Q: My husband collects the rent from our rental building and puts it into a business checking account.
All our bills are paid out of that account. Is that a legal thing to do? Don’t we need to have a separate personal checking account for our bills?
A: It sounds as though you’re co-mingling the income from the rental property with your personal money. That’s okay to do unless you’ve set up a corporation of some sort to own your rental business.
f you have a separate corporation or business structure, then you’d need a separate checking account. Otherwise, the income can come in and expenses for the business can be paid out of your checking account.
What you need to do is keep very clear records about how much rent you’re receiving from the property and the expenses you’re paying out. Do you give rent receipts to your tenants and keep a copy for yourself? That’s one way to document what you’re receiving. You might also want to think about setting up an electronic expense program, perhaps QuickBooks, from Intuit, that will help keep your income and expenses right down to the penny.
If you ever get audited, you’ll need to show the flow of money for the property, and this will help.
If the property is held by a corporation, such as 123 Flower Street, Inc., then you’d need a separate checking account for the business.
Talk to your husband about the ownership of the property and then spend some time with your accountant, or tax preparer. If the property is worth some money, and you plan to leave it to your children someday, you may also want to talk to an estate attorney about various strategies that can minimize any tax bill that may come due down the line.
Published: Jun 3, 2005