few people in the US will understand what you mean by "inland revenue."
    – phoog
    Jul 24 at 16:36
  • I have read the regulations and I'm in the US. The tax stuff I wrote is almost irrelevant so I am wondering why people think I'm trying to evade taxes. I only mentioned it to give an idea of the size of the office relative to my house. But the question was can I pay the utilities expenses with my business account and still be legally safe? I can even reimburse the business 95% of the costs if that makes it better. I have a business credit card that gives a bonus when I spend a certain amount of money.
    – rraz
    Jul 24 at 17:16
  • You probably can give the company director a loan; that's what you could do in the UK. Being a loan means it has to be repaid eventually, especially if the company cannot pay its bills, and it has to be recorded in your accounts.
    – gnasher729
    Jul 25 at 12:32
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I also plan to pay the utilities with my business bank account.

As long as you categorize the payment as a distribution to the owner there is no problem here. Trying to mix up personal expenses with business expenses is problematic on many levels (including loss of limited liability), and an audit would question why this payment was made from the business account.

Several comments are moving along the lines of tax avoidance becaause this looks fishy, and when things look fishy we expect fish. Just transfer money from business to personal and pay utilities with a personal account.

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Generally, how the expenses are booked matters more than the accounts out of which they are paid. If accounting entries reflect adjustments for payments of business expenses out of personal accounts and payments of personal expenses out of business accounts, and those area settled up regularly and contemporaneously booked, it isn't a problem.

For tax purposes, it usually doesn't matter in a single member LLC since it is disregarded for tax purposes and the issues are no different for tax purposes than those for a sole proprietorship.

This said, it is always best to contemporaneously document in writing any related party transaction or split expense between personal and business use.

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