Should you open a separate bank account for your business?

If you run a small business, you have some important choices to make. One of those choices is whether to open a separate bank account for your company or deposit the money you earn into your own personal account.

For most people, opening a separate account almost always makes sense. Here’s why and some tips to help you decide which is right for you.

Separate bank accounts may be important in certain business structures.

In some cases, having a separate company account is important because of your business structure.

For example, if you form a partnership with another person, company funds must go into an account owned by the partnership. It makes no sense for profits and losses to come from a person’s bank account.

Even if you run a business on your own, you will need a separate account if you organize your company as something other than a sole proprietorship. For example, both a limited liability company (LLC) and an S-corporation provide protection from liability, and an S-corp provides more flexibility when it comes to taxes. However, to reap the benefits that this structure offers, it is important to maintain “corporate formality.”

Maintaining a corporate form actually means treating your business like a separate legal entity. This means you need your own bank account.

Keeping your accounts separate can help simplify your taxes.

No matter how you run your business, you’ll want to have a separate bank account to make filing your taxes easier. You can often deduct certain business expenses, and it may be easier to track and verify those expenses if they come from a company-specific account.

It’s easier to track potential profits with separate accounts.

If you mix business and personal funds, it can get complicated to figure out how much your company is spending and how much it is making. You don’t want that to happen because then you won’t know if you’ve succeeded or how profitable your business actually is.

If you have a separate account where you run your transactions, it’s easy to see how much your business is spending, how much it’s bringing in, and how much profit is left.

There are limits to what you can do with separate accounts.

While it’s a good idea to have separate accounts, there are limits to what this can accomplish. For example, let’s say you’re running a business on your own and you have a lot of debt for your business that you end up not being able to pay.

Even if your company has separate bank accounts, creditors can still come after you and the money in your personal accounts. This is always true unless you set up a business structure that is completely separate from the company, where you don’t co-sign on debt and maintain financial separation from the business.

So while it almost always makes sense to have separate accounts, you may need to take extra steps to keep your personal assets safe. It may be helpful to consult with an accountant or business attorney to ensure that your company’s activities do not put your personal assets at risk.

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