2.2 – keep your business and personal finances separate
Whether you are working on your business part-time, operating as a sole proprietor, or starting a business with a more formal structure such as a partnership or corporation; it’s vital that you keep your business banking separate from your personal finances.
Keeping the two separate, not only provides your business with credibility, it reduces your personal liability (a must if you are incorporating your business as a distinct and separate legal entity under its own name), and helps you manage your taxes, bills and other payments.
Below are some reasons why you might want to consider a business bank account, and how to go about finding the right one for you.
Reasons to Separate Business and Personal Banking
If you are-t convinced that you need to separate your business and personal banking, consider these reasons:
1. It Keeps Your Books In Order and the Tax Man from Your Door
From a record-keeping and cash flow stand point, co-mingling your finances can quickly get sticky even for freelancers and part-time business owners and i’s a risk most business owners or start-ups can not afford to take.
For one thing, IRS record-keeping requirements for income and tax deductions require that business and personal transactions are separate. While the IRS does’t require that you maintain a separate bank account for your business, it does require accurate record-keeping’ and keeping things separate makes it a lot easier to provide a clear audit trail.
If your business is incorporated or you intend to incorporate, then i’s a must that you maintain a separate business banking account since you are operating a separate tax-paying entity.
2. Save on Accounting Costs
Rifling through the line-by-line items in a yea’s worth of bank statements can also be a headache come tax time, and if you use an accountant it will cost you more in the long run as they rummage through your messy record-keeping.
3. Streamline Your Tax Payments
If you make, or plan on making, quarterly estimated tax payments to the IRS and your state treasury, i’s always useful to have a set-aside business bank account where you deposit a percentage of each pay check to ensure you can cover your tax obligations. This way, when it comes time for making payments , you are not scrambling in your personal finances to cover your taxes. This is particularly important for sole proprietors and independent contractors who operate under their own business name.
Even if you do’t set up a formal business account, at least maintain a separate online banking account where you can easily transfer your tax payments from one bank account to another.
4. Give Your Business a Professional Image
Another reason, albeit superficial, is that when it comes to writing checks and paying bills, it will give your business more credibility and also save headaches if you have a business bank account.
Even if your business is registered under a doing business as name such as Creative Web Concepts, unless you set-up a bank account in that business name, you will still need clients to make payments to you using your personal name.
This can often catch-out accounting departments who have an invoice in-hand from, Creative Web Concepts, but must make the check payable to a separate individual. This can affect your ability to get paid accurately and on time, and even attach a part-time/lack of professionalism tag to your business.
Setting up a Business Banking Account
So, if you’ve decided a business bank account is the way to go, how do you go about finding the right bank and the right account? Choosing a bank for your business can be an overwhelming and frustrating process, but it can also have a big impact on your success. Unlike personal checking, business banking is fee-based but the benefits you gain and the headaches you avoid as your business grows will outweigh the costs. Plus, these fees are also tax deductible.