--- title: "Commingling funds: what it is, how to fix it | Ledgerbrook" source: https://ledgerbrook.com/blog/commingling-funds/ description: "Commingling of funds in a small business: examples, why it matters for an LLC, and the QuickBooks entries that fix it." --- [Blogs](/blog/) # Commingling funds: what it is, how to fix it ![](/_astro/omkar-moraye.BHiWb4KG_xH3b5.webp) [Omkar Moraye](/about/) · October 17, 2026 [](https://www.linkedin.com/sharing/share-offsite/?url=https%3A%2F%2Fledgerbrook.com%2Fblog%2Fcommingling-funds%2F%3Futm_source%3Dlinkedin%26utm_medium%3Dsocial%26utm_campaign%3Dshare)[](https://x.com/intent/post?url=https%3A%2F%2Fledgerbrook.com%2Fblog%2Fcommingling-funds%2F%3Futm_source%3Dx%26utm_medium%3Dsocial%26utm_campaign%3Dshare&text=Commingling%20funds%3A%20what%20it%20is%2C%20how%20to%20fix%20it)[](https://www.facebook.com/sharer/sharer.php?u=https%3A%2F%2Fledgerbrook.com%2Fblog%2Fcommingling-funds%2F%3Futm_source%3Dfacebook%26utm_medium%3Dsocial%26utm_campaign%3Dshare)[](mailto:?subject=Commingling%20funds%3A%20what%20it%20is%2C%20how%20to%20fix%20it&body=Commingling%20funds%3A%20what%20it%20is%2C%20how%20to%20fix%20it%0A%0Ahttps%3A%2F%2Fledgerbrook.com%2Fblog%2Fcommingling-funds%2F%3Futm_source%3Demail%26utm_medium%3Dsocial%26utm_campaign%3Dshare) ## What is commingling of funds? Commingling of funds is mixing money that belongs to 2 different owners in one account or one set of books: personal bills paid from the business account, customer checks deposited personally, or one LLC paying another's expenses with nothing recorded. The fix is separate accounts going forward and an owner draw, contribution or intercompany balance for every past crossing. Commingling of funds is how most of the small-business files we open got messy in the first place. Nobody decided to mix the money. The business card was the one in the wallet at the grocery store, a customer paid by Venmo to the owner’s personal account, and the property LLC covered the shop LLC’s insurance because it had the cash that week. Each one is small. A year of them is a profit and loss nobody can trust and a cleanup that starts with a list of questions only the owner can answer. This post covers what commingling is, the forms it takes in a small business, why it matters for an LLC, and the entries in QuickBooks Online that put each mixed transaction back where it belongs. The legal consequences depend on your state and your facts, and that part belongs with an attorney. ## What is commingling of funds? Cornell’s Legal Information Institute defines [commingling](https://www.law.cornell.edu/wex/commingling) as “the mixing of funds belonging to one party with funds belonging to another party.” In a small business, the two parties are usually the owner and the company, or two companies with the same owner. The money may sit in one bank account, or in separate accounts with transactions recorded in the wrong one. The word turns up in three other settings, and each has its own rules: - **Money held for clients.** Lawyers, real estate brokers and property managers hold other people’s money in trust, and mixing it with their own is a professional-rules violation. For lawyers, ABA Model Rule 1.15(a) requires client property to be kept separate. The bookkeeping for those accounts is in [bookkeeping for law firms](/blog/bookkeeping-for-law-firms/) and [property management bookkeeping](/blog/property-management-bookkeeping/). - **Marriage and divorce.** In community property states, separate property mixed into a joint account can lose its separate character. That is a family-law question, not a bookkeeping one. - **Commingled funds as an investment.** A commingled fund is a pooled investment vehicle for institutional money. It shares the word and nothing else. The rest of this post is about the first meaning: the owner’s money and the business’s money, or one business’s money and another’s. A year or more of personal and business spending in the same accounts? That is a cleanup, not a one-off fix: $99 per month of backlog (20% off 6+ months), one fixed price agreed before any work starts. [Send the file for a free 48-hour review](/contact/?from=blog%2Fcommingling-funds). ## Examples of commingling funds Commingling runs in two directions, and both show up in the same files. | Example | Direction | How it looks in the books | What it should be | | --- | --- | --- | --- | | Groceries or a family trip on the business card | Business pays the owner’s costs | An expense: Meals, Travel or Supplies | Owner draw | | A customer pays the owner’s personal Venmo or account | Business income lands with the owner | Missing from income entirely | Income, then an owner draw for the same amount | | Business software or a supplier paid on the owner’s personal card | Owner pays the business’s costs | Missing from expenses entirely | The expense, offset to owner investment | | The owner moves savings into the business account | Owner funds the business | Income, or uncategorized | Owner investment, or a loan with a note | | One LLC pays another LLC’s insurance or payroll | Between two companies | An expense in the company that paid | Due from and due to balances in both files | | One bank account takes deposits for two companies | Between two companies | All of it as one company’s income | Each deposit split to the company that earned it | The second row is the one that hurts most at tax time. Income paid to the owner personally is still the business’s income, and if it never reaches the books the profit and loss is understated. ## Why is commingling funds bad? Mixed money causes three separate problems, and only one of them is legal. **The books stop being reliable.