Best practices for avoiding Commingling funds for LLC tax responsibilities in 2025

Thanks for the explanation. So if I understand correctly, we should be taking owner's draws from the business account to cover these tax payments rather than having the business pay them directly? And we need to document these transfers specifically as being for tax purposes?

Yes, that's exactly right. Take owner's draws to cover the tax payments, and make sure to document them clearly. The business doesn't technically pay the taxes directly because a single-member LLC is a pass-through entity. The profits flow through to your personal tax return, so the tax liability is ultimately a personal obligation. Good documentation is crucial - note in your records that these specific draws are for covering tax obligations related to the business income.

Did you find their system easy to use? I'm not very tech-savvy and am worried it might be complicated. Does it connect directly to your bank accounts or do you have to manually enter everything?

I've seen a lot of these "tax helpers" that end up charging ridiculous amounts for basic advice. What makes this one different? And how does it actually prevent commingling beyond just telling you what you should already know?

The interface is super intuitive - definitely designed for non-tech people. You can choose to connect accounts or upload statements, but I just manually entered my info since I was concerned about privacy at first. Their system is different because it's specifically focused on entity separation and compliance rather than just general bookkeeping. It flags potential commingling issues before they become problems and provides concrete suggestions based on your specific business type and state regulations. They saved me from making several mistakes that could have caused problems during an audit.

How does this even work? Why would paying some service get you through faster than calling directly? The IRS phone system is the same for everyone, right?

Yeah right. There's no way this actually works. The IRS phone system is universally terrible. If this service actually existed and worked, everyone would be using it and the IRS would shut it down. Sounds like a scam to get desperate people's money.

It uses a technology that basically waits on hold for you and calls you back when it reaches a human. So the system is constantly dialing and navigating the phone tree until it connects, then it calls your phone and connects you directly to the agent. I was skeptical too before trying it. But it's completely legitimate - they don't need any sensitive information and you're the one who actually speaks with the IRS. The IRS has no reason to shut it down because it's just automating the hold process. I spoke with an extremely helpful agent who clarified exactly how to handle my LLC's tax payment documentation.

Does having this extra account cost more in monthly fees? And do you make the transfer to personal right before making the tax payment, or can you do it quarterly when you move money to the tax savings?

Many business checking accounts offer multiple savings buckets without extra fees, but even if there is a small fee, the organizational benefit is worth it. I personally transfer to my personal account right before making the actual tax payment rather than quarterly. This creates the clearest documentation that the money was specifically for tax payments. The quarterly transfers into the tax savings account help me budget properly, while the final transfer to personal is specifically timed with the tax payment to maintain a clear audit trail.

That makes sense, thanks! So health insurance premiums should be paid from personal funds, even though they're related to the business. But can I still document the owner's draw from the business that funds those personal payments as being specifically for health insurance?

This is really helpful advice about documenting the health insurance draws! I'm new to managing an LLC and hadn't thought about being that specific in my documentation. Quick follow-up question - when you say the business needs to show a "net profit," does that mean after all business expenses are deducted, or is there a specific line on the tax forms I should be looking at to determine this? I want to make sure I'm calculating this correctly before claiming the deduction.

Great question @Matthew Sanchez! When I say "net profit," I'm referring to the profit shown on Schedule C (Form 1040) after all business expenses are deducted. Specifically, you'd look at Line 31 of Schedule C - that's your net profit or loss from the business. If Line 31 shows a positive number (profit), you can generally claim the self-employed health insurance deduction up to that amount. If it shows a loss (negative number), you can't claim the deduction that year, even if you paid the premiums. There's also another limitation to be aware of: you can't deduct more in health insurance premiums than your net earnings from self-employment. So even if your Schedule C shows a profit, if your net self-employment earnings (after the SE tax deduction) are lower, that becomes your limit. The IRS is pretty strict about this requirement, so definitely double-check those numbers before claiming the deduction!

This monthly draw approach sounds really smart! I'm curious about the timing though - do you calculate the draw amount based on actual expenses from the previous month, or do you estimate what you'll need for the upcoming month? And when you mention "estimated quarterly taxes" in your monthly draw, are you setting aside 1/3 of your quarterly estimate each month, or doing it differently? I'm trying to figure out the best cadence for my own LLC.

@Annabel Kimball That monthly owner draw system sounds like exactly what I need! I ve'been doing random withdrawals whenever I need money and my bookkeeping is a mess. Quick question about your spreadsheet - do you track this as a running total for the year, or do you start fresh each month? I m'wondering if there s'a template or format you d'recommend for someone just starting this approach. Also, when you say your accountant loves the clear paper trail, does this approach make tax prep significantly easier at year-end?