Not sure if this should be posted here or in the Financing section, but…
I searched the forum for info on bank accounts, but the threads all seemed to apply to LLCs. If I do NOT use an LLC for my real estate investing (just one rental now), do I need to have a separate bank account (a business account) for the income & expenses related to that rental property?
If there’s no LLC (or other form of corporation), does the “co-mingling of funds” restriction apply?
you don’t need a separate checking account, but it makes bookkeeping and tax documentation a whole whole lot easier.
Thanks!
The answer is spot on.
Even if someone co-mingles the funds and they have an LLC, the issue is not the co-mingling.
In a tax dispute or a lawsuit where someone wants to set aside the LLC, they will need to show that there is no difference between the person and the entity. Or the person being sued will need to show that they are separate from the business.
The amount of evidence and the track record matter. If you make 1 mistake but otherwise do everything correct, you have left the door open more than if you were 100% perfect. That does not mean you are going to lose the argument that the LLC and the person are separate.
Similar for taxes. If you have a missing receipt but otherwise have good processes and well documented records, the IRS will let it slide. If you have separate accounts and make a complete mess of the records, they will deny your claims.
Best practice, preponderance of the evidence, beyond a reasonable doubt, etc. Not perfectly black and white in every situation.
Purely from a legal protection standpoint, co-mingling of funds does not matter if you are a sole proprietor (not an LLC). You have no liability protections in this scenario.
If you had an LLC, you would not want to co-mingle the funds.
Accounting and financial issues are another matter…