Do you use your personal accounts for your business? (2024)

If you use your personal bank account for business, you may want to reconsider this practice. As Novo suggests, separate your personal and business financesimproves the way you manage your finances, simplifies your tax return and makes it easier to deduct business expenses. Whether you're an established entrepreneur or a freelancer with a side job, it's important not to confuse personal and business finances.

In this guide we explain the different accounts for businesses and who needs one.

You can use your personal bank account for your business, but the IRS does not recognize a sole proprietorship as suchlegally separate entity. You should make sure you keep track of which transactions are business, record your receipts separately from your personal receipts, and clearly label these transactions as business expenses and credits. All of this becomes important when you start filing your tax returns during tax season.

The benefits of opening separate business bank accounts

A business bank account can make your business life run more smoothly than just cash flow. By separating your personal money from your business money, you protect your personal assets. You also make it easiermanage invoices and tax deductions.

Some other reasons to have a separate business bank account include:

Simplify tax preparation.Using dedicated business accounts instead of personal accounts for your business transactions will make filing your taxes easier during tax season. Research into business and personal expenses has already been done. It can also be easier to categorize expenses and identify deductions because many small business checking accounts integrate well with popular business accounting software. Some business checking accounts for freelancers have built-in tax planning tools, making reporting your estimated tax payments a breeze.
Streamline registration.Tracking transactions isn't the only reason to have a small business checking account. Separate business accounts keep you organized and make it easier for you to reconcile your business checking accounts. It does it to generateaccountssimple, which allows you to track the progress of your business and apply for business loans and grants. A business checking account also makes it easier to keep track of outstanding invoices and creates a clear audit trail.
Protect personal belongings.like yourun your business as an LLCWhether partnership or corporation, your business's legal structure can protect your assets if you become involved in a lawsuit. If you combine your personal finances and business funds, you are compromising your protection. It is therefore best to use a business bank account for business transactions.
Legitimate your business.Just putting your business name on your business checks, business debit cards, and business credit cards makes your business look more legitimate.
Avoid overconsumption.Because you have a clear picture of the business income you bring in each month and can see what your monthly transactions are, cash management is easier. You'll have a better idea of how much money you can spend.
Encourage saving.Paper and ink, business mobile phones, electricity, water and internet are not the only monthly bills you have. You will have a separate savings account for estimated tax payments, your regular business savings and your retirement fund. It's good practice to put business funds into these three savings accounts before paying your bills. After all, life happens and you need a pillow to lean on when the unexpected happens.

If you are a sole proprietorship and choose to use your business account for personal transactions or your own bank account for business transactions, make sure you keep a good paper trail to avoid problems. Most accounting software has apps that let you take a photo of your receipt, which automatically records and categorizes your transactions. There are also standalone apps that do the same thing.

When you need to open a business checking account

As your business grows and becomes more consistent, you will need to open business accounts. If any of the following are true, open separate accounts:

What you need to open a business checking account

Regardless of whether you apply for an account online with a digital banking service such asNewor if you go in person to the nearest financial institution, you will need a few things to prove that you are who you say you are and that you legally own a business.

Each financial institution may be slightly different, but most financial institutions require a combination of business and personal information.

Business documentation

The formation of your company determines which business documents you need to create your business account. While each financial institution may differ slightly, here are the general requirements for many business bank accounts for different types of entities:

Businesses.Business license, articles of incorporation and bylaws.
LLC's.Business license, articles of incorporation and LLC operating agreement.
Partnerships.Business License, Business Name Registration Certificate, State Partnership Certificate and Partnership Agreement.
Sole proprietorships.Business license and registration certificate for company name.

Personal information

Any business owner with 25% or more ownership is generally required to provide personal identification and details. Sole proprietorships must of course provide all of the following:

Date of birth and BSN.Government regulations require financial institutions to use these to verify your identity.
Personal mobile phone number and email address.Used for two-factor authentication. Some mobile-only online business checking accounts simply require a mobile phone number to apply for business bank accounts.
Publicly issued photo ID.Some financial institutions may require two types of identification. Whether you need one or two forms, a driver's license or a valid passport is sufficient.
Home address.Most business accounts require a US mailing address. Banks do not accept PO Box numbers. box and require a physical address.

