Just as every self-employed owner should be an LLC, every self-employed owner should open a separate business bank account to capture business activity. There is a myriad of benefits that should be taken into consideration.
Every owner wants to be seen as professional and legitimate, and so opening a separate business bank account under the business name can increase that impression. Additionally, having clients write checks to a business name instead of the owner’s name improves their image of the legitimacy of a business as well. A business bank account also opens the door to having a merchant processing account, and therefore being able to accept credit cards for payments, adding flexibility for clients.
As a business owner, it is imperative to separate business and personal activities. Co-mingling transactions and activity can leave an owner open to scrutiny by the IRS in an audit. While the occasional use of the incorrect card can slip by, the cleaner and more separated the books are, the less the IRS will find an issue with them. Additionally, if it is clear that all transactions being counted as business expenses, and therefore tax deductions, are truly related to the business, the IRS is less likely to disallow deductions.
One of the main benefits of using a business bank account is that the account, and any business credit card, can be opened using the business’ Employer Identification Number (EIN) instead of the owner’s Social Security Number (SSN). This element really helps to cement the separation between personal and business activities. Additionally, this EIN setup gives a bit more liability protection to the owner’s assets and other accounts. If the business checking and CC are personal accounts being treated as business accounts, the owner has left a wide-open path for an auditor to go into the rest of their personal activities.
The banking relationship between a chosen bank and a business owner can be a powerful avenue. Not only will the banker be able to help with in-house banking needs, but they can also have contacts in other spheres to add to your pool of resources.