** Every mixed transaction is a question: was the $240 at the warehouse store paper towels for the shop or groceries for home? Until someone answers it, expenses are overstated or income is understated, and the profit and loss is wrong in a direction nobody can measure. **The tax return depends on records that cannot be separated.** IRS Publication 583 (revised December 2024) tells new businesses that “you should keep your business account separate from your personal checking account” and to write checks payable to yourself “only when making withdrawals from your business for personal use.” A deduction needs a record that shows the cost was the business’s. In a mixed account that record does not exist until someone builds it. **Liability protection can weaken.** Courts can set aside an owner’s limited liability, which is called [piercing the corporate veil](https://www.law.cornell.edu/wex/piercing_the_corporate_veil). Cornell’s summary says courts start with a strong presumption against it and list the “intermingling of personal and corporate assets” among the kinds of abuse that can support it. The tests differ by state, and the same questions arise for LLCs. Whether your situation carries that risk is a question for an attorney, not your bookkeeper. ### Is it illegal to commingle business and personal funds? For your own money and your own company, mixing the two is not, in itself, a crime: it is a records problem and a possible liability problem. Money you hold for someone else is different. A lawyer, broker or property manager who mixes client funds with their own breaks professional rules, and regulators can discipline it. If you hold money for clients, treat the trust account rules for your profession as the starting point. ### What does the IRS say about commingling funds? The IRS does not use the word as a rule for small businesses, but its guidance assumes separate accounts. Publication 583 tells a new business to open a business checking account and keep it separate from personal checking, and its sample business does not pay personal expenses from the business account. In a corporation, personal costs paid by the company also need a label for tax: [S corporation bookkeeping](/blog/s-corp-bookkeeping/) covers how they become distributions, loans or wages. ## How commingling shows up in a QuickBooks file These are the signs we look for when a file comes in for review: - **Grocery stores, streaming services, school fees or personal insurance in expense accounts.** Usually in Meals, Supplies, Dues and Subscriptions or Miscellaneous. - **Owner equity with no movement for a year,** in a business where the owner obviously took money out. - **Income below the 1099-K or the sales platform’s annual total,** because some customer payments went to a personal account. - **Expense categories that are lower than they should be,** with the owner saying a supplier is “on my card”. - **Large round transfers categorized as income or expense,** often to or from a personal account or another company. - **Two companies in one QuickBooks file,** or one company’s bills in another’s register. ## How to fix commingled funds in QuickBooks Online Stop it first, then fix the history. A cleanup of past months is wasted if the same card keeps buying groceries next month. 1. **Separate the accounts going forward.** Open a business checking account and a business card in the company’s name for each company, and connect only those to its QuickBooks Online file. 2. **Set up the owner accounts.** Intuit’s [owner and partner equity article](https://quickbooks.intuit.com/learn-support/en-us/help-article/business-equity/add-owner-partner-books/L35UJA52T_US_en_US) uses **Equity** as the account type with **Owner’s Equity** as the detail type, with sub-accounts for each owner. Create `Owner Draws` and `Owner Investments` that way. 3. **Recategorize personal spending.** In the bank register or **For review**, change each personal charge from its expense account to `Owner Draws`. 4. **Add business costs paid personally.** Intuit’s [personal funds article](https://quickbooks.intuit.com/learn-support/en-us/help-article/journal-entries/pay-business-expenses-personal-funds/L2hNmFDpt_US_en_US) records them as an **Expense** with the expense on one line and the owner investment account on the next, for the same amount, so the total is $0.00. 5. **Add income received personally,** as income with an equal owner draw, so sales are complete. 6. **Record every crossing between companies in both files.** Use [due to and due from accounts](/blog/due-to-due-from-accounts/) for bills one company paid for another, and a note-backed loan for anything larger; [intercompany loans between LLCs](/blog/loans-between-llcs/) has the entries. ### The entries, worked through Dana Ruiz owns Harbor Tile LLC, a single-member LLC, and Ruiz Rentals LLC. In June, four mixed transactions came through. **June 3: $240 of groceries on the Harbor Tile debit card,** first categorized as Meals. | Date | Account | Debit | Credit | | --- | --- | --- | --- | | Jun 3 | Owner Draws | 240.00 | | | Jun 3 | Harbor Tile Checking | | 240.00 | **June 10: $1,200 for the annual estimating software on Dana’s personal card.