There are two ways personal expenses show up in business records.
The first is straightforward: disguising personal costs as business deductions. Claiming household groceries or home furniture as business expenses—and then deducting them—is considered fraud. It’s illegal and can carry serious consequences.
The second is more common—and less obviously wrong. A business owner uses company funds to cover personal expenses but records them properly as shareholder distributions or owner draws. These aren’t being deducted, so they’re not illegal. But they still create problems.
That’s what this article is about. Here are some of the reasons you should stop paying personal expenses through your corporation, even if you are not deducting them.
1. You Risk Losing Your Legal Protection
Corporations and LLCs are meant to function as separate legal entities. That separation is what protects your personal assets from business liabilities.
But using business funds for personal expenses can blur that line. In legal terms, this is sometimes called “piercing the corporate veil.” If a court finds that your business isn’t operating independently from your personal finances, it may remove that liability protection.
Note: This explanation is for educational purposes only. I am not providing legal advice. Legal outcomes vary depending on the facts and jurisdiction.
2. You Create Unnecessary Accounting Complexity
Every time a personal expense runs through the business, your accountant has to identify it, reclassify it, and ensure it doesn’t distort your business’s financial reporting.
In effect, they’re doing two sets of books—one for your business and one for your household—but within the same accounting file. That adds time, increases costs, and makes the work harder than it needs to be. It also means less time spent delivering timely and meaningful financial reports, helping you understand performance, and planning for taxes
3. You Increase Your Audit Risk
Even when personal expenses are correctly recorded as shareholder distributions, they can still raise red flags—because they create doubt about what else might be hidden. If personal expenses regularly flow through the business, an auditor may question whether some have been improperly classified as deductible business costs. That puts the taxpayer in a weaker position during an audit.
Accountants take a similar view. If personal and business expenses are commingled, a responsible preparer may hesitate to finalize the return—or decline to sign it entirely. Why? Because tax preparers have a professional obligation to prepare accurate, supportable returns and are expected to exercise reasonable care. Under certain circumstances, they can even face penalties from the IRS if that standard isn't met.
And here's the bigger issue: your accountant doesn’t want to be your auditor—we want to be your advocate and your advisor. But when the records are unclear, that role becomes much harder to play
4. It Makes It Harder to Know How You're Doing
Technically, your income statement may still be accurate if personal expenses are properly categorized as distributions. However, when the company regularly covers personal spending, it can become harder to assess what is really going on in your business. You may lose visibility into what’s available for reinvestment, what’s sustainable, and whether the business is really supporting itself, or simply funding your lifestyle
5. It Hurts the Value of the Business
If you plan to sell your business, bring in a partner, or secure financing, your financials will be reviewed. Personal transactions—regardless of how they’re classified—create noise and make that process harder.
Buyers and lenders want clarity. When the records are cluttered, due diligence takes longer, more questions are raised, and confidence in the financials goes down. That can reduce the value of the business or make financing more difficult.
Please, Stop Paying Personal Expenses Out of Your Business
Using business funds for personal expenses—even when properly classified—undermines the structure that protects you. It creates confusion in your accounting, increases your audit exposure, and complicates the day-to-day management of your business.
You took the time and money to establish this corporation, so treat it like one. That means keeping personal and business finances separate—cleanly, consistently, and routinely.
