Even if you have a great accounting system and are diligent about keeping your business and personal transactions separate, you should have separate banking accounts for your business. If you are an incorporated business, it’s required by the IRS.
When first starting a business, it may seem unimportant to keep separate accounts. When it’s just you and your business, your overhead is limited, and tracking income and expenses is pretty easy to do. However, as your business grows, you will want to ensure you aren’t muddying the financial waters of your business by having business and personal transactions coming from the same account. If you are audited or sued, having clear and concise records will save you time and sanity.
A separate business account helps the IRS distinguish a legitimate business from a hobby business. They require a “business” to show profit three out of five years. If your bank account shows more expenses than income regularly, you may put yourself at risk of being audited. Keeping a separate business account helps legitimize your business to the IRS.
Additionally, opening a business bank account could earn you some perks and rewards. Many banks offer additional services to members with business accounts. You’ll help build a relationship with your financial institution, which could come in handy when you need a loan or other services.
If you believe you need to talk to an attorney regarding the setup of a business, business litigation, contract formation or litigation, or any other commercial or corporate law needs, contact our office at 330-922-4491 or through our contact page to schedule a consultation.