** Nothing touches Harbor Tile’s bank, so the entry nets to zero against owner investment. | Date | Account | Debit | Credit | | --- | --- | --- | --- | | Jun 10 | Software and Subscriptions | 1,200.00 | | | Jun 10 | Owner Investments | | 1,200.00 | **June 18: a customer pays a $3,500 invoice to Dana’s personal account.** The invoice is paid; the money went to Dana, so it is a draw. | Date | Account | Debit | Credit | | --- | --- | --- | --- | | Jun 18 | Owner Draws | 3,500.00 | | | Jun 18 | Accounts Receivable | | 3,500.00 | **June 24: Harbor Tile pays Ruiz Rentals’ $900 liability insurance premium.** Two files, one entry each. | File | Date | Account | Debit | Credit | | --- | --- | --- | --- | --- | | Harbor Tile | Jun 24 | Due from Ruiz Rentals | 900.00 | | | Harbor Tile | Jun 24 | Harbor Tile Checking | | 900.00 | | Ruiz Rentals | Jun 24 | Insurance | 900.00 | | | Ruiz Rentals | Jun 24 | Due to Harbor Tile | | 900.00 | After the four entries, Harbor Tile’s June profit and loss no longer carries $240 of groceries or $900 of another company’s insurance, now includes the $1,200 of software, and the $3,500 invoice shows as paid. Dana’s draws for June are $3,740, the investment is $1,200, and Ruiz Rentals owes Harbor Tile $900. ### When the owner is not a sole owner The account names change with the entity. In a multi-member LLC taxed as a partnership, personal spending goes to that partner’s draw account, which affects that partner’s capital account only; [partnership draws](/blog/partnership-draw/) has the setup. In a corporation, it goes to a [shareholder loan](/blog/shareholder-loan/) or a distribution, as the preparer decides. A foreign-owned single-member LLC has one more step: owner-paid bills and draws are reportable transactions on [Form 5472](/blog/form-5472-bookkeeping/), so they need their own accounts from day one. ## How to avoid commingling funds in an LLC - Give each LLC its own bank account and card, opened under its own EIN, and use nothing else for it. - Pay yourself by transfer to your personal account, recorded as a draw, then spend from personal accounts. - When you have to pay a business cost personally, record it the same week as an owner investment, with the receipt attached. - Never let one company pay another’s bills without a due to and due from entry in both files. - Reconcile every account monthly. A personal charge is easy to spot in one month’s statement and hard to spot in twelve. ## Common questions about commingling funds ### Is it illegal to pay personal expenses from a business account in an LLC? It is not a crime in itself when the money is yours, but each payment has to be recorded as a draw, not an expense. Personal, living and family expenses are not deductible (IRC §262), so recording it as a business expense overstates deductions, and a pattern of it is the kind of mixing that can matter if a creditor ever challenges the LLC’s protection. ### How do you prove commingling of funds? From the records: bank and card statements for every account involved, the general ledger showing how each item was categorized, and the receipts behind them. The same records are how a cleanup proves the books are now separated: every personal item traced to a draw, and every business item paid personally traced to an investment. ### What is it called when someone mixes business and personal money? Commingling. The same word covers mixing a client’s trust money with your own, which is the version professional regulators enforce. ### Can I use one bank account for two LLCs? You can open one, but every deposit and payment then needs a balance between the companies recorded in two files. [Owning multiple LLCs](/blog/multiple-llcs/) covers why a separate account for each company is cheaper. ## What a commingling cleanup costs Untangling commingled funds is cleanup work: every month in the backlog is read line by line, each personal or cross-company item is recategorized, and each recategorization is listed for the owner and the preparer. It is priced per month of backlog, agreed before work starts: $99per month of backlog20% off 6+ months What a [QuickBooks cleanup](/quickbooks-cleanup/) includes, and how a group of companies is kept apart every month, is on [bookkeeping for multiple LLCs](/multi-entity-bookkeeping/). > **When to hand this off:** if personal and business spending has run through the same accounts for more than a few months, or two of your companies have paid each other’s bills without entries, the history has to be rebuilt month by month before any return is filed. A [free file review](/contact/?from=blog%2Fcommingling-funds) shows how many months are affected. Ledgerbrook Behind on your QuickBooks books? Cleanup or catch-up $99 per month of backlog, 20% off 6+ months Turnaround 5 business days for a typical year Monthly close From $99 a file a month [Get a free file review](/contact/?from=blog%2Fcommingling-funds) Free, no card, no obligation. A written answer within about 48 hours. 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