Small business owners often treat company funds as their personal piggy bank, but failing to document draws or loans properly can lead to IRS issues.
What to watch for:
- Taking money without classifying it as payroll, distribution, or loan.
- Not charging interest or having repayment terms for owner loans.
- Failing to reflect draws in partnership or S-corp basis calculations.
Smart practices:
- Keep a formal loan agreement if you’re borrowing from the business.
- Use payroll or distributions—not casual transfers—for personal income.
- Work with your accountant to maintain proper records and avoid constructive dividend reclassification by the IRS.
Messy records can turn routine transactions into tax headaches. Clarity is protection.
