Managing a company’s bank account is essential for any business. Businesses create an official company’s bank account for the day-to-day business operations but often intentionally or unintentionally some businesses mismanage their company’s bank account which faces some serious consequences.
Tax Audit Risk:
If you mismanage your company’s bank account, you may have difficulties keeping accurate records of your income and expenses. This can make it more difficult to file business tax returns correctly and timely. It can also increase your risk of being audited by the tax authority, which can result in additional taxes, penalties, and interest.
To illustrate, if the company’s credited money in the bank account is higher than the company’s actual revenue, the likelihood that the business will have to pay more taxes to the government will be risen because the tax authorities will view the credited money in the bank account as the revenue for the business. For instance, if the firm obtained the money from personal funds or other sources not related to the business, the tax department would need a bank account statement during the tax audit. In this example, if the money was acquired for purposes other than business operations, this increases the probability of the business paying 20% income tax to the tax authority.
Further, it is vital to remember that covering business expenses with a bank account is beneficial since tax authorities place a high value on third-party statements rather than any other supporting document with multiple signatures.
Separating Business and Personal Bank Accounts:
Improper management of bank account can lead to the possibility that some money from sources other than the business be deposited to the company’s bank account, for which the company does not have any supporting documents. This can cause additional tax payments.
Therefore, it is important to manage your bank account carefully and avoid any mistakes that can create more tax liabilities and penalties for your business.