As a business owner, there may be times when you need to use your personal funds to cover expenses related to your business. Whether you’re starting a new business, experiencing a cash flow problem, or need to make a large purchase, it’s not uncommon to dip into your personal savings or credit cards to keep your business afloat. However, what happens when you need to pay yourself back from your business account?
Many business owners wonder if it’s possible to reimburse themselves for expenses they’ve paid for out-of-pocket. The good news is that it is possible in most cases, but there are some important considerations to keep in mind. In this article, we’ll explore the ins and outs of paying yourself back from your business account.
Understanding Business Expenses
Before we dive into the specifics of paying yourself back, it’s important to understand the concept of business expenses. Business expenses are costs incurred in the course of running your business. These expenses can be deducted from your business’s taxable income, which can help reduce your overall tax liability. Examples of business expenses include:
- Office rent or mortgage payments
- Utilities and internet expenses
- Equipment and supplies
- Travel expenses
- Marketing and advertising costs
If you’ve paid for any of these expenses out-of-pocket, you may be able to reimburse yourself from your business account.
Reimbursing Yourself from Your Business Account
If you need to pay yourself back from your business account, there are a few steps you need to take to ensure that everything is done correctly:
- Keep accurate records: It’s essential to keep detailed records of any business expenses you’ve paid for out-of-pocket. This includes receipts, invoices, and bank statements that show the payment was made.
- Create a reimbursement request: You should create a formal reimbursement request that outlines the expenses you’re requesting to be reimbursed for. This request should include the date of the expense, the amount paid, and a description of what the expense was for.
- Get approval: Depending on your business structure, you may need to get approval from other members of your team or board of directors before reimbursing yourself. Make sure you follow any protocols or procedures in place for approving expenses.
- Transfer the funds: Once your reimbursement request has been approved, you can transfer the funds from your business account to your personal account. Make sure you document the transfer in your business records.
Considerations for Sole Proprietors
If you’re a sole proprietor, paying yourself back from your business account is relatively straightforward. Since you and your business are considered one and the same for tax purposes, you can simply transfer the funds from your business account to your personal account as needed. However, it’s still important to keep accurate records of any expenses you’ve paid for out-of-pocket and to create a formal reimbursement request.
Considerations for Other Business Structures
If you have a business structure other than a sole proprietorship, such as an LLC or corporation, the process of reimbursing yourself may be a bit more complicated. In these cases, you may need to follow specific protocols or procedures for reimbursing yourself. For example:
- LLCs: Members of an LLC can take a draw from the business’s profits to pay themselves back for any expenses they’ve paid for out-of-pocket.
- Corporations: Corporate officers can receive reimbursement for expenses they’ve paid for out-of-pocket by submitting a formal expense report and getting approval from the board of directors.
Be sure to consult with your accountant or tax professional to ensure that you’re following the proper procedures for reimbursing yourself from your business account.
Conclusion
Paying yourself back from your business account is possible in most cases, but it’s important to follow the proper procedures to ensure that everything is done correctly. Keep accurate records, create a formal reimbursement request, get approval if necessary, and document the transfer of funds. If you’re unsure about the process or have questions, consult with your accountant or tax professional for guidance.