So, you’ve just started your business and things are moving fast. Between getting clients, handling orders, and managing finances, you might be wondering, “Do I really need a separate business bank account, or can I just use my personal one?” The idea of keeping everything simple and in one place is tempting. But while you can use a personal checking account for business, it might not be the best move for you in the long run.
Let’s explore why you might want to reconsider having only one account and what the real differences are between personal and business checking accounts.
Personal checking accounts vs. business checking accounts
What’s the big difference between a personal checking account and a business one? At first glance, both seem to do the same job: you can deposit money, make withdrawals, and pay bills. But when you really think about it, there are some key differences that can affect how you manage your business on a financial and tax level.
Personal checking accounts
A personal checking account is designed for your individual, everyday use. It’s perfect for handling day-to-day personal expenses—things like paying rent, buying groceries, or that spontaneous online shopping spree. These accounts are usually free or have very low fees, and they often come with limited features because most people don’t need anything too fancy for their personal finances.
Business checking accounts
On the flip side, a business checking account is made specifically for companies, whether you’re a sole proprietor, LLC, or corporation. These accounts usually come with features tailored for businesses, like:
- The ability to have multiple signers (think business partners or employees)
- Higher transaction limits
- Merchant services (for accepting payments from customers)
- Integrations with accounting software (like QuickBooks)
Having a business bank account shows your customers, vendors, and the IRS that you’re running a serious operation. Mixing personal and business finances can cause confusion and potentially get you into hot water, especially come tax season.
Drawbacks of using a personal bank account for business
Using a personal account for business may lead to jumbled finances, legal risks, complicated taxes, and a lack of professionalism. It’s not recommended, especially for LLCs and corporations.
1. Jumbled finances
When you mix personal and business transactions in the same account, you create a bookkeeping nightmare. Sorting out what’s a business expense versus what’s personal takes time and increases the risk of missing something important. If you’re audited or need to provide financials, you’ll wish you’d kept everything separate.
2. Legal risks (especially for LLCs and corporations)
If your business is an LLC or corporation, you likely set it up that way to limit personal liability. But if you mix your personal and business finances, it could lead to something called “piercing the corporate veil.” This legal term means that a court might decide that you’re not really treating your business as a separate entity, and you could become personally liable for your business’s debts and legal issues.
3. Complicated taxes
When tax season rolls around, having everything mixed together means extra work. You’ll need to manually go through your personal account, line by line, to figure out which transactions are deductible business expenses. This can lead to mistakes, missed deductions, and more stress than you need.
4. Lack of professionalism
Imagine writing a check to a vendor or receiving a payment from a customer, and it’s all coming from or going to your personal account. It can give off the vibe that your business is more of a side hobby, which might not instill confidence in clients or partners.
Who needs a business bank account?
Everyone who runs a business should have a separate business bank account, but it’s especially important for LLCs, corporations, freelancers, sole proprietors, nonprofits, and businesses with employees. Having a business account simplifies taxes, increases professionalism, and facilitates financial management.
Benefits of a Business Bank Account
Setting up a business bank account offers benefits like easier record-keeping, better tax preparation, a more professional image, increased access to business tools, and building business credit. It’s a crucial step in managing your business finances effectively.
Considerations when choosing a business bank account
When selecting a business bank account, consider factors like fees, transaction limits, location & accessibility, and features. Choose an account that aligns with your business needs and goals to make the most out of this financial resource.
While it may seem easier to stick with your personal checking account, the benefits of opening a business bank account far outweigh the convenience of not doing so. It’ll save you time, stress, and potential legal issues in the long run.
Frequently Asked Questions
Can you use a personal checking account for business?
Yes, you can technically use a personal checking account for business, but it’s not recommended. It can lead to jumbled finances, complicated taxes, and legal risks if you’re operating as an LLC or corporation.
What happens when you use a personal account for business?
Using a personal account for business can create bookkeeping headaches and complicate taxes. It also exposes you to legal risks, especially if your business is structured as an LLC or corporation, as you might lose personal liability protection.
Can you use a personal account as a business account?
While you can use a personal account, it’s not a good idea. Business accounts offer extra features designed for companies, like higher transaction limits and accounting tools, and they help keep your finances clean.
Can you put a business name on a personal checking account?
No, most banks won’t allow you to put a business name on a personal checking account. If you want your account in your business’s name, you’ll need to open a business checking account for the business.
This article was reviewed by our banking expert Tricia Jones.