When does it make sense to have a separate business checking account? Many people have dreams of the entrepreneurial kind, whether that’s having a side-business along with your nine-to-five, or starting a business as the sole proprietor, it is vitally important to know how to sort your finances so that you do not run into trouble in the long run. Separating your business finances form your personal not only saves you from liability and tax trouble, but also may save your sanity. Here are 5 reasons to get a business checking account.
Reason 1: Be Professional
When you need to write a check, make a payment, or buy a client dinner, it looks more professional to have a “company card” or more specifically, a company account to pay with. It sends a signal of credibility and legitimizes your business to others, especially potential customers. No one will have to know if your business is a one-man- or one-woman-show if you are accepting payments to an account under your business name rather than your own. Without a proper business account, others may perceive it as a hobby rather than a business.
Reason 2: Avoid Liability
Heaven forbid anything should go wrong and your business is sued, if there is no clear distinction between your business’ finances and yours, you could be liable to be sued along with the business and your assets could be at stake. Another part of the liability issue is being liable to the IRS. The IRS does not require you to have a separate bank account for your business, but they do want proof that yours is a legitimate business so that you can claim tax breaks such as workspace, and business expenses. Also, having that account can help you to set aside money from each check you receive, in order to save up for quarterly estimated tax payments. This is crucial to sole proprietors and independent contractors or freelancers; no one wants to get hit with a whopping debt come tax season.
Reason 3: Taxes, Taxes, Taxes
Heaven also forbid you get an audit, having a separate account will provide a clear trail, hopefully clear enough that you will never get audited. With a separate account, it is much easier to keep record of your businesses expenses and income, so that you are better prepared to file without any red flags. Also if your business is incorporated it is usually required to have a separate account, since a corporation is itself a tax-paying entity.
Reason 4: Save Money on Accounting
Instead or paying for an accountant to sort through your business receipts and expenses, having a business account ensures that all of your business’ financial record keeping is organized and at your fingertips with online banking.