How to prevent Commingling funds in a Single Member LLC for tax responsibilities?

I've been running a single-member LLC for about 8 years now, so I can definitely help with this. The key thing to understand is that a single-member LLC that hasn't elected corporate tax treatment is considered a "disregarded entity" for federal tax purposes. This means the business doesn't actually pay taxes directly - you do, on your personal return. For clean accounting and to avoid commingling, here's what I recommend: Have your business pay for all business expenses from the business account. Then, have the business make distributions to your personal account to cover the tax obligations. These distributions should be clearly documented as "tax distributions" in your accounting records. The Self-Employment tax (Form SE) and Additional Medicare Tax (Form 8959) are personal tax obligations resulting from your business income. The business doesn't pay these directly. Same goes for the Self-Employment Health Insurance deduction - the business pays for the insurance, but the deduction happens on your personal return.

After struggling with this exact issue for my single-member LLC, I discovered a tool that literally saved me from an accounting nightmare. I was constantly worried about commingling funds and messing up my tax responsibilities until I started using https://taxr.ai to analyze my business transactions. It automatically identifies potential commingling issues and flags transactions that should be reclassified. What I love about it is that it gives specific guidance on how to treat different expenses and transfers between accounts. It pointed out several transactions I had categorized incorrectly that could have been red flags for commingling. The peace of mind knowing I'm maintaining the separation correctly has been worth every penny.

I was really skeptical about any tool being able to solve my commingling concerns, but I decided to try taxr.ai after my accountant charged me extra last year for "accounting cleanup" because of how messy my books were. I've been using it for about two months now, and I have to admit I was wrong. It's identified several transactions I never would have caught, especially around health insurance payments and home office expenses where I was accidentally blurring the lines. The biggest value has been the automated warnings when I'm about to categorize something incorrectly. It's like having a mini-accountant watching over my shoulder without the judgmental sighs. Now I actually understand which expenses should come from which account instead of just guessing and hoping for the best.

I had a similar situation and was completely stuck trying to get through to the IRS for clarification on commingling rules for my LLC. After being on hold for hours across multiple days, I found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c. Basically, they hold your place in the IRS phone queue and call you when an agent is about to answer. I was connected with an IRS representative in less than 2 hours (after previously wasting days trying myself). The agent walked me through exactly how to document tax distributions from my LLC and confirmed that paying self-employment taxes from personal accounts is correct, while business expenses should come from the business account. Getting that official clarification directly from the IRS gave me confidence that I was doing things right.

I have to eat crow here. After my skeptical comment, I was still struggling with understanding how to properly document distributions for tax payments without commingling, so I reluctantly tried Claimyr. Got through to the IRS in about 90 minutes instead of the 4+ hours I spent getting disconnected last week. The agent confirmed exactly what others here said - a single-member LLC should make documented distributions to the owner's personal account, and those personal funds should be used to pay the self-employment tax and income tax. The business itself doesn't pay these taxes directly. They also suggested keeping a simple log of all distributions with notes about their purpose (regular income, tax payments, etc.) to maintain clean records. Keeping this documentation has already made my bookkeeping so much cleaner. Definitely worth getting the official word instead of just guessing.

Here's what my CPA recommended for my single-member LLC: Once per quarter, calculate your estimated taxes (self-employment + income tax). Then make a clearly labeled distribution from your LLC to your personal account specifically for those taxes. Document it in your books as "distribution for quarterly taxes" or something similar. The health insurance is a bit tricky. The business should pay the premiums directly if possible. Then you take the deduction on your personal return (Form 1040 Schedule 1). It's not a business deduction on Schedule C - it's an adjustment to income on your personal return.

Does anyone use a separate account just for tax payments? I've been thinking about setting up a third account (besides business and personal) specifically for transferring tax money to keep everything super clear. Seems like it might be overkill though.

This is such a common struggle for single-member LLC owners! I went through the exact same confusion in my first year. One thing that really helped me understand the separation was thinking of it this way: your LLC earns the money, but YOU (as an individual) owe the taxes on that income. So the flow should be: Business pays all legitimate business expenses → Business makes distributions to you personally → You pay your individual tax obligations (SE tax, income tax, etc.) from your personal funds. For practical implementation, I set up automatic quarterly transfers from my business account to personal, calculated as roughly 25-30% of my net business income. This covers estimated taxes and prevents me from accidentally spending tax money on business expenses. I also keep a simple spreadsheet tracking each distribution with the purpose noted. The health insurance situation you mentioned is totally normal - many providers only accept personal payments. Just do a clean transfer for the exact premium amount and document it as "distribution for health insurance premium." You'll still get the deduction on your personal return.

One thing I learned the hard way is to be really consistent with your documentation from day one. I got lazy with labeling my transfers in year one and it created a mess when my accountant was preparing my taxes. A simple naming convention makes all the difference - I use "Owner Draw - Quarterly Tax Q1 2024" for tax distributions and "Owner Draw - Health Insurance March 2024" for health-related transfers. This way there's never any question about what each transfer was for if the IRS ever looks at your records. Also, don't forget that estimated tax payments should include both your income tax AND self-employment tax portions. I initially was only calculating income tax for my quarterly transfers and got behind on SE tax. A good rule of thumb is to set aside about 15.3% specifically for SE tax plus whatever your income tax rate is. Better to overpay and get a refund than to underpay and owe penalties!