When you’re in line at Costco, and you are picking up items for both your dental practice and your home with ten other customers waiting in line behind you, are you ever tempted to pay for everything with one credit card and just sort it out later-or worse yet, let your accountant sort it out later?

We get it! We shop at Costco too and nobody wants to be the one holding up the line with multiple transactions! But here are a few reasons why it’s so important to take the extra time to separate those purchases.

It’s a requirement!

The IRS requires you to maintain separate books and records for your dental practice. Mixing your business and personal accounts isn’t really the time-saver that it seems. Your accountant (or YOU, if you are doing your own bookkeeping, which we don’t recommend) already spends a number of hours reconciling each of your accounts and researching and keying in every single transaction. If, in addition to this they have to figure out whether every transaction is a business or personal expense, then the amount of time required to take care of your account can easily double or triple, which in turn will increase your accounting fees.
It’s the reason you set up an entity to begin with.

Keeping your dental practice’s finances and personal finances separate protects you in multiple ways. For example, if your practice is audited and there are expenses for your dental practice paid for with your personal monies (or vice versa), then the audit will likely now include your personal returns as well. This becomes exponentially more complicated if, in addition to your dental practice, you also have interests in other businesses, such as real estate, etc.

You may want to Google the phrase “piercing the corporate veil, commingling assets.” Mixing corporate and personal funds can also result in personal liability in the event that you are sued. This means that being careful to keep personal and dental practice purchases separate can not only keep things simpler, but it can also actually help to protect your personal assets, such as your private bank accounts, your home, and any other investments you may have.
It will make selling your practice simpler.

Down the road, when you are ready to sell your dental practice, if you have commingled funds, then the valuation process will be more complicated since your overhead expenses will likely either be grossly inflated or maybe even under-reported, possibly resulting in a lower selling price for your practice. Additionally, since you have signed each year’s income tax returns, attesting to their accuracy under penalty of perjury, telling a buyer that those numbers weren’t accurate may create doubts in their mind as to your overall integrity, which could bring your sale to a screeching halt. A buyer may reasonably ask themself, “If the practice expenses aren’t accurate, what else about the practice is being misrepresented?"

As they say, “time is money.” And we understand that as a busy dental practice owner, time can be scarce, so you want to make the most of it, but this is not the place to cut any corners. The small amount of time or money you may save or the few sky miles you would earn by using a particular credit card for all of your purchases will never outweigh the risks or additional costs incurred by combining your personal and business expenses. The small amount of extra time that it takes to separate your purchases and create separate transactions will more than pay you back with increased protection, increased practice value, and peace of mind in your day-to-day life. Isn’t that what we all really want?

To see how we can help you make more time for the things that you really want to do in your life, book an appointment with us and let us show you how we can take the burden of your daily bookkeeping and accounting work for your dental practice off of your shoulders.

Can I use one credit card to pay for personal and dental practice expenses?