This ‘Hot Mess’ of an Entrepreneur Failed to Keep Up with His Taxes – Has $130,000 in Business and Personal Debt

This 'Hot Mess' of an Entrepreneur Failed to Keep Up with His Taxes – Has $130,000 in Business and Personal Debt

This ‘Hot Mess’ of an Entrepreneur Failed to Keep Up with His Taxes – Has $130,000 in Business and Personal Debt

After six years of running his own business, Avi from Philadelphia admits he doesn’t even know if his business is profitable or how much he owes in taxes for the past two years.

On an episode of “The Ramsey Show,” he described to host Dave Ramsey how he made the crucial mistake of mixing his business and personal expenses for years, sending his finances into a tangled web.

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“Dude, you’re a hot mess,” Dave Ramsey laughed.

Avi’s situation highlights the challenges business owners face when operating solo and lacking the financial skills needed to succeed.

Risk of tax consequences

According to a survey by Quickbooks Live Bookkeeping, about a third of small business owners try to manage their own bookkeeping.

Unfortunately, without professional accounting, some of these business owners expose themselves to regulatory scrutiny. Combining personal and business expenses can raise red flags for the Internal Revenue Service, and filing inconsistencies can trigger an audit.

Avi’s risk of repercussions is increased by the fact that he has fallen behind on filing his tax returns over the past two years. Ramsey was shocked by the negligence.

“Failure to file federal income tax returns is a criminal offense,” he stressed. “You need to clean up that part of your life immediately.”

His tax liability isn’t the only mystery. Avi is also unsure if his business is profitable and if it generates enough revenue to support his family’s lifestyle.

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Combining business and personal

Avi thinks his company may be operating at a loss. However, he’s not sure if that’s the case because he tends to pay himself out of the business whenever he needs cash and hasn’t been able to keep his business and personal accounts separate until recently.

Nevertheless, the growing mountain of debt in both his business and personal accounts has convinced him that his business income is falling short.

“I’m building up debt, that’s my problem,” he said.

Avi estimates he has $50,000 in credit card debt and about $80,000 in business loans. If he finds that he owes taxes after filing his tax return, his debt burden may increase.

Ramsey believes Avi is flirting with financial disaster.

“It’s unbelievable that you survived this long,” he said.

According to the Federal Reserve Banks’ Small Business Credit Survey, 34 percent of small businesses were concerned about paying off debt in 2023.

To avoid bankruptcy, Ramsey advised Avi to go into “panic mode” and file his missing tax returns as soon as possible, and to separate expenses between personal and business accounts.

“Never pay anything personal out of that (business) account again for the rest of your life,” Ramsey said.

With a clearer picture of the business’s profitability, Avi can decide whether his best option is to expand the business or leave it altogether in favor of a full-time job that is more lucrative.

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