What are the legal risks of mixing personal and business finances?

Running a business comes with a lot of responsibilities, and one of the biggest mistakes owners make is mixing personal and business finances. While it may seem harmless at first, combining the two can lead to serious legal and financial problems down the line. Keeping them separate is more than good practice—it protects both you and your business.

Losing limited liability protection

When you form an LLC or corporation in Texas, you gain limited liability protection. This means your personal assets, such as your home or savings, are shielded from business debts and lawsuits. However, if you mix personal and business funds, a court could decide to "pierce the corporate veil." That means you could lose that protection, making you personally responsible for the company’s obligations.

Complicating tax reporting

Blending personal and business expenses also creates tax problems. The IRS requires clear records of business transactions, and without proper separation, it becomes difficult to prove which expenses are legitimate deductions. Poor recordkeeping can trigger audits, penalties, or even accusations of tax evasion. Maintaining separate accounts ensures your records stay accurate and defensible.

Damaging business credibility

How you manage your business finances reflects your professionalism. If your business account shows regular personal transactions, banks and investors may see it as a sign of poor management. It can also make it harder to secure loans or lines of credit. Keeping finances separate builds credibility and shows that you take your business operations seriously.

The right way to avoid these risks is to treat your business as its own legal entity. Open a dedicated business bank account, use a business credit card, and document all transfers between accounts. Establishing clear financial boundaries helps you stay compliant, organized, and protected if legal issues arise.