Our newly formed LLC (2 members) has a business checking account. It has a rather high international wire transfer fee for sending out payments from the US to overseas ($45).
My partner suggested that we transfer the necessary money from our business account to his own personal checking account, which can directly transfer money to the Chinese supplier without incurring any fees.
I told him that it is not a good practice to withdraw from our business account to our personal checking account under any circumstances.
He then suggested to me that we transfer the necessary money to his wife's separate personal checking account (who is not a member of our LLC). Her account also does the wire transfer without any fees to China. Now is this considered a business expense/cost? Can we count this transfer to his wife's personal checking account as actual payment to the supplier?
I agree with your concern. Co-mingling of funds is one factor that can contribute to a determination that your corporate entity fails to protect its owners from liability. The cost-benefit question is whether the savings of wire transfer fees outweighs potential loss of corporate protection.
Transferring the funds through a third-party makes sense only if the security and cost is better than doing so directly. (Legally, I am not sure the wife really would count as a third-party.)
Further, is it a good idea to have his wife's personal checking account number floating around if it does not need to be? Why not just bill your customers/clients for the wire transfer fee? This seems to be a common practice.
I would just eat the $45 fee. It's not that much, and the negatives far outweigh the positives. If you get audited, you'll pay a heck of a lot more on accounting fees then the $45 fee you saved.
You can probably discuss it with your accountant/bookkeeper, but here's my non-professional stab at this:
LLC is a disregarded entity in the US, so tax wise its invisible (unless you chose to tax it as a Corporation). There's no problem of income/expense tax reporting.
Accounting-wise you can do this simple thing: The partner with the account with lower fees will transfer the money, and the LLC reimburses him against receipts (transfer confirmation to the entity that matches the invoice). You only need the paper trail.
Verify with your professional adviser, this answer is not a tax or legal advice and you cannot rely on it to avoid taxes or penalties.