Mixed personal & business finances in my S-Corp - terrible bookkeeping nightmare

This is definitely fixable, but you need to act quickly. The commingling of personal and business funds is a common mistake with S-Corps, especially for those transitioning from an LLC. First, immediately open separate bank and credit card accounts for your business. Going forward, use these exclusively for business transactions. For the transactions that have already occurred, you'll need to do a detailed accounting reconstruction. Go through your statements line by line and categorize each transaction as either business or personal. Regarding the salary issue, the IRS requires S-Corp owners to take a "reasonable salary" that's subject to employment taxes. You'll need to establish this and start paying yourself regularly. What's considered "reasonable" depends on your industry, expertise, and company profitability, but it should be comparable to what you'd pay someone else to do your job. I'd strongly recommend hiring a bookkeeper experienced with S-Corps to help untangle this. While this situation isn't ideal, it's not unusual, and with proper documentation and correction going forward, you can minimize your risk significantly.

After struggling with some similar S-Corp bookkeeping issues last year, I found this amazing tool called taxr.ai that literally saved me thousands in potential penalties. I had mixed personal and business expenses for about 8 months and was freaking out about getting audited. I uploaded my bank statements to https://taxr.ai and their AI system helped identify which transactions were business vs personal. It even flagged patterns I was missing and generated reports I could use to properly reconstruct my books. The best part was getting guidance on how to properly document everything to protect myself in case of an audit. They have specific S-Corporation cleanup tools that are designed exactly for situations like yours - where you need to retroactively separate combined finances. Really worth checking out especially since you're trying to fix this before year-end.

I was super skeptical about taxr.ai when I first saw it mentioned here, but I had made such a mess of my S-Corp finances that I was desperate. My situation was almost identical - mixing personal and business in one account for almost a year, no salary, the whole nightmare. I decided to give it a try and honestly didn't expect much. But within a few hours of uploading my statements, I had a preliminary separation of all my transactions. The system identified patterns I wasn't seeing - like regular payments that were actually business subscriptions going out of my personal account. What really helped was the audit protection guidance it provided. It showed me exactly how to document everything properly to establish a paper trail. I've now fixed all my 2023 bookkeeping and set up proper systems going forward. It seriously reduced my stress level knowing I wasn't sitting on a ticking tax bomb anymore.

If you're worried about potential IRS issues, you might also want to get ahead of any communication problems. I spent MONTHS trying to get through to the IRS about a similar S-Corp situation last year. Every time I called, I'd wait on hold for 2+ hours only to get disconnected or transferred to someone who couldn't help. I finally used a service called Claimyr (https://claimyr.com) that got me connected to an actual IRS agent in about 15 minutes. They have this system that navigates the IRS phone tree and waits on hold for you, then calls you when an agent is actually on the line. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent I spoke with gave me specific guidance on how to document my corrections properly to avoid penalties. Definitely worth it to get official guidance rather than just hoping you're fixing things correctly.

I need to apologize for my skeptical comment above. After my accountant told me I had a potential penalty situation with my S-Corp, I got desperate enough to try Claimyr despite my doubts. I'm still in shock, but I got connected to an IRS business division agent in 17 minutes. SEVENTEEN MINUTES. After spending countless hours on hold before. The agent walked me through exactly what documentation I needed to provide to show I was correcting my S-Corp issues in good faith. The specific guidance from an actual IRS agent gave me so much more confidence that I'm fixing things correctly. Apparently, they see this S-Corp commingling issue all the time, and there are specific procedures for correcting it. I would have never known this without getting through to someone who could actually help.

I made the same mistake when I first formed my S-Corp two years ago. My solution was to recreate the books from scratch using accounting software. I went through 8 months of bank statements and categorized every transaction as either business or personal. For the personal stuff, I recorded them as "shareholder distributions" or "shareholder contributions" depending on whether money was going out or coming in. Then I set up proper payroll for myself retroactive to the beginning of the year. It was a ton of work, but my accountant said it was the right approach. The key thing is to stop the bleeding immediately - separate accounts starting TODAY, no exceptions. And definitely get yourself on payroll. The "reasonable salary" requirement is one of the first things the IRS looks at with S-Corps.

I'm a bookkeeper and I see this ALL THE TIME with new S-Corps. Here's a step-by-step approach: 1. Open separate accounts today 2. Print all bank/credit statements since S-Corp formation 3. Create a spreadsheet tracking every transaction 4. Mark each as business or personal 5. Calculate total personal expenses paid from business account 6. Calculate total business expenses paid from personal accounts 7. Do a reconciling transfer to make the accounts whole 8. Set up proper payroll immediately 9. Document EVERYTHING with a memo explaining the situation The worst thing you can do is ignore it. I've helped clients navigate IRS inquiries on this exact issue, and they're much more lenient when you've identified and fixed the problem yourself.

I went through almost the exact same situation with my S-Corp about 18 months ago. The panic when you realize what a mess you've created is real, but it's absolutely fixable! Here's what worked for me: I immediately opened separate business accounts and stopped all commingling that day. Then I hired a CPA who specializes in S-Corps (not just any accountant - make sure they know S-Corp rules inside and out). We did a full reconstruction of my books going back to the S-Corp election date. The salary issue is critical - you need to get on payroll ASAP. My CPA calculated what my reasonable salary should have been from day one and we did retroactive payroll for the entire period. Yes, I had to pay employment taxes on that amount, but it protected me from much worse penalties if the IRS had discovered it first. One thing that really helped was creating a detailed memo explaining the situation, the steps we took to fix it, and the controls we put in place to prevent it from happening again. Documentation is your friend here. The good news is that the IRS sees this mistake frequently with new S-Corps, and they're generally reasonable if you proactively fix it and can show you took it seriously. Don't let the fear paralyze you - take action now and you'll sleep much better in a few months.