Seven Situations for which you need a Business Bank Account
Many small business owners use their personal accounts for banking transactions. However, there are seven times when you really need a business bank account, even though there are ways to work around them.
1. If there will be a partner or employee who is authorized to sign checks, you might prefer they not have access to all of your personal information. Keep in mind that most banks will allow an authorized signor to review all transactions. If you wish to maintain your privacy, you need a business bank account.
2. If you are going to accept credit cards, the merchant service will make charge backs to the same account as deposits. An unexpected dispute can play havoc with your personal finances, causing overdraft fees and the humiliation of bounced checks. Even if you prove the charge back was unfounded, you will receive only the disputed amount and not the additional expense it caused.
3. If you plan to establish a separate credit record for your business, you will need a business bank account to document income and expenses. Funds that are co-mingled in a personal account make it difficult for lenders to prove profitability. It also means that you will have to open your personal financial records for inspection.
4. If you collect and remit sales tax, a separate account not only makes it easier to verify sales for your own purposes, but also provides supporting documentation in the event of an audit. Furthermore, many states have begun monitoring online sales to make sure that sales tax is remitted. They typically compare the name on the website to the name on a sales tax report. When no match is found, it can trigger further investigation.
5. If you form a corporation or an LLC, you should separate your bank accounts. This helps limit your liability by providing protection beneath the “corporate veil” which means that lawsuits can be filed against the corporation and its assets but, with few exception, not against you personally. If you fail to segregate funds, courts can sometimes rule that no true corporation existed and therefore the individual is personally responsible.
6. If you use an outside accounting firm, you need a separate business account even if the same firm prepares your personal tax returns. Accountants base fees on how long a task will take to complete, and if they must audit your records to classify business expenses versus personal ones, you will pay more for the service.
7. If you want to maintain your privacy, it is best to have a business bank account. Otherwise, your customers’ credit card statements will show your name, as will reports to the credit bureaus. Even legitimate business owners may not welcome calls at home from inquiring customers or business to business telephone solicitors.
Sole proprietors may not need a business bank account, but it is still best to have one. It makes bookkeeping chores simpler and provides excellent documentation in case you are subjected to an income tax audit. In addition, it offers further proof to the Internal Revenue Service that you are operating a business and that your activities are not a hobby.
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