It usually starts small.
A business owner covers a dinner and calls it a meeting. A trip gets labeled as “business-related.” A few personal expenses flow through the company account.
At first, it feels harmless.
But over time, that habit grows—and so does the risk.
As shared in the discussion:
“A lot of people get really comfortable living out of the business… and it becomes a big issue later.”
At FJ & Associates, working with business owners across Kaysville, Layton, Roy, Farmington, Riverdale, and Ogden, we’ve seen how this pattern develops—and how quickly it can create problems with the IRS.
Let’s break down why.
What “Living Out of the Business” Really Means
“Living out of the business” refers to using business funds to pay for personal expenses.
This might include:
- Travel that isn’t fully business-related
- Family expenses
- Entertainment or lifestyle purchases
- Personal vehicles or trips disguised as business use
The issue isn’t always intentional.
In many cases, it begins as convenience. The business account is there, the money is available, and it feels easier to run expenses through it.
But from a tax perspective, that convenience can become a liability.
How Small Habits Turn Into Big Problems
From the transcript:
“It always started when they were small.”
That’s the key.
In the early stages of a business, these decisions may seem insignificant. A trip here, an expense there—it doesn’t feel like a big deal.
But as the business grows, those habits scale.
What started as a few hundred dollars can turn into tens—or hundreds—of thousands in questionable expenses.
And that’s when it becomes visible.
Why the IRS Pays Attention
The IRS isn’t just looking at income—they’re looking at behavior.
From the discussion:
“The IRS… they’re always out looking for people who can help foot their bill.”
When personal expenses are consistently run through a business, it raises red flags.
These can include:
- Excessive travel or entertainment deductions
- Expenses that don’t align with the business activity
- Patterns of personal spending categorized as business
If audited, those expenses may be disallowed, which means:
- Additional taxes owed
- Penalties
- Interest
- Potential deeper scrutiny
The Risk Increases as You Grow
One of the biggest misconceptions is that successful businesses are “too big” to worry about small habits.
In reality, it’s the opposite.
From the transcript:
“I’ve seen big companies north of $10 million… still doing this.”
The more profitable the business, the more significant the impact of improper deductions.
And the more attractive it becomes for the IRS to review.
Why This Happens So Often
This pattern isn’t about bad intentions—it’s about blurred lines.
Business owners are used to reinvesting, spending, and operating through the company.
Over time, it becomes harder to separate what’s truly business-related from what’s personal.
Without clear systems, those lines fade.
A Real Example: Growth in Layton, Utah
We worked with a business owner in Layton whose company experienced rapid growth.
In the early years, they occasionally ran personal expenses through the business.
As revenue increased, those habits continued—but on a larger scale.
When we reviewed their financials, we identified areas where expenses needed to be reclassified and corrected.
By addressing it early, we were able to:
- Clean up the records
- Align deductions with IRS guidelines
- Reduce audit risk moving forward
The key wasn’t fixing the past—it was preventing future exposure.
How to Handle Expenses the Right Way
The solution isn’t complicated—but it does require discipline.
Business expenses should be:
- Clearly tied to business activity
- Properly documented
- Separated from personal spending
When in doubt, it’s better to ask than assume.
At FJ & Associates, we guide clients through these decisions so they can stay compliant without second-guessing every expense.
Key Takeaways
Using your business to cover personal expenses may feel harmless, but it creates long-term risk.
What starts small can grow into a significant issue—especially as your business becomes more profitable.
Clear separation, proper documentation, and CPA guidance are essential to staying compliant and protecting your business.
FAQs
1. Can I ever use business funds for personal expenses?
No. Personal expenses should not be deducted as business expenses.
2. What happens if I accidentally include personal expenses?
They may need to be reclassified, and if left uncorrected, could lead to penalties.
3. Are business trips allowed to include personal time?
Yes, but only the business portion can be deducted.
4. Why does the IRS focus on these expenses?
Because they are commonly misused and easy to identify during audits.
5. How can I stay compliant?
By keeping clear records, separating accounts, and working with a CPA.
Author Bio
Missy Dennis, CPA
Partner | FJ & Associates, PLLC | Kaysville, Utah
Missy holds a Master of Accounting degree from the University of Utah and is a licensed Certified Public Accountant.
She is committed to providing clear, accurate, and actionable guidance so clients can navigate complex financial decisions with confidence.
With more than twenty years of public accounting experience, Missy Dennis specializes in:
- Tax preparation and tax advisory
- Bookkeeping strategy alignment
- Estate and trust taxation
- Audit and consulting services
- Low-income housing tax credits
- Non-profit accounting
- Small- and mid-sized business advisory