A search on a financial institution's website or a call to the business accounts department will give you all the information you need.

Per business structure, you can expect to present the following:

Sole proprietorships

How to open a business checking account

Before you go online or to the nearest financial institution to open a business bank account, you need to do some prep work.

You may be tempted to open a business account at the same bank where you have your personal accounts, but check out other financial institutions, including credit unions, savings and loans, brokers and online banks, to find out what is best for your business. . Ask other small business owners for recommendations and find out why they chose their own bank or credit union over others.

Features and services to look for in a financial institution for your business bank accounts include:

Compensation structure.Some places charge checking and overdraft fees, transaction fees and early termination fees, withdrawal fees, monthly transaction limits, ATM and transfer fees, or monthly service fees. Some may also require a minimum balance which can act as a transaction fee, as your account will be charged if you fall below this minimum. However, there are free checking account options with minimal fees offered by small business banking providers such as Novo.
Limits.Are there fees for cash deposits or caps on free transactions? Physical banks usually charge these types of fees. Online business checking accounts, while convenient with their unlimited transactions, typically do not allow cash deposits or charge fees, which can be inconvenient. A business account, online or otherwise, may limit certain types of transactions, such as mobile deposits, debit card purchases, or ACH transfers. Business savings accounts may also have restrictions, such as limiting the number of deposits you can make, how you make deposits, and how often you can withdraw funds.
Advantages.Instead of using a personal debit or credit card for business purchases, you can get a business debit and credit card, sometimes with a certain percentage cash back on purchases. Having a business credit card can help your business build a good credit history. Many financial institutions offer business tools that allow you to automatically categorize your purchases, pay recurring bills, and accept credit card payments. However, keep in mind the benefits that accrue to the banks, such as business bank accounts that offer an over-the-top annual percentage rate (APY). Such APYs are great for small business owners. But assume a minimum balance of $25,000 before interest starts accruing, and that's not that much. The cashback offers can also be a bit suspect as you only get cash back when you use your card at select stores.
Online and mobile features.Personal banking takes time and can be difficult. You want to be able to access online banking, pay online bills, make online transfers and monitor your business accounts online through the bank's website. You also want to be able to pay with your mobile devices.
Credit card processing by merchant.Many customers like to pay their bills with debit and credit cards. To accept debit and credit card payments, you need merchant services. Although you can often find third-party processors that offer merchant services at lower rates than your bank's, it may be more convenient and efficient to use your bank's service.
Place.Does the bank have at least one branch near you? There are times when you will need to conduct personal banking or contact a customer service provider personally. Having a branch near you will make it easier for you to benefit from these personalized services.
Fund protection and insurance.The Federal Deposit Insurance Corporation (FDIC) provides traditional banks and investment banks with insurance for all types of deposits. The National Credit Union Association (NCUA) provides the same insurance to credit unions. Before you sign up with a financial institution and make a deposit, make sure it is insured.

Frequently Asked Questions

Can you transfer money from your business checking account to your personal bank account?

Not all banks allow this, but if your business and personal accounts are in the same place, it may be possible.

Can you deposit your LLC check into your personal account?

If you're just starting your small business, it's not uncommon to receive a check made out to your LLC. You may not have opened your business account yet, especially if you are a sole proprietorship. If you are a sole proprietorship, your financial institution has registered your DBA, and your state regulations agree, you may be able to deposit your LLC check into your personal bank account.

What are the pros and cons of depositing a company check into your personal account?

Convenience is the biggest benefit of using your personal account for business expenses and deposits. If you operate as a sole proprietorship and are not formally established in your country, you do not need to set up and manage a fee-bearing account, nor do you need to register your business and provide the necessary business documents to open a separate account. business account.

The biggest disadvantages are the risks associated with combining your personal funds and business transactions. It's harder to keep track of company funds and your business just looks less professional if you don't have separate accounts. The Small Business Administration website also states that you may have trouble cashing checks through your personal account.

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