You’ll save time and keep your business running more smoothly when you separate personal and business finances.

No matter how large or small your venture, there’s a critical operational step you shouldn’t skip – opening a business checking account. This is especially important if you’ve formed a limited-liability company (LLC), or an S- or C-corporation, since the IRS requires that you keep separate financial records. Having a business checking account helps you do that easily.

If you’re a sole proprietorship, the IRS does not make this a requirement.1 However, as you’ll learn here, there are five key reasons why all types of businesses should keep their transactions separate from personal finances.

1. Simplify tax preparations.

Separating your business’s income and expenses makes for easier quarterly and annual tax filings. When you commingle transactions, you’re not only spending more time sorting out items—you’re also increasing the margin for honest error. Innocent mistakes can result in you missing out on potential deductions or making fraudulent ones.1

For example, you may have a totally deductible business dinner. But since it’s at the same restaurant you go to regularly with your family, you might not remember when you went there and with whom.

2. Maximize your legal protection.

Owners of a corporation cannot be sued personally in relation to business-related issues, provided they maintain the corporation as a wholly separate entity.2 If you compromise this protection by, for example, paying a contractor from a personal checking account, the wall between your corporation and your personal assets will start to crumble.3

3. Track your performance.

All businesses must know their profits and losses on demand. When you have a separate checking account, it’s much easier for you or your bookkeeper to calculate your gross revenue, expenses and net profit4. Many business accounts allow you to download your transactions into accounting software such as Quickbooks®, which can save you time in keeping and organizing your business’ financial records.

4. Be prepared to obtain credit (business and personal).

Lenders require that you have a business account when you’re applying for credit on behalf of the business. This is essential to your professional identity and provides them with clear proof of stable revenue, cash flow and profits—as well as responsible fiscal management.5

If you’re looking to purchase a home in the future, it’s essential that you track your business expenses in a separate account in order to provide your business’ profitability and help the mortgage process move along smoothly. During the mortgage application process, you will need to provide the lender with your tax returns, business profit-and-loss statement, and business banking account statements to back up your profit-and-loss.

5. Maintain a professional appearance.

It’s more appealing for your customers, vendors and other associates to pay or get paid from a business, instead of you personally. They’ll feel more confident that you’re running a legitimate, professional operation.5

What You’ll Need to Get Started

To open a business checking account, you’ll need to provide your bank with your:

  • Employer Identification Number (EIN) (or a Social Security number, if you’re a sole proprietorship)
  • Articles of incorporation (if applicable)
  • Ownership agreements (if applicable)5
  • Sole Proprietor or “Doing Business As” (D/B/A) Certificate (if applicable)
  • Consult with your bank for a complete list of documentation requirements

Ready to get started?

Talk with a business banking specialist about the many benefits of a business checking account or to open your business account.

Disclosures

1. Starting a Business and Keeping Records, Internal Revenue Service, 2021
https://www.irs.gov/publications/p583

2. Choose a Business Structure, Small Business Administration,
https://www.sba.gov/business-guide/launch-your-business/choose-business-structure

3. Piercing the Veil of Limited Liability Results in Personal Exposure,
Wolters Kluwer, https://www.bizfilings.com/toolkit/research-topics/running-your-business/asset-strategies/piercing-the-veil-of-limited-liability-results-in-personal-exposure

4. Starting a Business and Keeping Records, Internal Revenue Service, 2015,
https://www.irs.gov/publications/p583#en_US_201408_publink1000253071

5. Open a Business Bank Account, Small Business Administration,
https://www.sba.gov/business-guide/launch-your-business/open-business-bank-account

This article is for informational purposes only. It is not designed or intended to provide financial, tax, legal, investment, accounting, or other professional advice since such advice always requires consideration of individual circumstances. Please consult with the professionals of your choice to discuss your situation.

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